Aug. 11 (Bloomberg) -- Sun Microsystems Inc., the world's fourth-biggest maker of server computers, may have its credit rating reduced by Moody's Investors Service as its sales and market share decline.

Moody's changed its outlook to negative, which means it is more likely to lower the rating. The new rating would apply to about $550 million worth of debt, Moody's said today in a statement. Profitability has waned as Sun gets more sales from storage products instead of powerful servers, whose profit margins are higher, Moody's said.

Sun won't make a profit this quarter because customers are slashing technology budgets, Chief Financial Officer Michael Lehman said this month. Sales of servers, computers that run Web sites and corporate networks, dropped 7.1 percent last quarter to $1.7 billion. Sun's plan to buy back $1 billion in shares may lead to a downgrade if it increases financial risk, Moody's said.

``How the company manages share repurchases and acquisitions during a period of weaker operating performance will be an important factor in Moody's analysis,'' the ratings company said.

Moody's credit rating for Sun is Ba1, one level below investment grade. The company had $1.27 billion in debt as of the end of June.

Sun's 7.65 percent notes maturing in 2009 rose 0.4 cent on the dollar to 102.7 cents on the dollar, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority. The yield dropped to 4.89 percent.

Growth, Profit

Sun gained 25 cents, or 2.4 percent, to $10.50 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have dropped 42 percent this year.

The company trailed Hewlett-Packard Co., International Business Machines Corp. and Dell Inc. in the server market last year, according to Stamford, Connecticut-based Gartner Inc.

Lehman didn't say whether Sun would break even or have a loss this quarter, and spokeswoman Dana Lengkeek declined to clarify his statement earlier this month.

``Sun remains committed to its strategic plan for growth and profitability,'' Lengkeek said today in an e-mailed statement.

To contact the reporter on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net

Last Updated: August 11, 2008 17:11 EDT