Election Section

Tech outlook dims as Sun, AMD issue first quarter earnings warnings

By Matthew Fordahl, AP Technology Writer
Sunday October 07, 2001

SAN JOSE — Network computer maker Sun Microsystems Inc. plans to cut 3,900 jobs and said Friday its quarterly losses will be wider than expected in part because of the Sept. 11 terrorist attacks. 

Semiconductor manufacturer Advanced Micro Devices Inc., which announced 2,300 layoffs and plant closings last week, also warned of wider losses in the quarter ended Sept. 30. 

Despite marginally positive news from other high-tech companies earlier this week, analysts say Friday’s announcements show not everyone in the tech sector has hit bottom. 

Last month’s attacks further weakened demand for high-tech equipment, and the effects of diminished customer spending and confidence will ripple through tech companies for months to come. 

“It’s pretty bad in the near term,” said Daniel Kunstler, a J.P. Morgan analyst who covers Sun. “Nobody’s spending any money, and Sept. 11 is a further inhibitor of money being spent.” 

Sun, which until Friday had kept its ranks intact during the economic slump, will cut 9 percent of its work force. The layoffs will not affect sales or research, said Scott McNealy, Sun’s chief executive. 

The company also said revenue in its fiscal first quarter ended Sept. 30 was in the range of $2.7 billion to $2.9 billion. Analysts surveyed by Thomson Financial/First Call were expecting revenue of $3.3 billion. 

Sun said its loss for the quarter was in the range of 5 cents to 7 cents per share. Analysts were expecting a loss of 4 cents a share. 

A large percentage of Sun’s business takes place in the final month of any quarter. Before the Sept. 11 attack, Sun had warned that it would lose money because of soft demand for its products in Japan and Europe. 

“Our business nearly ground to a halt in the two weeks following that tragic day,” said Michael Lehman, Sun’s chief financial officer. 

In addition to the job cuts, Sun said it will consolidate excess facilities and take a charge of about $500 million in the second quarter. 

Both Sun and IBM Corp. recently launched high-end servers that could help spur recovery once companies start buying again, analysts said. Sun expects to return to profitability in the June quarter. 

Sun, which designs its own chips and software for its computers, was a Wall Street darling during the Internet boom. But its stock has lost about two-thirds of its value over the last year as dot-coms and other companies stopped buying equipment. 

On Friday, shares of Sun were lower before gaining 27 cents to $9.56 in late-afternoon trading on the Nasdaq Stock Market. 

Meanwhile, Advanced Micro Devices Inc. said its losses for the quarter ended Sept. 30 will range between $90 million and $110 million, or 26 cents to 31 cents per share. Analysts were expecting a loss of 12 cents per share, excluding one-time charges. 

Third-quarter sales totaled $766 million, a 22 percent dropoff from the previous quarter. 

AMD lays much of the blame on its battle with Intel, which has been slashing processor prices to attract customers. 

AMD Chairman Jerry Sanders claimed that Intel’s “aggressive pricing and large, cash-backed marketing program” is part of an effort to overcome “performance deficiencies” of its Pentium 4 chip. 

Industry analysts said Intel is using its financial muscle and cost savings in its chip production to steal market share from AMD. 

AMD also is a major player in the flash memory chips that are used in wireless phones, a segment where sales also are slowing. 

“AMD is getting hit with a doubly whammy,” said analyst Tim Mahon of Credit Suisse First Boston. “And there is no catalyst out there where you can see these conditions changing for the next three to six months.” 

AMD’s stock fell 15 cents to $8.85 during trading Friday on the New York Stock Exchange. 

The past weeks have carried a mixed bag for tech companies. Big names such as Dell Computer and Cisco Systems affirmed their outlooks. Others such as Gateway, Compaq and JDS Uniphase have warned. 

Eric Rothdeutsch, an analyst at Robertson Stephens, said he does not expect a big rally for the tech industry any time soon. 

“I don’t think the fundamentals of the technology companies are such that the market is going to take off from here,” he said. “I think it’s still going to be very choppy, with lots of volatility.”