NEW YORK (CNN/Money) -
They would have gotten away with it too, if it weren't for those meddling competitors.
Worries about increased competition and shrinking margins sent Sun Microsystems sliding nearly 30 percent on Friday. Microsoft, meanwhile, dropped nearly 4 percent despite the company's better-than-expected earnings report Thursday night. Like Sun, Microsoft is having some trouble adjusting to a more competitive landscape.
Ain't gonna play Sun City
Sun's situation is obviously the more dire. Not so long ago Sun owned the server market, and its state-of-the-art hardware commanded premium prices. But those days are long gone, with the company facing stiff competition from the likes of IBM, on the high end, and Dell, on the low. In the current tough market Sun has had to slash prices to get product out the door; discounts have cut into gross margins, which the company says fell a point to roughly 41 percent last quarter. After squeaking out a penny a share profit in the fourth quarter, the company now says it expects to post a loss in the current quarter.
With competition so fierce, few expect Sun to get much "pricing power" back even after tech spending kicks in again.
X-Miss
Microsoft's problem is a little more complicated. Its core business, PC software, is solid; indeed, the company just reported better-than-expected profits, powered by what the company described as ""robust customer demand for Windows XP and other desktop software." But PC software just isn't going to provide the company with the sort of growth its investors have come to expect, given Microsoft's size and the less-than-stellar growth prospects for the PC market as a whole. So Microsoft has been casting about for new engines of growth.
Trouble is, that exposes monopolistic Microsoft to a little something called, yes, competition. Microsoft has been trying to buy its way into the hyper-competitive video game business with its much hyped Xbox, which the company sells at a considerable loss in hopes of making up the difference and then some through game sales.
|
MORE TECH INVESTOR
| |
| |
| | |
|
That's problematic for a couple of reasons. Even if Xbox sales were going gangbusters, video games couldn't possibly bring Microsoft the same plump profit margins it's been used to over the years. But in fact Xbox sales aren't going well, fading quickly after an impressive launch. With sales in Europe and Japan lagging, Microsoft says it's sold 3.8 million so far, well below the 6 million the company had hoped to sell by now.
Indeed, new kid Microsoft is finding it hard to compete against Sony and Nintendo, grizzled veterans of many game wars. Microsoft cut the Xbox's price by a third in May in an attempt to boost sales, a cut Sony quickly matched; Nintendo also slashed the price of its cheaper Game Cube. But Sony's Playstation 2 continues to outsell the Xbox by wide margins, in large part because there are so many more games available for the PS2 than for the seemingly stillborn Xbox. Meanwhile, Nintendo is preparing to unveil Game Cube versions of many of its hottest titles, which almost certainly will inspire a spurt of console sales in the fall. (Heck, I might even buy one; the new Legend of Zelda looks very cool.)
Competition -- what a concept.
Sign up to receive the Tech Investor column by e-mail.
Plus, see more tech commentary and get the latest tech news.
|