Morgan Stanley cuts Sun Microsystems, upgrades Dell
Fri May 23, 2008 9:24am EDT
May 23 (Reuters) - The server market is entering a new cycle that will drive the market to lower-priced systems, Morgan Stanley said and downgraded Sun Microsystems Inc (JAVA.O: Quote, Profile, Research), the world's No. 4 business computer maker, to "underweight" on likely market share losses due to its high-end server exposure.
Analyst Kathryn Huberty, however, upgraded Dell Inc (DELL.O: Quote, Profile, Research) to "overweight," saying the world's No. 2 personal computer maker will benefit from the shift in trend to lower-priced servers as all its server revenue comes from the low-end market and its products are priced below that of rivals.
"We believe the market underestimates Dell's market share opportunity in servers as low-end growth re-accelerates," she said. "We view Dell as a share gainer in servers over the next two years and note that this is one of the company's highest margin segments."
Shares of Dell rose nearly 3 percent to $21.48 in trading before the bell Friday, while Sun Microsystems shares fell about 2 percent to $12.88, after analyst Huberty said the accelerated volume growth at the low-end of the server market is an emerging trend that is not yet priced into stocks.
Over the past two years, virtualization drove a shift to higher-priced systems, but this trend is reversing as lower-priced servers are "good enough" for many enterprises, in part due to new multi-core processors, Huberty said.
Server virtualization software allows companies to boost the efficiency of hardware, enabling a single machine to perform the work of 10 or more servers.
The analyst previously rated both stocks "equal weight," and has a $28 price target on Dell stock.
Huberty said she still rates Hewlett-Packard Co (HPQ.N: Quote, Profile, Research) and International Business Machines Corp (IBM.N: Quote, Profile, Research) "overweight," as both companies offer strong brand recognition in enterprise accounts with earnings levers to help offset pricing pressure.
Shares of HP closed at $44.90 Thursday on the New York Stock Exchange, while IBM shares closed at $124.70. (Reporting by Tenzin Pema in Bangalore; Editing by Deepak Kannan, Himani Sarkar) |
