The Slaughter House, Q2 Earnings Bleeders: Sun Microsystems (SUNW)

A recent article in The Wall Street Journal pointed out that more enterprise servers where moving to Linux. One of the loser is Sun (SUNW) and it Solaris software. Other recent trends would seem to indicate that Wall St. believes the turnaround at the server company may be short-lived.

Over the last three months, Sun’s shares have dropped almost 20%. Even a large share buy-back announcement has not helped that trend. Some investors wonder why the company has nothing better to do with $3 billion in cash than to improve EPS by retiring shares.

A Goldman Sachs analsyt who covers Sun thinks that the company will make its goal this quarter of 15%or better sequential revenue growth and a 4% margin. But, that may be optimistic. A recent Gartner survey found that Sun was losing ground to companies like IBM (IBM) in its important Unix business. Sun’s market share actually dropped from 4.4% last year to 3.7% during the first quarter.

Dell’s (DELL) recent recovery may also be bad for Sun. Dell needs to do well in its server segment as well as with PCs. Sun may be a more likely target than stronger companies like IBM and Hewlett-Packard (HPQ). Certainly HP’s improved financial guidance could be due, in part, from picking up share in the server market.

Sun has a stunning history of disappointing investors. Much of its cost cutting is behind it. The slightest miss on revenue or drop in guidance will could turn the next quarterly report into a stock market route.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.