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Sun Microsystems Expected to Post Loss

Sun Microsystems is scheduled to report its fiscal third-quarter numbers after the market closes Tuesday. Below is a summary of key developments and analyst opinion related to the period.

Sun Microsystems's headquarters in Santa Clara, California.
Paul Sakuma
Sun Microsystems's headquarters in Santa Clara, California.

OVERVIEW: The first few months of 2009 saw some furious dealmaking by Sun to find a buyer and help rescue the company from its dreary financial prospects as a standalone company. After a dalliance with IBM Corp. that ultimately broke up in a dispute over price and other terms of a possible deal, Sun found itself in the arms of Oracle , an unlikely suitor that doesn't make hardware and is expected to jettison many of Sun's 33,500 workers to try and turn the company into a consistent moneymaker. Oracle agreed to buy Sun for $7.4 billion in cash — a deal valued at $5.6 billion when Sun's cash and debt are taken into account.

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Sun still has impressive sales — $13.9 billion last year — but more than half comes from the server and storage divisions, areas that have been crimped by the recession because companies buy less hardware when times get tough. Oracle, like IBMbefore it, is mainly interested in Sun's software, particularly the Java programming language, Solaris operating system and MySQL database.

BY THE NUMBERS: Wall Street expects more difficulties for Sun as a standalone (the deal with Oracle isn't expected to close until this summer). Analysts polled by Thomson Reuters forecast that Sun lost 18 cents per share on $2.87 billion in sales, a 12 percent decline, in its fiscal third quarter. Sun's profitability has been uneven, a key reason the company was forced into a sale. From 2002 through 2006, the Santa Clara, Calif.-based company lost more than $5 billion. Last year, it earned $403 million.

ANALYST OPINION: Some analysts are concerned about what happens to Sun's different divisions under Oracle, particularly hardware, but most agree that a sale was the only way for Sun to improve its finances. Thomas Weisel Partners analyst Doug Reid called the deal an "escape hatch" that will likely close in the summer as scheduled — since there are fewer potential antitrust issues than a tie-up with IBM — and will make Sun more efficient and competitive.

While Sun's standalone numbers are still expected to fall in the third quarter, Reid says Sun, once incorporated into Oracle, will be able to leverage Oracle's brand to become more effective against Hewlett-Packard Co. in servers and "gain a slightly larger share of wallet within existing Oracle accounts."

STOCK PERFORMANCE: Sun's shares started the year at $4.22 and are now trading above $9 per share. Oracle's offer represents a price of $9.50 per share.