This was posted on the MS thread, but it belongs here:
To:Charles Tutt who wrote (63360)
From: DiViT Monday, Nov 26, 2001 10:58 AM
Respond to of 63366
OT: Your guys need your help...
Here Comes the Sun, True Believers Say
By Jim Seymour
Special to TheStreet.com
11/21/2001 12:06 PM EST
URL: http:/www.thestreet.com/p/rmoney/techsavvyrm/10004252.html
Some stocks just attract the true believers.
In tech, Apple (AAPL:Nasdaq - news - commentary) may be the most obvious, but there are others, Sun (SUNW:Nasdaq - news - commentary) prime among them. In Apple's case, most true believers holding the stock also seem to be Macintosh users who believe in the superiority of Mac vs. Windows/Intel (INTC:Nasdaq - news - commentary) -based PCs.
Not so at Sun. The loudest Sun zealots are rarely huge fans of Sun workstations and servers -- nor of Unix/Linux computing in general -- but rather people with long memories. Recalling how much money they and others made in Sun beginning in the late '80s and admiring Sun's swashbuckling style (read: CEO Scott McNealy's quips and insults), they remember, too, how often Sun has "come back."
So of course they believe Sun will come back again.
To look at Sun's chart for, say, the 1990s, is to see the power of equities at work: a steady move up, especially since 1995, with five very nice stock splits in the past six years. But to be a true believer in Sun requires ignoring the last right-hand inch or so of that chart, which shows Sun falling from grace since late 2000.
Indeed, since an ill-advised 2-for-1 split on Dec. 6, 2000, from a close the previous day at $91.75 (a number itself juiced by expectations of that split), Sun has slowly and sickeningly walked down. Postsplit, it opened at $46.69, closed that day at $44.25 ... and hasn't seen a close like that since.
Yet the true believers hold on still.
I had dinner a few weeks ago with a guy who told me how much hurt Sun had put on him: He bought it in the presplit $90s, about this time a year ago. With Sun closing in the low teens lately and the high single digits before that, he has lost an enormous amount of money.
And, of course, he hasn't sold a share -- because he knows it's going to come back. Sure.
Tech stocks seem to attract that kind of buyer -- and holder -- more than other equities. Why? I have no idea. But we all can see the wreckage resulting from that kind of thinking.
Sun is now trapped in an ugly box of its own making. It has two businesses: Unix-based workstations and Unix-based servers. The workstation business isn't very interesting and is well into a slow spiral downward into the slough of commoditization. The server business, once very interesting, is caught in a painful trap: Sun's high-end, expensive servers, which are certainly very nice machines, are under constant attack by much lower-priced Intel-CPU-based servers, which deliver much more value to their buyers.
When those Intel servers ran only Windows or a fluky version of Sun's Solaris flavor of Unix, Sun had a strong case to make that its Solaris servers were the industrial-strength product, rock solid and worth hundreds of thousands of dollars in reliability and uninterrupted nights and weekends for IT managers.
Now, though, with the Linux revolution well under way, Sun shouldn't rail against Microsoft (MSFT:Nasdaq - news - commentary) as being the evil peddler of that nincompoop server-software alternative Windows NT (and more recently, Windows 2000). Intel-based boxes running Linux turn out to be fast and very reliable. And still much cheaper than the Sun machines.
This shift isn't going to stop or even slow. While there still is a market for Sun's expensive Solaris servers, now they're getting beaten at their own game. On Friday, Gartner/Dataquest reported that the global market for the kind of high-end servers Sun makes dropped a thudding 23% in the third quarter, following a 6% drop in the second quarter. Meanwhile, sales of Intel-based servers dropped only about 3% in the third quarter. (Given that unit prices for Intel-based servers were falling throughout that period, that means Intel boxes did even better than the dollar-sales numbers suggest.)
Worse, Gartner estimates that IBM (IBM:NYSE - news - commentary) further consolidated its lead in "power" servers -- Unix machines -- with sales of $3.3 billion in the third quarter, more than twice as much as each of its three biggest competitors: Compaq (CPQ:NYSE - news - commentary) , Sun and Hewlett-Packard (HWP:NYSE - news - commentary) . Meanwhile, Sun's market share fell 3.6% year over year.
It's hard to argue with these numbers. Yes, Sun keeps rolling out more and more powerful servers. Yes, there is (and will continue to be) a market for its brand of big-iron hardware. Yes, Sun is making new efforts in storage.
But Sun's getting cut up across the board. In some of the hottest areas -- so-called "thin" servers and "blade" servers, for example -- it has only a marginal presence.
Sun holders -- should I say holders-on? -- like to look at the past couple of months, during which time the stock price has roughly doubled. Yes, a nice gain, and if you're a Sun holder now, I urge you to take it. Don't join the crowd that sees the move from $7.52 up to $13.66 as the start of an unstoppable trend, a straight-line recovery to the glory prices of yore.
Message 16702353 |
