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

To: Lynn who wrote (33790)	7/21/2000 9:18:54 AM
From: Lynn	Read Replies (1) \| Respond to of 64865

Hot off the press: "SUN MICROSYSTEMS:Stunner." ML research report by (our friend) Steven Milunovich and Alex Sheynkman. Buy/BUY Price: $98 1/16 12 Month Price Objective: $125 Estimates (Jun) 1999A 2000A 2001E EPS: $0.71 $1.02 $1.30 P/E: 138.5x 96.2x 75.5x Investment Highlights: We reiterate our Buy rating on Sun. Our price objective of $125 is 96X F2001 EPS estimate. Sun may be increasing its mindshare lead. The stock has benefited from accelerating earnings growth. We think the risk is that growth may slow in the second half. Fundamental Highlights: Sun beat consensus estimate of $0.33 by $0.06 due to strong 42% revenue and 52% order growth. Management increased its revenue growth forecast from 25% to 30%. The revenue growth will be stronger in the first half of the year due to the strong backlog and could slow in the second half as comparisons become more difficult. We are increasing our F2001 revenue growth from 28% to 32% and EPS estimate by $0.10 to $1.30. The numbers don’t lie. Sun and EMC have become the de facto server/storage choice for the infrastructure buildout. Sun is becoming the a new, more focused version of IBM. [snip] Sun’s gross margins declined 10 basis points sequentially to 52.1%.. The company believes that its gross margins will continue to decline in F2001 due to Sun’s aggressive pricing strategy to sustain strong top line growth. “New technology” vendors such as Sun and EMC are seizing the opportunity to gain share. R&D rose by 28% to represent 9.1% of the revenue while SG&A increased 34% year-over-year. Management expects to maintain SG&A increases below the revenue growth rates. The eSun initiative started to pay of in F4Q but the major benefits ($200 million in cost savings) will become visible next year. The balance sheet remained rock solid with more than $1.7 billion of operating cash generated. [snip] Sun is becoming the new IBM. Sun believes in an integrated computing approach as does IBM. High reliability is better achieved when the solution comes from one vendor, in Sun’s case its big Webtone switch. Like IBM, Sun is dependent on proprietary technologies (SPARC, Solaris). Where Sun still falls short is in the robustness of its offering, which the company is attaclking. Unlike IBM, Sun is focused with relatively few product lines. We have expected this strategy to work for the next couple years. The long-term risk, which CEO McNealy thinks will never materialize, is Wintel disrupting from below with superior price-performance. [end of report] Lynn