Sun Microsystems (SUNW) is in a deep rut. While rivals like Dell (DELL) and IBM (IBM) are reporting healthy earnings, the Santa Clara (Calif.) maker of servers is fighting to eke out a profit. For Sun's fourth fiscal quarter ended June 30, net profit plunged 80%, to $12 million, down from $61 million a year earlier. Revenue fell 12.9%, to $2.98 billion. For the fiscal year, Sun had sales of $11.4 billion, down 8.5%, and lost $2.38 billion, including noncash expenses of $2.13 billion.
CEO Scott McNealy admits Sun is struggling. "We're dealing with a pretty tough year," he said in a July 22 conference call. Analysts say Sun's proprietary servers are being hit by low-cost competition from servers running on Intel (INTC)-made chips and Windows or Linux software. While Sun now sells so-called "Lintel" servers, it's playing catch-up. Moreover, its breakeven point is higher than rivals' because of heavy R&D costs.
While Sun's gross margins hit 43.7%, 2.4 points higher than the year before, the gains aren't likely to last in the face of rivals' aggressive pricing. Investors sent Sun shares down 19.3%, to $3.85, on July 23. Abbott Labs has given itself another black eye. On July 22, the North Chicago drug and medical-products giant pleaded guilty to a felony count of obstruction of justice stemming from a federal probe into whether Abbott had bilked the government's Medicare and Medicaid programs. As part of the plea, Abbott agreed to pay $600 million in criminal and civil fines. Prosecutors allege that the FBI, which set up a dummy company, caught Abbott sales reps on videotape telling purchasers how to bill the government at full prices for free or discounted nutritional liquids. Two years ago, an Abbott joint venture paid $875 million in fines because of a similar scheme involving a prostate-cancer drug, Lupron. And in 2000, Abbott settled Federal Trade Commission charges that it had paid a rival drugmaker to keep a generic product off the market. Is the sputtering U.S. economy finally gaining some momentum? It just may be, judging by the second-quarter earnings that bellwether United Parcel Service (UPS) released on July 22. The Atlanta-based shipper's daily domestic volume of packages grew for the first time in more than two years, rising 1.2%, to 11.8 million parcels. That growth helped boost Big Brown's earnings 13% in the quarter, to $692 million. UPS expects to build on the volume gains, with 2% to 3% growth expected in upcoming quarters. Still, company executives cautioned against reading too much into the numbers. For now, they see little sign that shipments of raw materials and finished goods -- crucial signs that a recovery is fully under way -- are picking up much speed. For individual investors, "What'd you pay for that mutual fund?" has ranked as the hardest question to answer. That may change in the wake of a July 22 Wall Street task force report aimed at getting brokerage firms to do a better job of cutting sales loads for investors whose mutual funds qualify for discounts. Among other recommendations, the NASD-headed panel asks the Securities & Exchange Commission to consider requiring brokerages to include the full percentage sales commission on confirmation statements they send to investors who buy mutual funds that charge loads. That would let investors verify that the correct charge was applied. As its consumer business gets hammered, Eastman Kodak (EK) is trying to build its imaging business. While its July 21 move to buy PracticeWorks makes strategic sense, this won't make up for declining film sales. PracticeWorks, which makes digital X-ray gear for dentists, is expected to add $215 million to Kodak's annual sales of $13 billion, but the deal will hurt earnings through 2005. Meanwhile, Kodak continues to trim at its consumer division: On July 23, it said it would cut 4,500 to 6,000 jobs, or 9% of its workforce. Local phone companies SBC Communications (SBC) and Qwest took big strides in their race with cable operators to offer a bundle of phone, Internet, and video service. On July 21, SBC unveiled a $500 million convertible-bond investment in satellite-TV player EchoStar (DISH) operator of DISH network. In early 2004, SBC will offer a co-branded service, making it the first phone company to combine local and long distance with cellular, Internet, and video under one bill. Qwest is teaming up with EchoStar on a more limited basis. Both deals send notice to cable operators that their phone rivals are revving up the battle over consumer loyalty. -- Walt Disney hired investment bankers to sell its money-losing 580-store chain.
-- Credit Suisse First Boston (CSR) former Vice-Chairman Jeffrey Peek was named CIT president.
-- ImClone Systems co-founder Harlan Waksal resigned on July 21. Pottermania lifted second-quarter sales at Amazon.com 37%, to $1.1 billion, while cost-cutting kept losses to $43 million, vs. $94 million the year before. The e-tailer sold 1.4 million copies of the new Harry Potter book in June, and free shipping fired up sales. The stock rose 15%, to $40.11, up 105% for the year.