Sun, TI predict revenue drop as credit crunch bites

The companies have both predicted a decline in revenue year-on-year, and cite current economic difficulties as the cause

Sun has issued predictions for its Q1 2009 results that are down $20m year-on-year, while Texas Instruments has also predicted a decline in revenue.

Sun expects its revenues for the first quarter of 2009 to be between $2.95bn (£1.72bn) and $3.05bn, down from its $3.2bn revenue for Q1 2008. The company also anticipates a GAAP net loss of between 25 and 35 cents per share.

"Sun and its customers are seeing the impact of a slowing economy," said Sun chief executive Jonathan Schwarz in a statement.

The company also warned it may have to write down the value of one or more of its reporting units.

Sun's predicted results are in stark contrast to its rival in the high-end server market, IBM, which earlier this month announced its third-quarter net income was up 20 percent year-on-year to $2.8bn, while it expected its earnings per share to be at least $8.75 for the fiscal year 2008, showing growth of 22 percent over 2007.

Gartner senior research analyst Errol Rasit said Sun's revenue growth "had not been fantastic", and said a fall in server revenue, as well as worsening US economic conditions, had been to blame.

"Ninety to 92 percent of Sun's business is servers," Rasit said. "There has been a massive slowdown in the US for Sun." 

Rasit said Sun had not done well in positioning itself in the US market to sell its Sparc enterprise servers, but that it had done better in EMEA. The analyst said IBM could predict better results as it was not as reliant as Sun on the server market.

"IBM's service business is very strong," Rasit said. "Sun's service business is also strong, but it is a much smaller proportion of the business."

Meanwhile, Texas Instruments (TI) announced its results for Q3 2008 on Monday, and blamed the current economic instability for disappointing results. "Revenue was weak, as expected, because consumers and corporations reduced their spending in this uncertain economy," said Rich Templeton, TI chief executive.

Templeton added that TI's fourth-quarter outlook is "for revenue to decline substantially based on weak order trends over the past few months". TI said it had reduced its inventory in the third quarter, putting pressure on profitability, and that it would speed up inventory reduction in the fourth quarter.

TI said it would slash expenses and capital spending by approximately one-third by "taking actions" in its cellular baseband business. This includes plans to sell part of its wireless business, while focusing on investing in its OMAP (Open Multimedia Application Platform) technology.

TI said it also plans "reductions in cellular baseband operations",  and added that "restructuring", costing $110m over three quarters, would save $200m over the next year.

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