Addi let me congratulate you on two counts. You and the other bulls on the thread have earned your just rewards for betting correctly that a) the mania in tech shares would proceed unabated, and b) that market participants would continue to avoid facing Sunw's intermediate and longer range concerns. Also, hearty congratulations are in order on the occasion of your self-imposed coronation as seer, kingmaker, and resident expert on the various goings on at sunw, intc, and msft. A bull market is a marvelous thing. But let me get specific about the points you address with regards to sunw and it's new subsidiary, Microsoft Corp.
>>As for Microsoft, I think in my opinion, they will soon realize that as a software company, like I have said it in the past, they have become a subsidiary of Sun Microsystems (similar to Sun's other subsudiary SunSoft)!<<
Addi you have made the bold and outlandish statement that msft is really nothing more than a sunw unit, a la Sunsoft. Is this the proper designation though? As you know, MSFT's prodigious cash flow will never be directed towards the parent's benefit, on the contrary, much of it will be channeled to projects that will compete directly and fiercely with Sunw. Now what kind of subsidiary would do that? And would one propose and develop a product like the NetPC, which uses none of the parent's chips, or technologies, save for a nominal license fee for JAVA. And why would such a subsidiary have the gall to sell Windows NT, a system which is gaining market share at the low end at a remarkable clip. Isn't it reasonable that the parent force the use of Solaris on MSFT?
Besides those factors, the financial characteristics of the relationship seem to be turned upside down. That is, this is no normal parent subsidiary relationship. Far from it. For on perhaps the very day you made your curious and nonsensical proclamation, MSFT surpassed the Coca-Cola Co. as the second most valuable company in the S & P 500. Strangely, its parent Sunw did not.
For the engineers in the audience, at its close last week, msft had a market value of about $183 billion. That is with a B. It's supposed parent, sunw, has a market value something short of that, on the order of $18 Billion. But it gets better. Bill Gates owns almost 25% of Microsoft (he's a CEO who wants to be an ongoing shareholder) valued at about $45 or so Billion. In what amounts to a compelling turnabout, it looks as if the subsidiary's CEO could place a call to Goldman Sachs on Monday and tender for every one the parent companies shares at $51. And he wouldn't have to put up a nickel to do it. You see Addi; Gate's could do this from his margin account. Does Scott really need that kind of subsidiary Addi?
But I can understand why you and Scott may want to have a unit like Microsoft Corporation carrying the Sunw banners. It would be neat to be able to control and direct the $9 Billion in cash that resides on the unit's balance sheet. Shoot, that is nine times the amount of cash the parent wields! But here are some other points that really call into question the msft as sunw subsidiary myth. Msft generated $3.2 billion in revenue in the June quarter. Sunw only generated $2.5. Msft earned $1.06B million, which is more than FOUR times Sunw's earnings of $237m. And the babe, Microsoft, is growing far faster than the parent at 40% versus 26%. Kids I guess are expected to grow fast. But here's an area where Sunw is besting it's little one-in growth in SG & A expenses. In what has really been glossed over by the analysts, Sunw's growth in this category was an astonishing 45%, far higher than its revenue growth. Of course, this leaves them even more vulnerable to shrinking gross margins. MSFT's growth in S G & A, on the other hand, was far less than its revenue growth, coming in at only 12%. That proves you don't necessarily have to spend a lot, to sell a lot. So, even as it is in life, the parent can learn a thing or two from the child.
Finally, sunw made another statement that was just glossed over by everyone but Twister. Even though sunw has been repurchasing shares (buying their cheap stock) in the open market hand over fist, they may in the coming weeks, turn on a dime and begin ,to SELL equity, one would presume, at dear prices. Hmmm. They will Addi, suspend their repurchase program at that point, won't they? Of course, sunw always has the option of selling bonds in the market, which would make the equity riskier, however. Now why on earth would a company that supposedly generates cash in abundance, want to tap the marketplace for more of it?
Addi, the answer to their cash needs is close at hand. Hey. Why not drop an email to Scottie and suggest that sunw "tap" their northern subsidiary for the bounty his company will need to grow with? After all, cash is cascading onto the balance sheet up in Redmond. If Chairman Bill decides NOT to tender for Sunw's shares on Monday, he may see fit to let go of just a wee bit of MSFT's largess which he's been salting away in the cash account. After all Addi, don't many of us fear, as well as prepare for the time when dear old mom and dad (read Sun Microsystems) may come calling, hat in outstretched hands?
And all the roads that lead you there are winding
All the lights that light the way are blinding-Noel Gallagher |
