Jim.
Are you sure about SUNW? The past year was their product transition year. The earning growth was slow. But they are really picking up steams now with the new Starfire system, Solaris OS coming out... Their revenue growth is picking up big time, from Q4 17.3% to Q1 22.5%. With the delay of Merced and Windows 2000, they are taking advantage and gaining market shares. Plus the troubles in HP, DEC and SGI, they are eating up the UNIX side of the pie.
Basically, this court win validates their position as de factor in Java technology's standard. Granted revenue hasn't streamed in from Java, but when you are controlling such an important technology, it gives you a lot of leeway.
Is 24.3PE on current fiscal year too much for SUNW? Nope, during the past 5 years, SUNW has traded between 16-39PE. The current 2.77/share estimate was done last quarter, didn't account for any upside surprise SUNW had. SUNW has consistently beaten the street estimates 1-3 cents during the past 5 years, I think this estimate does not reflect SUNW's current upside surprise now. I think the current year earning will be at least 2.85, which should be 24.5% in 1998. During the last 5 years, SUNW's earning growth is 41.5%, I don't know why you say their valuation is too high?
What is their fair valuation? $35, $40? Why do you think Corporate will suddenly abandon SUN's servers once Windows 2000 come out? Afterall, those SUN boxes aren't cheap, why change it when they are pretty reliable and scale well? I don't think Win 2000 will eat away SUNW's market share. There will be markets for SUNW and there will be markets for MSFT. McNealy is smarter than what you give him credits for. |
