Red Herring:
Dot-comming for dollars
Sun's technology is widely viewed as reliable and its ability to deliver healthy returns for shareholders is exceptional.
Sun Microsystems
(Nasdaq: SUNW)
It's time for Sun Microsystems to enjoy its day in the sun. Having often been dismissed among corporate honchos and IT departments across America
as a fringe player, Sun is now considered the essential go-to technology company for any firm -- from Net startup to established brick-and-mortar --
seeking an online strategy. The maker of computer workstations, servers, and software for the commercial side of the Web now sells its products
worldwide -- $12 billion's worth over the last year -- and is sitting on a $950 million backlog. As Merrill Lynch (NYSE: MER)'s Steve Milunovich says, "Sun
is clearly the default purchase in the Internet era."
How did it get there? With a business philosophy that might easily be confused with religious fervor.
Through thick and thin, Sun has remained committed to the Unix operating system, steering clear of
Windows NT and drawing the constant ire of Microsoft (Nasdaq: MSFT), a formidable adversary.
Although IBM (NYSE: IBM) and Hewlett-Packard (NYSE: HWP) have remained in the server fray at the
high end of the business, neither company has had the vision, focus, or best-of-breed technology to
take market share away from Sun. Moreover, a shrewd bet on Java and Jini, its server and appliance
technologies that allow interfacing and compatibility among diverse devices -- users can create
impromptu networks -- has both driven business and resulted in phenomenal brand recognition for Sun.
As Daniel Kunstler, hardware analyst for J.P. Morgan (NYSE: JPM) puts it, "They go in talking about Java,
and they come out taking an order for a server."
To be sure, Sun's business is not invulnerable. Risks to its growth could come from reinvigorated Unix competitors and,
perhaps more importantly, the long-term threat from Wintel in the enterprise market. Nevertheless, its technology is widely
viewed as reliable and its ability to deliver healthy returns for shareholders is exceptional. In fact, the only threat to Sun right
now is investor skittishness about its high-flying stock. Shares have more than tripled in the last year, commanding a healthy
2000 price/earnings ratio of 64.8. "It's not a stock for the weak kneed, but it's a best-of-breed company, so we feel it's worth
the valuation," says Mr. Kunstler. Indeed, with 13.7 percent operating margins during its third quarter -- generally its weakest
season -- and a return on equity of 27.8 percent, including cash, Sun shows little sign of faltering. If you believe in the future of
the Internet and the picks-and-shovels theory about who got rich during the gold rush, it will pay to be an investor in Sun.
Ralf |
