Sun Microsystems Inc. intends to pull off a 1-for-4 reverse stock split to boost its share price and improve perceptions of the computing company's recent turnaround, its top two executives told analysts Wednesday.
Sun disclosed in a Securities and Exchange Commission filing that it will ask shareholders to approve the reverse split at their Nov. 8 annual meeting. By converting every four Sun shares to one, the step would bring about a four-fold increase in Sun's share price but have no effect on Sun's market capitalization.
Sun's top two executives were asked during a Wall Street briefing why the company would bother with the reverse split, since it is essentially a cosmetic move.
CEO Jonathan Schwartz said that having Sun's stock below $10 _ where it has been mired since 2002 _ created an inaccurate perception that the Santa Clara, Calif.-based server and software maker was still struggling to overcome its post-dot-com era slump. He said competitors pointed to Sun's stock price to sway "naive customers who might not be able to look beneath the surface."
"The per-share price ends up coming back to us in really dumb ways," he said in the meeting, which was broadcast online.
Sun's chief financial officer, Michael Lehman, said the stock split, along with Sun's recent ticker-symbol change to "JAVA" from "SUNW," gave the company more opportunities to explain itself to investors. In July, Sun reported its first profitable fiscal year since 2001.
Lehman and Schwartz said in Wednesday's briefing that although Sun's revenue is increasing only at low-to-mid-single digit rates, the company's profitability should increase faster as cost cuts and new products take hold. Sun also hopes to expand its market reach through partnerships with longtime rivals Intel Corp. and IBM Corp.
"We're taking all of the objections to doing business with Sun and we're just putting them away," he said.