Solar Power
Daniel Lyons, Forbes Magazine, 01.22.01
Death lurks just around the corner for Sun Microsystems. That's what rivals have insisted for nearly a decade, certain their low-cost machines running Intel chips and Microsoft software eventually would overwhelm Sun's pricey Unix servers.
How annoyed those naysayers must be. Sun raced past them by taking center stage in the Internet revolution. Its revenues could eclipse $20 billion this year, doubling in just three years and tripling in the past five; since 1996 net income has soared fivefold to a projected $2.5 billion or so. In the September quarter revenues soared 60%—three times as fast as two years ago, when Sun was only half as large. Faster, in fact, than at any other time in the past decade. No wonder Sun's stock price has increased tenfold in the past five years.
But at long last, Sun's doubters have new reason to feel hope. High tech is in a slump. As the dot-com crash ripples through the digital economy, the company that "put the dot in dot-com" is vulnerable. In every direction, destruction abounds: PC companies are falling short on sales; Internet-access firms and telecom upstarts are struggling; even the once-mighty Microsoft has been reduced to single-digit growth. Some of the Web sites that contributed so generously to Sun's growth are going kaput. Web-design and hosting firms are getting slaughtered, their stocks down 90%or more. Old Economy stalwarts are tightening their belts and may spend less on the Web, given the now-idle threat from dot-com has-beens.
Investors reckon Sun can't escape the devastation, and they have pounded the company's shares accordingly. From September through December the stock plunged more than 50%, to as low as $26. Even after that jolt, Sun's shares still trade at a pricey 50 times trailing-12-month earnings. If trouble erupts, Sun's stock could fall even more; if investors deemed Sun worth the same multiple as, say, a Dell, the shares could fall by more than half yet again.
Even Sun's relentlessly upbeat chief executive, Scott McNealy, is bracing for pain. In a Dec. 19 memo to employees, McNealy warns of a slowing economy and says Sun will pull back on spending and hiring plans.
But that amounts to mere tweaking on a massive growth engine. McNealy and Sun's president, Edward J. Zander, insist they see no short-term threat and say that in the long run Sun could be set to boom like never before. The company has always thrived on moxie and bellicose tactics, by being smarter, faster and meaner than its rivals. It aims to reinvent itself yet again; it went from a maker of workstations for engineers in the Eighties to a producer of Unix servers for business in the Nineties to a purveyor of Web engines and software for the next decade.
"We have this uncanny ability to seize disruptive technologies and just go maniacal on execution," Zander says.
He joined Sun in 1987 after a career at two rivals that Sun later pounded into dust—Data General (now a unit of EMC Corp.) and Apollo Computer (which disappeared long ago into Hewlett-Packard). Zander, 53, has been McNealy's number two since 1998, and he is as low-key, calculating and restrained as McNealy is flashy, transparent and scrappy. McNealy,46, sets the big vision and picks fights with powerhouses like Microsoft. It is up to Zander, who has every Sun division reporting to him, to actually make it all work.
To hear the two of them tell it, the Internet build-out has hardly begun. Others share that opinion. Annual U.S. spending on Net infrastructure, at $200 billion in 2000, could grow 75% by 2003, says Jupiter Research. "This is the biggest equipment opportunity in the history of anything," McNealy says with characteristic hyperbole. "If we were writing a book, we would not even be at the prologue. We're barely at the copyright page."
forbes.com
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