So having said that, I believe SUNW in 2002 will at best have a market cap of about $12-$17 billion (or about 1.5-2 times its sales - or $3.5-$5/shr).
Your numbers are too low. Sun at $5 is at about 1.3x sales.
Also, 1.5-2x sales is probably too low unless you expect Sun's gross margins to decline pretty significantly. Sun is a pure play with mid-40% gross margins, better than IBM, EMC, HPQ, LXK, or DELL. Except for HPQ which is in the worst position of the lot, those companies all get better than 1.5x sales, so with Sun having higher gross margins they should get a higher multiple (every dollar of sales has more potential to fall to the bottom line, so higher multiple). The hardware companies with the best operating models (CSCO and NTAP, both 60%+ gross margins) get between 4x and 6x sales - so it isn't much of a stretch to see Sun at 3x sales. EMC is currently at 2.5x sales with further to go to profitability, similar competitive problems (here comes IBM) and lower gross margins than Sun).
All Sun needs to get a big multiple expansion is a bit of demand (i.e., increased revenues). If revenues pick up you'll see Sun's multiple rise much faster than the other hardware stocks described above because the higher gross margins translate to faster profit growth.
That's my opinion. Now......when is demand going to pick up?!
Elroy |
