Sun
Microsystems Q4
| Sun
Microsystems Q4
|
| (FOOL
CONFERENCE
CALL
SYNOPSIS)* By Prem Kumar (MF Prem) SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %> ALEXANDRIA, Va., July 18, 1996/FOOLWIRE/ --- SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SUNW)") else Response.Write("(NASDAQ:SUNW)") end if %> today reported record fourth quarter earnings of $0.85 per share, beating First Call consensus estimates by one penny. Fourth quarter results were exclusive of a one-time $0.23 per share charge relating to two acquisitions completed in this quarter.
The $0.23 charge was caused by the acquisitions of IMC and Lighthouse, Inc., and represents a $57.9 million charge for Research & Development (R&D), and a $5.7 million charge for income-tax provisions. The company stressed that these charges were truly one-time and not recurring.
INCOME STATEMENT & BALANCE SHEET BREAKDOWN
Revenue by geography was broken down in the following way: the United States was up 20.0% over the fourth quarter of 1995, while rest-of-world sales were up 11.8% over the same period last year.
However, Asia and Latin America grew at a rate of 40-50%, and so CEO Scott McNealy said not to be deceived by the 12% rest-of-world growth rate.
Gross margins were 44.0% of revenues, down 10 basis points sequentially and 20 points over last year. The company said that gross margin percentages remain relatively high, due to the especially high-margin UltraSparc products shipped in the fourth quarter. The mix of product shipments was consistent with past product mixes, but the company did say that it shipped a record number of workstations, the majority of which were UltraSparc-based. .The company also said that the workstation market share grew at a rate of 40%.
Research and Development (R&D) expenses for the quarter were $237.0 million, which includes the $57.9 million relating to fourth quarter acquisitions. Excluding these charges, R&D expenses would have been 8.9% of revenue. The company also added 500 more employees in R&D in the last quarter.
Sales, General, and Administrative (SGA) was $469.0 million, or 23.2% of revenue. This figure is down 110 basis points year-over-year and down sequentially by 92 points. The company said that the increase was due to making "key investments to grow the business." These investments included increased spending for enterprise level field sales, service, as well as business simplification processes. The company also invested heavily in emerging markets this past quarter.
Operating income for the quarter was $182.0 million, or 9.0% of revenue. Without the onetime charges, operating income would have been 11.9% in Q4, which would constitute the highest level for the company in the past four years.
The effective tax rate was 35%, which was up from 32% in Q3. This increase was due to tax provisions as a result of acquisitions.
The number of outstanding shares increased 1.7 million from the prior quarter to 197.4 million. Book value increased to $2.251 billion, while shareholders' equity rose to $12.14 per share.
Head count was 17,407 at the end of the quarter, up sequentially by 891 and up over 2900 from the fourth quarter of 1995.
The company said that Sun Service had grown at a much faster rate than the company as a whole, and that it had added about 1000 people over the past five quarters. The company said that it expects to add to the service area in the coming quarters.
MANAGEMENT DISCUSSION
The company said that its quarterly results were in line with internal projections except for two areas: order growth rate and mix. The company said that it had higher orders for departmental and enterprise servers than it had anticipated.
The company said that it will continue to align the compensation of top executives, and other workers in general, with year-over-year growth. CEO Scott McNealy said that he views acceptable levels of year-over-year growth at 15%, although internal expectations could be higher.
Backlog in the quarter increased to the highest level in quite a while. The company said that it does not plan to operate with this high level of backlog, and will attempt to bring backlog to acceptable levels in the upcoming quarter.
The company cautioned that analysts should not base their longer-term projections for Sun on any one quarter.
After introducing the UltraSparc product in Q4, the company said that it saw earlier than anticipated cross-over from earlier generation products.
Sun intends to continue aggressive pricing on UltraSparc because it continues to see price decreases through better chip production.
Server growth rate was very strong.
Inventory levels remained satisfactory for the quarter.
Local currency orders in Japan grew at more than 20%, while year-over-year growth was 15% in dollars. The company said that it was adversely affected by currency fluctuations in Japan.
The company said that its financial position remains strong. Sun will be purchasing the second part of its Menlo Park offices in the upcoming quarter, and that will likely cost in the range of $100 - $125 million in the first quarter.
Overall, the networking computing segment is doing very well. The company said that it is increasingly viewed as being innovative in web-based network computing. The enterprise server market has also done very well.
CEO Scott McNealy said that he saw three computing platforms succeeding in the future -- the Windows NT platform, the Sparc/Solaris model, and the web. Since Sun has proprietary control over the Java interface and the Sparc/Solaris model, McNealy said the company is well positioned for the new thrust towards networked computing. He also added that the company has historically had good interopability with the NT platform and the Wintel universe in general.
McNealy also apologized for not being on the cover of Business Week for changing his corporate vision -- he said that Sun had always viewed the network as the center of computing and still thinks that is the best business model going forward and so it doesn't have to radically change its vision like some of its competitors. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
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The Motley Fool |