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Technology Stocks : SUN microsystems: 7/18/96 quarterly report - BIG!
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To: Andy Parham who wrote (53)7/11/1996 3:58:00 AM
From: Mike Riley   of 386
 
Be careful. Despite Sun's recently stunning success and its loyal customer base, there are some reasons for caution:

(1) The general weakness in the tech sector isn't over. Motorola's drubbing was followed closely by Hewlett Packard's annoucement of weakness accross all product lines. The stock traded down 6 in after hours trading. This will will affect tech stocks in general, and hardware makers generally, negatively. Is there a pattern developing here in tech sector quarterly earnings?

(2) While Sun's product line is still head and shoulders above anything based on the Pentium platform, the price/performance gap is rapidly closing. Windows NT is starting to catch on, and a bet against Microsoft over the long haul is a risky one.

(3) Java is a nonfactor. Its contribution to earnings is close to nil. The stock market's favorable reaction is just part of the overhyped internet mania that has hit Wall Street recently. But there are signs that this enthusiasm is waning. Take a look at the internet index (IIX).

(4) Things are getting tough overseas. The dollar's recent strength diminishes profits abroad. The European economy is sluggish, and there are signs of inventory problems developing. For a company that gets over 60% of its profits overseas, thsi is not a good sign.

This is not to say that the long-term outlook is bleak, however. Sun is no Apple, at least not in the intermediate term. Rather, look for Sun to have a smaller piece of a bigger pie. But watch out on the downside in the short term for this stock.
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