I received Morgan Stanley's detailed report on its Strong Buy rating for SUNW. Can't post it due to copyright laws but some of the key points with respect to upcoming earnings are as follows:
- For this quarter, expenses are heavily back end loaded, so if some revenues don't materialize they have some flexibility so that they can meet expectations of 60 cents with slightly lower revenues
- MS reduced its qtrly EPS est from 62 cents to 60 cents based on Management expressing comfort with this figure
- Although lower end PC hardware, NT servers, etc are seeing substantial presure in the marketplace, high-end server business continues to be strong for HWP, SUNW and IBM. This has been confirmed by MS by talking to resellers. SUNW's high end server business is seen as the strongest among competitors and gaining market share.
- Asia will cut growth rate by 1 to 2 % points (from 20% to 18%) in the near term. US growth remains strong (about 20%), Europe is expected to be in the high 20s)
- Recent sell-off was as over-reaction to caution expressed at the MS conference, according to MS, and expectations of an earnings warning- MS dosen't expect that to happen given the flexibility that SUNW is retaining w.r.t. head count and expenses for the quarter.
- Long term they think SUNW is better positioned than both HWP and IBM to take advantage of the corporate shift from mainframe to servers / Internet. NT is nowhere near in terms of scalability, reliability and cost. (In the prior weeks' report on Server industry, the analyst had mentioned that he had seen numerous cases where more than 50 NT servers were being replaced by 1 Starfire, greatly reducing the cost of ownership)
- Recommends adding on weakness, as earnings for SUNW in its current position will be a lot less suspect to Asia, tech woes, etc than low end playuers in the computer market.
I found the report to be quite positive and it did allay some near term concerns that I had with repsect to SUNW, esp since it constitutes a significant portion of my portfolio.
Regards
Alok
They have a price target of 57. |
