How high will Microsoft fly? Message Board

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Technology Stocks : How high will Microsoft fly?

MSFT 456.91

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Jan 15 3:59 PM EST

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To: Jack T. Pearson who wrote (2912)	9/6/1997 11:58:00 PM
From: Bill Fischofer	of 74651

Re: SUNW competition and fate The need to build depth in supporting enterprise-level computing is the reason CPQ bought TDM. CPQ+TDM are a very formidable force which will be a thorn in SUNW's side for the next several years. "Wintelpaq" is the emerging force in enterprise computing and its goal is not just to push past SUNW but ultimately to displace IBM's aging System/390 mainframes. This process will be ongoing over the next five to ten years, but the tectonic forces at work are now essentially unstoppable. The game plan is simple. Over the next two years NT will gut the workstation market and erode the install base. Then the margin vise will apply the slow squeeze to the midrange server market, forcing progressive fallback and retreat to what Ed McCracken has termed the "high end graveyard". Within three to five years SUNW will be in the same position as Cray was before it caved: selling a handfull of systems to an ever-shrinking customer base. Solaris on Merced will not save SUNW. It will only accelerate margin erosion and the demise of Sparc. The notion that SUNW will be better able to produce profits from commodity Merced boxes than the masters of the game (CPQ and DELL) is wishful thinking of the highest order. With little hardware profits and Solaris forced to undercut NT pricing SUNWs major source of profits will become their service and support operations. But with an ever-diminishing install base they will be forced to provide contract NT support services whether they want to or not just to keep going. SUNW's only hope is for Java to open up new high-growth markets for it to exploit, but I've yet to hear a convincing case of how SUNW will make money from Java. Even if Java and NCs achieve everything their proponents hope, the central servers supporting them will still be NT/Merced clusters in the end. It's precisely because of Java's platform neutrality that the server end will face commoditization in its full virulance. In a fully commoditized future SUNW stands no chance of battling the rest of the industry alone. The fact that they originated Java will be as meaninful to their financial success or failure as AT&T's origination of C and UNIX has been to theirs. SUNW's competitive position is uniquely precarious because they are battling not just MSFT but the rest of the industry. To date they have found lukewarm allies in a handful of companies but will face increasing backpressure from the likes of HWP and especially IBM as they attempt to force their way into the highest levels of enterprise computing in a futile attempt to escape the rising Wintel tide. The silver lining for SUNW shareholders is that IBM will probably buy them out at some point in an effort to retain its own position at the top of the food chain, but that will only pospone IBM's own day of reckoning by a few years. I'm confident IBM itself will be bought out by 2010 with the various pieces being divided among the Wintelpaq and Wintelco consortia.

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