Sun Microsystems says its June quarter was horrible. Oracle contends that the Sun acquisition will be accretive to its operating profit---excluding all the bad stuff---in the first year after the deal closes. And Oracle's purchase of Sun closes soon. Something has got to give.
And that something is likely to be Sun's hardware business---or at least parts of it.
That's the only way the Sun math adds up for Oracle unless CEO Larry Ellison and his troops had already modeled Armageddon. Here's a look at the dueling statements.
Sun this morning said it sees a fourth quarter loss of 6 cents a share to 16 cents a share excluding items on revenue between $2.58 billion to $2.68 billion (Techmeme). The problem: Wall Street was expecting a loss of a penny a share on revenue of $3.03 billion. This shortfall was so material that a company that will soon be an Oracle subsidiary had to warn. Oracle quickly noted that the Sun acquisition will still boost earnings.
Now Sun didn't offer a lot of reasons for its miss, but all you need to know is that sales will be off more than $1 billion from the $3.78 billion a year ago. We knew things were bad at Sun, but this bad?
Possible reasons for Sun's unraveling:
- Sun is distracted by the Oracle deal.
- There's too much uncertainty about Sun to buy in a downturn.
- IBM, Dell, EMC and HP are taking advantage of that uncertainty.
- The Oracle deal is an excuse to accelerate trends already in place (Dell noted a lot of Unix to Linux transitions today).
In any case, Oracle isn't the type of company that misses projections so you can bet that it'll get its accretive earnings out of Sun. That means you can bet that some of Sun's unprofitable hardware lines---commodity storage and servers anyone?---will be offloaded in the not-too-distant future.
Sun shareholders will vote to approve the Oracle deal on July 16. Shareholders should count their blessings.
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