Sun Microsystems (NASDAQ:SUNW) reported earnings for its second fiscal quarter this week. The former tech star has seen its stock struggle for a long time now, and I don't think these results will help much.
Sales revenues for the second quarter increased 17% to $3.3 billion; Sun stated that this gain was the result of acquisition strategies. The company suffered an operating loss of $186 million, compared to a $1 million operating profit in the year-ago period. Sun recorded a net loss of $223 million ($0.07 per diluted share) this quarter versus a tiny $4 million profit (officially, $0.00 per diluted share) last year.
Over the trailing six months, revenues increased 10.8% to $6.1 billion, the operating loss more than doubled to $323 million, and net income showed a much wider loss of $346 million. Note also that cash from operations for the last six months decreased to $33 million compared to the previous year's $176 million take; for the last quarter, capital expenditure obligations wiped out any possibility of free cash flow.
Is Sun a good buy for a long-term portfolio? Not from where I sit. As fellow Fool Rich Smith said, cheap stocks are sometimes cheap for a reason, especially in Sun's case. It might not even be that cheap, really. On a trailing-12-month basis, Sun's enterprise value-to-sales ratio is about 1.2. Since it isn't generating much in terms of earnings or free cash flow from those sales, that 1.2 could be considered a bit generous.
Though investors continue to believe in Sun's turnaround story, I can't see a catalyst that would make me want to purchase shares of the company. Sure, the top-line growth rate improved by double digits, but it didn't translate to the bottom line at all. That's been par for the course with Sun for quite some time, and it needs to get some real organic growth brewing in the pipeline to change those numbers. Simply put, Sun is no longer a dominant brand.
On a positive note, gross margins have been improving. That's a good first step in improving profitability. Still, operating and net margins deteriorated. This offers no comfort to the long-term investor. To me, Sun has become a "show me" company -- show me the money, and maybe I'll show you some of my capital. For now, I'd rather go with Microsoft (NASDAQ:MSFT) or Hewlett-Packard (NYSE:HPQ). They're more prosperous companies, and they both pay dividends. For the time being, I'll stay away from Sun and its long-term chart.
Talk tech with further Foolishness:
- See Sun's latest quarter by the numbers.
- Foolish Forecast: Will Sun Come Out Tomorrow?
- IBM Makes AIM Play Nice
- Google Promises, Microsoft Delivers
Share your thoughts at the Sun Microsystems discussion board.
Fool contributor Steven Mallas owns none of the companies mentioned. Microsoft is a Motley Fool Inside Value recommendation. The Fool has a disclosure policy.
