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

To: Rusty Johnson who wrote (14478)	2/26/1999 2:35:00 AM
From: Rusty Johnson	Read Replies (1) \| Respond to of 64865

The Truth About SUN Forbes Digital Tool "The halo effect of Java and the Internet is getting Sun a lot of new accounts." forbes.com Java and Jini are two of the most overhyped names in the computer industry. Sun Microsystems' (SUNW) maverick chief executive, Scott McNealy, has been smart to make them his calling card. From popular television shows to business magazines to small startup web sites, everyone has bought into McNealy's Java-Jini gospel. The result is that the brash McNealy and his company are welcome in every single boardroom the world over; well, except for Microsoft's. Future marketing students will probably learn about something called McNealy's Law: Tell them what they want to hear then sell them what you want to sell. McNealy is now leveraging the success of Java and Jini to take Sun in a new direction. That new direction involves "big iron" or high-end servers, which cost a million bucks a pop, carry a 70% plus gross margin and add a lot of oomph to Sun's bottom line. These heavyweight machines go by the name Starfire, and they shouldn't be confused with your average, run-of-the-mill personal computers. The Starfire mainframe class computers can have up to 64 microprocessors running at the same time inside a box the size of a refrigerator, support 64 gigabytes of memory and have a maximum storage capacity of 60 terabytes. A whole roomful of 450-plus MHz Intel PCs cannot match the computing power of a single Starfire mainframe. Sun has sold 1,000 of these machines to companies such as Chase Manhattan, and the earnings on those sales alone is more than the company will ever see from the Java programming language. To McNealy's credit, it's been a good strategy and investors have been rewarded for supporting the company. In the past 12 months, Sun's stock has risen 121% to $102 from $46. Such triple-digit gains in stock prices were until recently reserved for the kings of the desktop computer kingdom--Intel Corp. (INTC), Microsoft Corp. (MSFT) and Dell Computer (DELL). How did this miracle happen? Up until the early 1990s, Sun had always been known for making solid, affordable high-end computers--servers and workstations--that run the Sun version of the UNIX operating system (Solaris), which is geared for academic and engineering use. It's been a stable business for the company, but not one that was growing at breakneck speeds. In this era of ever-increasing earnings, the prospect of 10% growth is not acceptable. Technology companies need more pizzazz than that. Enter Java, a language that can be used to develop applications that run on any computer platform, using any kind of chip. Its introduction in 1996 promised to revolutionize the technology world. McNealy added Jini to the marketing mix a couple of years later. Jini, a home networking technology, is a derivative of Java that, in simple terms, lets your toaster communicate with your refrigerator or any other appliance in your house. With these two hot Internet technologies in place, Sun suddenly had an aura of coolness when compared with other companies in the dowdy world of Windows and PCs. Inside nearly every Forbes 500s company, board members were wondering, who is this guy McNealy and what is Java? McNealy gets their attention and his marketing team makes the sale. Up until the early 1990s, despite having good products, Sun was not even considered a hardware supplier for these billion dollar companies, which felt more comfortable buying their hardware from the likes of Hewlett-Packard (HWP) and International Business Machines (IBM). Sun needed to get access to this blue-chip club in order to grow faster. "The halo effect of Java and the Internet is getting Sun a lot of new accounts," says Morgan Gerhart, program director, servers, for The Meta Group, a Stamford, Conn.-based market research and consulting group. Using Java and Jini to get attention, Sun is now on the shortlist of all corporate buyers, along with HP and IBM. This position is a 180 degree turnabout from even the early 1990s, when Sun was perceived as an upstart that produced workstations and UNIX servers which were not reliable enough to be used by telecommunication companies and financial institutions. The New SUN forbes.com What's Next for SUN forbes.com

To: Rusty Johnson who wrote (14478)	2/26/1999 2:49:00 AM
From: Rusty Johnson	Respond to of 64865

The New Sun Forbes Digital Tool The rise of the Internet and the new corporate mantra that "the network is the computer" has tilted the scales in Sun's favor. According to a recent Merrill Lynch survey of 50 chief information officers at top U.S. companies, Sun came in second, ahead of Microsoft, IBM and Netscape when asked, "Which computer companies do you think know the most about Internet computing?" Not bad considering that only 46% of those companies polled had bought hardware from Sun. The rise of the Internet and the new corporate mantra that "the network is the computer" has tilted the scales in Sun's favor. Wall Street analysts such as Goldman Sachs' Laura Conigliaro and Merrill Lynch's Steve Milunovich believe that an image-enhancing "dot.com" advertising campaign has lent a helping hand to McNealy's plans as well. To understand how small Java's revenue contribution is to Sun's bottom line, consider these numbers from Merrill Lynch: Java will bring in revenues of $300 to $400 million for fiscal year 2000 (ending June 30), a figure that is minuscule compared with the $13.4 billion in fiscal 2000 sales for the whole company. (Sun had revenues of $9.8 billion in fiscal 1998.) Net income is expected to rise to $1.97 billion in the millennium year, up from $906 million in fiscal 1998. Java's contribution to net earnings could be about $30 million. However, the attention it brings Sun is priceless. Sun's big wins have come as a result of two trends. The first is that processors have become smart enough to bring mainframe class performance to the server market. And second, an increasing number of companies have decided that they do not want to spend millions of dollars trying to keep these servers running. On an average it takes two technicians to keep a server running smoothly, which is an expensive option since a server technician can easily command a salary of $70,000 a year. That is, if you can even find such an employee, given the programmer shortage in the U.S. The thinking within major U.S. corporations is that if you can consolidate a lot of servers down to just one machine, it cuts back the number of tech-support personnel a company needs. For example, a Starfire is good enough to replace 16 servers and can be run by 8 or so people. That reduces the number of technicians needed by 24, from 32 (16 times 2) to 8. That's about $1.6 million in annual savings just on maintenance--enough to pay for the cost of the machine ($1 million plus) in the first year alone. The result is that in 1998 Sun was able to increase its market share to 13% or $2.3 billion from 7% in 1997, with the gains coming at the expense of smaller players like Silicon Graphics (SGI) and Siemens of Germany. And in terms of technology advancements Sun has caught up with IBM and HP. "Our competition for Starfire is IBM and the nearest thing is a mainframe from IBM, and we are taking a chunk out of their business," says Shahin Khan, director of marketing for Sun's Data Center and High Performance Products Group. Khan points out that while companies like Hewlett-Packard are talking about new machines, Sun already has quality products out in the market. "They have done well because others, like IBM and HP, have made mistakes, but they are coming back and Sun needs a real kick now," says Merrill's Milunovich. For example, almost all high-end server makers sell Windows NT-based machines, and that worries companies that want to use UNIX as their operating system. In addition, they banked too much on the high-end Merced chip from Intel, which is getting delayed again and again. Sun, has stayed on the UNIX course and has pumped out higher-speed chips at a steady pace--a comforting factor for corporate spenders. The need for high-end machines is increasing and it is important for Sun to maintain a leadership in this market. forbes.com