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Technology Stocks : All About Sun Microsystems

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To: Arthur Tang who wrote (64013)	11/4/2006 9:07:12 PM
From: E_K_S	Read Replies (2) of 64865

Hi Arthur - I would have to disagree with you. The service business is quite predictable especially with annual license and seat fees. The service revenue margins are on average higher than for the equipment. SUNW's AMD based hardware have lower margins than their previous SPARC systems. SUNW may be able to charge a slight premium with Niagara products but SUNW is selling a "total enterprise solution" so they are motivated to price their overall package competitively. Since SUNW also has a big investment in their storage products, the "total package" includes the complete enterprise storage needs. This includes some very profitable opportunities in software management systems that also include separate license fees. When you say "Service" is a low margin business, you are just wrong. When you layer the service revenue stream with Enterprise system license fees, software application license fees and product upgrade fees, you begin to generate large customer revenues. Finally, as new product cycles kick in and these customers upgrade their equipment to next generation technology, the customer service contracts are usually extended with multi-year service contracts that reflect the life cycle of the new equipment. The key for this to become a profitable business model for Sunw is for them to keep their 1st tier large enterprise customers (and upgrade them through several product cycles) AND add new 2nd and 3rd tier customers. This is slowly happening. SUNW's marketing needs to be more aggressive in developing these 2nd & 3rd tier customers through innovative new "enterprise package" promotions. This is what Oracle is doing but rather than developing this organically like SUNW, they are acquiring their 2nd & 3rd tier customers. EKS

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