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Technology Stocks : All About Sun Microsystems

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To: Jeng Chiu who wrote (4825)	10/16/1997 10:00:00 PM
From: Rational	of 64865

I have a feeling that the market may appear to act weird tomorrow by bidding the price up. This is because, SUN's press release clearly says that earnings would be higher had they slowed their expansion plans which was not prudent. This is consistent with the strategy of issuing more debt (mostly debt in the $1 bill). Issuing debt (rather than equity) is a good signal that the management feels confident of its success. These mean that the company is on a path to expansion due to the opportunities Sun has. The market values growth. For example, when a company cuts its dividends to retain more earnings for growth, the market generally bids up its price despite a lower reported earnings. If a company cuts dividends because earnings are expected to decline, the market will immediately bid the price down. Thus, a slight reduction in the reported accounting earnings is meaningless for valuation of a stock when the company could state a higher earnings if they slowed their expansion plans a little bit without oneone noticing. It is possible, however, that the market expected no slowing of expansion (and that they could monitor the fastness or slowness of expansion -- a highly improbable situation) as well as better earnings. Then the price may go down a little bit -- it has already gone down. There is no fixed formula for the price. Because the perception for SUN as a growing company has not faded a bit, the price will tend to inch up, IMHO. It is not earnings that was a serious concern for the WS. It was the WSJ article that argued how little Sun made from its much-touted JAVA technology. But, this concern was priced by the end of today when the price closed around $42. I would thus expect the price to go up to 42 from the after-hour low of $38.5 unless there is a market-wide correction. Sankar

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