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Strategies & Market Trends : The Thread Formerly Known as No Rest For The Wicked -- Ignore unavailable to you. Want to Upgrade?

To: Esway who wrote (28037)	4/15/1999 12:30:00 PM
From: Tim Luke	Respond to of 90042

after the bell

To: Esway who wrote (28037)	4/15/1999 12:31:00 PM
From: Tim Luke	Respond to of 90042

Silicon Valley Apr 15, 1999 Sun's Earnings Should Shine By Eric Moskowitz Senior Writer While the PC business is slowly becoming a commodity business, hardware and server maker Sun Microsystems (Nasdaq:SUNW - news) is emerging as one of the main success stories of the current Internet age. Sun is expected to beat estimates once again when it reports its third-quarter earnings after the close Thursday. The 20-analyst First Call consensus earnings estimate for the company is 35 cents a share on a postsplit basis (Sun's 2-for-1 stock split announced at the start of the year went into effect Monday). "The math's simple" on Sun's heady valuation, says Amit Chopra, an analyst with Credit Suisse First Boston who rates the stock a buy. Chopra says strong sales in servers, services and two Internet-related businesses should give Sun year-over-year revenue growth of 20% or more. "Hewlett-Packard (NYSE:HWP - news) and IBM (NYSE:IBM - news) can't touch that growth." (Credit Suisse First Boston is not an underwriter for Sun.) Third-quarter revenue is expected to be around $2.9 billion for the company, up from $2.36 billion in its second quarter. Sun's fiscal year ends in June. Wall Street has embraced Sun's Internet strategy much as it has IBM's, but unlike Big Blue, Sun is not held back by having to compete in the treacherous waters of PCs. No wonder Goldman Sachs analyst Laura Conigliaro says Sun has "a better identity advantage." The big challenge for Sun is to contend with Microsoft (Nasdaq:MSFT - news) in the $19 billion server market. According to International Data, at the end of 1998, Sun owned 31% of this market vs. Microsoft's 40% share. Hewlett-Packard may present some competition to Sun in the server field with this week's launch of its midpriced N-Server, says Paul McGuckin, vice president and hardware analyst for the Gartner Group. H-P's new server will give Sun a run for its money, especially since Sun is nearing the end of its product cycle, he points out. McGuckin also is concerned with the lateness of Sun's next-generation processor, the UltraSPARC III, which is about a year late already. "Management keeps changing the date," he says. Sun's on such a roll, however, that analysts are focusing instead on the company's growth rate. "Sun has been one of the standouts this quarter," says Conigliaro, whose firm has Sun on its recommended list, which is Goldman's highest rating. (Goldman Sachs is not an underwriter for Sun.) She says that as long as investors continue to compare Sun with H-P, which will only have 6% to 8% revenue growth this year, and IBM, with its high single-digit growth, Sun's 20%-plus growth rate looks pretty robust and makes the stock worth the premium at which it currently trades. Shares of Sun closed 2 15/16 lower at 62 9/16 Wednesday amid general weakness in technology. The stock has been up about 40% for the year. The key to future success for the company will be execution, said CFO Michael Lehman in a recent conversation. "If we can continue to outexecute our competitors, much like Dell (Nasdaq:DELL - news) does in the PC space, then we should be fine." Of course, that's easier said than done. But Sun should be wary of feeling too smug, warns McGuckin. "With so much going right, Sun reminds me of H-P five years ago," he says, referring to when H-P was adored by the Street much the same way Sun is now. "It's almost impossible to escape that phenomenon."