BOSTON (CNN/Money) -
If stock price is any indication, it's been a rough three months for Sun Microsystems.
I last wrote about Sun on the eve of its third-quarter earnings release in April, when things were looking up for the company. It had just announced the $2 billion détente agreement with Microsoft, and its stock was near $5, close to its 52-week high of $5.93.
Since then, however, the stock has settled back down to roughly $3.79, closer to its 52-week low of $3.14. Now, on the eve of Sun's fourth-quarter earnings call (which will take place after market close tomorrow), let's take a look at what the company has accomplished in the past three months and what observers are hoping to see in the quarter to come.
As far as the numbers go, the consensus estimates call for revenue of $2.88 billion for the fourth quarter, and a 4-cent loss per share, extending the already long line of losing quarters. Despite the ongoing flow of red ink, some observers believe that things are changing inside the company.
"People [at Sun] are a little more comfortable than in the past," says Darryl Plummer, a chief fellow at Gartner. "The difference we've seen is that they're near the bottom, but now they're looking up. The noise about the company going out of business has died down."
Not surprisingly, in light of this dismal fiscal run, Sun's leaders have introduced "disruptive tactics," as Stephen O'Grady, a senior analyst with Red Monk Research, puts it, to shake new life into the company.
One of the first such tactics was the truce with Microsoft, announced not long before the third-quarter earnings call. Another was the decision to move to a simplified pricing model for Sun's hardware and software offerings.
Most companies in the enterprise space present customers with complex pricing schemes such as usage-based models or per-CPU pricing. Sun instead offers per-employee pricing, a move that O'Grady predicts will help open doors in the growing small to midsize business market.
Finally, at the JavaOne conference earlier this month, Sun CEO Scott McNealy announced the most significant upgrade ever to the company's decade-old flagship Java platform, and also said that in late summer we'll see the first results of the Microsoft partnership.
Most observers want to first see how these moves take hold in the quarter to come and, to the extent possible, how they resonated in this past quarter. And many analysts are cautiously optimistic that Sun can turn itself around, but aren't yet willing to upgrade their calls on the company.
Richard Gardner, an analyst with Citibank Smith Barney, wrote in his earnings preview report that he thinks Sun will hit his current and next-quarter estimates. He cited strong recent financial results for Wall Street firms, which make up a large portion of Sun's customer base. Still, he does "not expect upward revisions" to his estimates for the next quarter.
Gartner's Plummer explains his cautious approach: "Three months ago, customers were scoffing at Sun's changes, but there seems to be a willingness now of customers to give Sun a chance." Still, he warns, this is not a single-quarter turnaround story. "It's at least 12 months out," he says.
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