Darrell:
I wasn't trying to be a smart ass or anything. But when I said I had SUNW in my porforlio and stated that Solaris is really a better OS than NT, and the fact that I like Scott McNeally, SUNW's CEO better than Mr. Gates, I got some unfriendly comments from guys on this board. No "pun" intended, I had DELL, MSFT in my porforlio as well and they are doing rather well, but I am just seeing more upsides in SUNW. I sent the following message to another investor in private mail on November 25, regarding why I bought SUNW in the first place. I think it will have the answers to your questions on why I think SUNW will continue to do well in the "replacement" market. It's rather long, but in retrospect, I was pretty savvy in my accessment.
At the time of the mail, SUNW was trading 73-75, and I told the investor to buy when it dips to 65. Obviously, SUNW has run up another 20pts since then. And it seems like my prediction of SUNW hitting triple digits in Feb 99 will be realized soon:
Dear XXXX (name withheld):
I've traded SUNW on peaks and valleys the past 2 years. I've made pretty good money on it, getting 5-10 pts swing every couple months. I tried the same thing when the market panic in late September. Got some SUNW at 42, added some more at 40. Since then, the following things have transpired:
1. SUNW reported strong earning results in Oct. Not so much on the 1 penny over estimate performance, but on the overall revenue growth all over the board. It's confirmed that they are eating up more UNIX market share and their low-end servers are also selling very, very well against the WINTEL box.
2. SUNW announced that they will add a smart card to the SPARCs to support windows 98/windows NT apps. You know, one of the things that Windows are so popular is because so many application developers write apps for windows only, they don't have a version for UNIX. By adding a smart card in a SUNW box, people can run traditional Windows programs on a powerful SUN box. This will definitely help SUN sell MANY more boxes to end users.
3. The announcement of Solaris 7.0. This is the first 64 bit OS out there on the market. Remember Windows 2000 is still a 32 bits OS, and it will be released in late 99, if MSFT are lucky. INTC's Merced chip is also about 1 year behind schedule (Merced is a 64 bit chip, just like Sparc, but it won't be out till early 2000.) Early next year, SUNW will be ready to release Solaris 8.0, which has large clustering support, large disk array support, improved Java virtual machine performance, etc... This will leave WINTEL further behind. And Dataquest's report did indicate that SUNW is taking great advantage of MSFT/INTC's delay, and SUNW's report showed that their order backlog is indeed at an all time high. Many IT managers are tired of waiting for Win 2000 to come out and switch to SUNW's SPARC.
4. The win over MSFT in court in accusing MSFT "bastardizing" Java. SUNW is only seeking $35M damage, that wasn't the big thing. The big thing is, with this win, SUNW further strengthen its position as the de facto in Java programming language standard. It also caught Wall Street's attention because they beat the "Big Bad" MSFT. That's why it was keep making all time high recently, because WS has largely ignored SUNW during the last 2 years, and thought UNIX has no chance against WINTEL. This is a huge psychological boost.
5. Finally, the NSCP/AOL/SUNW deal. They are forming the biggest alliance against MSFT in the industry. This deal is big, in the sense that AOL will rely on SUNW and its java technology in the E-Commerce arena. AOL doesn't want to be a internet content/service provider anymore. AOL wanted to be the biggest electronic commerce provider as well. AOL's success will translate to SUNW's success, because SUNW is the company that provides the underlying technology for AOL to realize its goal. This will also help SUNW to popularize Java as the #1 technology in consumer electronics. The ramification is huge. Java will be in the cell phone, in the cable set-top box, in your car's satelite navigation system... SUNW will no doubt benefit big time from this deal.
Base on the above phenomenon, SUNW's fundamental has changed. It has gained WS attention with the MSFT lawsuit victory and the NSCP/AOL aliance deal. People are starting to value SUNW differently, much different than a traditional Box Maker which executes well but doesn't deserve a PE of over 25. SUNW is now being linked to a internet stock, but the difference is SUNW has real, strong earning as well. That is why I am long on SUNW right now. After the MSFT lawsuit victory, the brokerage firm DLJ raised its 12 month target price to 90. But after the NSCP/AOL deal, it will go higher, much higher. I wouldn't be surprise to see SUNW reach 100 by Feb, 1999. Their earning at that time probably doesn't warrant that valuation, but I suspect a stock split is coming real soon. At this price of 73-75, I am a little bit hesitant to buy, but I suspect this price will be the 12 month low a year from now.
SUNW's management has demonstrated great vision and perfect execution in the last 5 years. It's one of the best high tech companies around, and one of the best well kept secrets in WS. People are just starting to realize its potential, the future is really great on SUNW.
I will add more to my long position if SUNW drop to the 65 level.
Anyways, that's just my opinion, maybe I am a bit bias because I use SUN's Ultra Sparc at work and it's a great machine, never crashes. I have some problems with how MSFT does business and always like SUNW. But looking at the technology, I like SUNW much better than MSFT. By the way, MSFT is a great investment for me too. But I think at this point SUNW has a little bit more upside. |
