READ THIS: from Bear Stearns.Andrew J. Neff (212) 272-4247 June 21,1999
aneff@bear.com
Shaw Wu (212) 272-5928
swu@bear.com
William Bao Bean (212) 272-6915
wbean@bear.com
Subject:
Industry: Enterprise Wide Servers
BEAR, STEARNS & CO. INC.
EQUITY RESEARCH
Sun Microsystems, Inc. (SUNW 62.25) - Buy
Focus Stock Of The Week: Sun At The Center Of The Universe
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Data
Shares Out 823.5 Market Cap(MM) $48,895
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Key Points
*** As we review the takeaways from our Technology Conference, all roads lead
back to Sun Microsystems as the provider of infrastructure for the Internet
and for the new generation of application service providers (ASPs).
*** Sun's key strengths are its core technology (Sparc microprocessor, Solaris
operating system, scalability), its vision of a networked world and its
history of execution. Strategically, Sun's continues to focus on expanding
its product line, its sales force and the available market for its products
from its historic base in the technical market into the commercial, telecom,
NT server environment, consumer markets increasing the potential for above-
average growth.
*** Business trends remain strong in all geographies and in most product
lines. We are maintaining our estimates for FY1999 of $1.40, for FY2000 of
$1.65 and for FY2001 of $2.00.
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Earning Estimates P/E
Q1 Sep Q2 Dec Q3 Mar Q4 Jun Year Year
1999 0.25 0.34 0.35 0.46 1.40 44.5x
2000 0.29 0.38 0.41 0.57 1.65 37.7x
2001 0.36 0.47 0.51 0.66 2.00 31.1x
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Focus Stock. We picked Sun Microsystems as our Focus Stock is because we feel
that Sun best epitomizes the trends discussed at our Technology Conference,
including our "Virtual Computer Conference" including the growth of the
Internet and e-commerce, growth of ASP's (application service providers), and
transformation of the telecom world to IP (internet protocol) standards used
in the datacom world. We think of Sun as the "Internet Enabler" or the
company which is best positioned to supply the "dot.com" companies and those
Global 2000 who wish to "dot.com" their companies.
Full Product Line. Sun plays in all the growth opportunities with its full
suite of hardware, software, and services including fault-tolerant, highly
scaleable server technology (Solaris OS, Ultra-SPARC architecture), unique
partnership with AOL for e-commerce, and interoperability with Java, Jini, and
Project Cascade technology.
Highlights from the Virtual Keynote. On Monday, June 14, CEO Scott McNealy
was a keynote speaker at the Bear Stearns "Virtual Computer Conference". Here
are our key take-aways:
The Vision Thing. We think McNealy as one of the most visionary leaders in
the technology world which is one of the driving forces behind Sun's vision
and strategy. We believe his vision of Sun as the dot.com infrastructure
supplier of choice highlights our thesis that one of Sun's key strengths is
its ability to leverage off its technology portfolio of software and hardware
to create new market opportunities and applications that drive further growth.
For example, Java and Jini as stand-alone units may not appear to contribute
to Sun's top and bottom lines, however, they have been key to Sun in gaining
new customers and entering new market segments. We have seen this recently as
Sun has penetrated into the data center and telco central office markets with
its "write-once, run anywhere" Java and its fault-tolerance server technology.
In the future, we believe Java and Jini have potential to become significant
contributors as the technologies become more widely deployed in clients,
servers, alternative computing devices, and embedded applications like set-top
boxes, cell phones, and smart cards.
Quarter Appears on Track. The upcoming 4Q99 (June) quarter appears on track,
we are looking for $0.46 vs. $0.36 (also the First Call average) on top of 19%
revenue growth to $3.4 billion - we believe this estimate may turn out to be
conservative owing to the strong momentum in the U.S. and Japan from ISPs
(Internet Service Providers) and Telecom companies due to Sun's stronger focus
on these highest growth markets.
eBay, Transvirtual Not Significant Issues. While there was concern about the
role of Sun's Solaris software in the eBay outage along with word of
Microsoft's backing of Transvirtual, a Java clone developer, we would view
these as short-term distractions.
Maintaining Estimates and Buy Rating. We are maintaining our estimates of
$1.65 for FY2000 and $2.00 for FY2001. We continue to rate Sun Micro a Buy to
reflect our belief that the company remains one of the best ways to play the
explosive growth of enterprise servers, e-commerce, and server consolidation.
We believe the company's strong fundamentals remain intact with the prospect
of further upside surprises owing to favorable demand trends. We view the
current weakness in the stock as an opportunity to add to positions.
Companies mentioned: AOL
First Call Corporation - all rights reserved. 617/345-2500
END OF NOTE
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