Twister:
You state:
> what I meant by the dog and tail is the market doesn't agree with
you at all. They believe just the opposite in fact, hence the valuation
disrepency.
Thank you for elaborating on what you were attempting to imply. First and
most important of all I do not think MSFT will reverse its growth or
valuation drastically. As I said, it strongly believes in the ...and only
the paranoid survived concept! They will do anything to stay
with the going trend of the industry. However their valuation will be
diminished gradually if they continue to defy the industry wide
accepted standards (the introduction of Direct/J being an example) and
not to concentrate on how to be more cooporative with companies such as
Sun Microsystems. They no longer define the standards. That era has passed
them. It will be the cooporation and not the confrontation
that will continue to make them successful.
Now as for the valuation, if you have been investing for sometime you
surely must know by now that the market does not stay in a
middle ground. It is always at one end of the extreme, there is either
an overbought situation or an oversold atmospher. Equities are either
overvalued or undervalued; There is no middle ground!
As a value investor you always want to recognize those that are undervalued
early in the stage before everyone else recognizes their low valuations.
Keep in mind the investment concept is based on the buy low, sell high
methodology. It has always been the case that small investors ($1 million and under)
do not get into the game till valuations are high and the smart ones are
about to take their profit and run to their banks and/or other equities!
Microsoft is indeed a great company. As once a long time share holder of
the company when I had the stock I never cared about the high P/Es and P/S
because the underlying model industry was following required them and
Intel to define the standards. Therefore they could always deliver the
expected growth rate and more. However, the industry model has changed.
You now have a set of widely accepted technology (known as Java) that
practically the entire industry has accepted (including Microsoft itself).
Therefore Microsoft's high valuations are not justifiable because they
are no longer in control of defining the standards. All they can
do is to follow the standards set by others (i.e. Sun Microsystems
and its partners). As long as they continue to follow the rules
of the game as set by the industry they can continue to have a healthy
growth. However the rate of their growth will be diminished (again because
of their inability to define the standards).
On the other hand Sun Microsystems valuations are extremly low based on
how their business model has been infrastructured around a server centric
concept and their reputation in the industry as the standard
definers of the computing world. Their valuations and underlying
fundamentals are similar to how Microsoft was at one point before they
took over the desktop market. If you go back to the mid/late 80's and
compare Microsoft's valuations and its underlying fundamentals to those
of for example IBM you will see a shocking similarity with Sun's valuations
and fundamentals with Microsoft at this time. If you are an investor who
want to make money you must have an open mind and see the underlying
trends in the sector of the economy you want to invest your hard earned
money. At this time the trend is about to be set toward a definite
server centric, thin client model, in my humble opinion of course
based on what I see to be taking place in the industry. This is exactly
when you want to unload the majority of your holdings in companies that
up to this point have been excellent in providing desktop, client centric
only solutions and switch to the ones that are expert in providing
server, thin client solutions. These include a wide range of
high tech companies, from Sun to Auspex, to Cisco, and 3COM, to Informix
and Oracle to LSI Logic and Cyrix to ... These are what will be (actually
most are) known to be Sun Microsystems partners and the ones following
the new computing model set by Sun. These companies will no longer
follow Microsoft/Intel definition of what is to be the standards because
those standards will not be for the benefit of the regular average consumers
who do not wish to spend much money! Would you go back and upgrade (or buy a
new one) your fancy pentium PC to run a highly sophisticated databse
GUI application program made by Microsoft (to run only on Microsoft
proprietary platforms) if you can run the same application (with the
same speed and performance if not better) on your digital TV (or an
inexpensive NC) while watching an episode of the Seinfeld?
You state:
> It's NEXT to impossible that the market has the valuations of msft
and sunw exacty reversed, as you would have it. Or maybe you can tell me
when this transition will become evident to the mass of investors.
It is not a matter of reversing the valuations. If Microsoft continues
to follow the standards rather than trying to define them in this new
era of computing it will continue to have a healthy rate of growth but
possibly with a lower P/E due to its lack of maintaing past glorious
growth rate because of its inability to define the standards. Sun's valuation
will become increasingly higher and higher as time is passed because of
its leadership as a standard definer resulting to its explosive
increase in the growth rate. As far as when this will become
evident to the mass of investors, well, I believe it will be later on
this year with the introduction of NCs and as major database and
software tools and application vendors introduce their new line of
products that will revolutionize the way computing models are constructed
based on a thin client architecture relying totally on the
Java technology (as introduced by Sun Microsystems and not the
one extended and re-defined by Microsoft).
You state:
> As you know, msft's revenue growth has been accelerating,
and Sunws was decerating.
Not quite true, and I believe there might be a misunderstanding here.
My statement with that regard was to the implications I thought you
were attempting to make that Sun has not had the growth. While
Sun Microsystems has had an impressive revenue growth consistently for
the past 2 years, quarter after quarter, MSFT's revenue growth increase
has indeed been much greater than Sun. However, I could not have imagined
it to be any other way. Up to this point and most likely for the next quarter
or so the infrastructure will be totally based on a client centric
environment and Microsoft will continue to enjoy a huge revenue growth.
However as I said, in my humble opinion, as major database and software
tools/application vendors (and as a result networking companies) introduce
their new line of thin client products later on this year and with
the introduction of NCs, and increase popularity of digital/Web TVs, Sun
Microsystems rate of growth will increase explosively higher than ever
even imagined before.
You state:
> So Addi, you can SAY the sky is red all day long, but at the end
of the day, the market will continue to believe it is blue.
Well, in fact, and please correct me if I am worng, I believe it is you
who are saying this. In fact all I am saying is that the sky is blue (using
your own words). I do not think even the market thinks of the sky being red!
What is taking place is a traditional way of thinking that almost all investors
have: that past performance is always guaranteed for the future returns
even without noticing the underlying trends and fundamentals! Again, in
my humble opinion, past is not a guarantee for the future results especially
if the underlying trends and fundamentals of the industry one is invested
are changing rapidly! At the end of the day if one can honestly be logical
and reasonable with himself/herself, one should be able to truly understand
that the whole point of investing is based on the fundamental concept
of buying low, and selling high!
Regards,
Addi Jamshidi |
