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Technology Stocks : All About Sun Microsystems -- Ignore unavailable to you. Want to Upgrade?

To: cheryl williamson who wrote (33173)	6/28/2000 3:36:00 PM
From: briank	Respond to of 64865

The Network Is the Computer By Alexander Muylle Technology Fund Manager Delta Beursvennootschap, Belgium theinternetanalyst.com SUN MICROSYSTEMS (SUNW) manufactures workstations, servers, storage systems, operating-system software (Solaris), and Java software. The company reported a very strong fiscal third quarter, which ended March 31. Earnings of $0.26 a share beat the Street's consensus earnings estimate by $0.03 thanks largely to strong 35% year-to-year growth in revenue. SUN is benefiting from accelerating demand and gains in market share against HEWLETT-PACKARD (HWP) and IBM (IBM). Management recently gave a very bullish briefing on the its outlook and Wall Street came away seeing year-to-year revenue growth of 30% to 35% in SUN's fourth quarter. SUN sees opportunities for growth expanding despite numerous competitive efforts against it. In fact, it recently won the hotly contested contract to provide EBAY's (EBAY) next-generation person-to-person trading system infrastructure, beating HEWLETT-PACKARD. (Some analysts suggest that HWP had won the contract only to see SUN snatch it away with too-generous-to-pass-up terms on hardware.) The company also indicated that its business from old-economy companies that are "Webifying," may be even stronger than its business with dot-com companies, which it said represents about 10% of revenue. MICROSOFT (MSFT) may have been the stock to own in the PC era, but SUN is the "must-own" stock in the Internet age. SUN MICROSYSTEMS has become a franchise Internet infrastructure stock. Its equipment has become the de facto standard at many service providers, including telcos, ISPs, ASPs, and Web-hosting companies. How did the company achieve this status? SUN is providing the complete backbone, or plumbing, for e-commerce and network computing. Customers want server hardware and software, storage hardware and software, and e-commerce middleware to be integrated in one family of products. Only a handful of companies possess the scale, resources, and technological prowess to deliver such a software stack. SUN is turning out to be the undisputed leader in this space, because it chose early on to focus on this market. SUN always believed that much of computing and software would ultimately be outsourced the way that telephony and utilities are today. Users won't have to deal anymore with the complexity, cost, and required expertise of computing. Java, which allows not just data but executable programs to easily be sent over networks, will enable people to access an exploding array of Internet services whenever they want and without having to keep and maintain complex software on their desktop. "MICROSOFT's vision was to put a mainframe on everybody's desk," says Scott McNealy, SUN's chairman and CEO. "We want to provide a dial tone for the Internet. Our companies couldn't have more different visions." SUN would like to offer the hardware and software needed to build out the Internet's "Web tone." The company had this early vision and is now reaping the rewards of sticking to it. SUN's technology and strategic direction are based on the growth in the number and variety of devices that will be part of a network that will demand networked or hosted services in the future. With bandwidth performance growing faster than processor performance, there will be a greater need for large servers, and with this in mind, SUN is focusing on scaling its systems well beyond current capabilities. SUN has been leveraging its software to expand its addressable market and protecting its hardware margins at the same time. Its strategy is very similar to the strategies of CISCO SYSTEMS (CSCO) and EMC (EMC). These companies drove the industry to adopt their set of software protocols and now derive high margins on commodity-like hardware. Independent software vendors (ISVs) are writing server-side and e-business applications for SUN's Solaris, which has become the server platform of choice, just as Windows was for the PC. This also enables SUN to expand into new vertical markets, such as healthcare, retail and entertainment. Once a software standard is chosen, switching becomes very difficult. The scalability, manageability, reliability, networking capability and ubiquity of Solaris make it an ideal choice for many e-commerce and telecom applications. In appraising SUN, investors should focus on revenue and not earnings per share. The opportunities in front of SUN are huge. SUN's selling, general and administrative expenses and its research and development spending represent more than expenses, they are investments. SG&A puts more sales people on the street to meet demand and improve service. R&D expenditures improve its Solaris, Java and Jini software and its Sparc family of microprocessors as well as other revenue generating technologies. This strategy will also enhance its competitive position in the long term. * Consensus three- to five-year EPS projected growth rate from Multex.com database. Fiscal years end June 2000E 2001E Earnings per Share $0.95 $1.20 P/E Ratio 96 76 Revenues ($ billions) $15.50 $19.70 Price-to-Sales 9-times 7-times