The Charge Of The Light Brigade And Sun Micro SUNW, HPQ, DELL
Long time investors in Sun Microsystems must feel like the 17th Lancers and the other British who in 1854 rode into the "Valley of Death" as Tennyson called it. Of 673 men, 245 were killed or wounded. Upon hearing about the battle, French Marshall Pierre Bosquet said, "It is magnificent, but it is not war."
Sun Microsystems has gone a long way to prove to investors that it is a company, but it is not a business. After a recent run to $5.40, a 52-week high, when Sun named its new CEO, the stock has fallen back to $4.32. Five years ago, the stock traded near $20. With a market cap a little over $15 billion, the stock trades at barely one times sales.
Sun's business is probably irrevocably broken. Even though Sun has introduced servers with more competitive pricing and has done a great deal of work with the open source community and building compatibility with non-Sun operating software, the moves are almost certainly too late. Virtually every significant hardware company in the world has server products that could compete with Sun, starting with Hewlett-Packard (HPQ) and Dell (DELL).
After revenue ran from $7.1 billion in 1996 to $18.3 billion in 2001, it fell to $12.5 billion in 2002, and was $11.1 billion for fiscal 2005. So, the company has lost nearly 40% of its revenue.
Sun has also had negative operating income every year since 2001, accumulating a $5.5 billion operating loss from fiscal 2002 through 2005.
New management has done nothing to signal that the company's focus or business strategies will change in any important way. The anticipated cutting of another 5,000 jobs may drop expenses, but the devil for Sun has been the top line, and that remains the issue. Even though in the quarter ending March 26, revenue was up 21% to $3.2 billion, a great deal of this was due to the acquisitions of StorageTek and SeeBeyond. According to the 10-Q, if Sun had owned StorageTek during the quarter a year ago, revenue would be essentially flat. So, neither company's core businesses grew at all. And Sun's operating loss grew to $212 million from $142 million a year earlier.
To use Tennyson's language Sun is now "Shatter'd and sunder'd". It is time for the company's board to look at alternatives beyond running the company as an independent "business".
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.
Sun Microsystems has gone a long way to prove to investors that it is a company, but it is not a business. After a recent run to $5.40, a 52-week high, when Sun named its new CEO, the stock has fallen back to $4.32. Five years ago, the stock traded near $20. With a market cap a little over $15 billion, the stock trades at barely one times sales.
Sun's business is probably irrevocably broken. Even though Sun has introduced servers with more competitive pricing and has done a great deal of work with the open source community and building compatibility with non-Sun operating software, the moves are almost certainly too late. Virtually every significant hardware company in the world has server products that could compete with Sun, starting with Hewlett-Packard (HPQ) and Dell (DELL).
After revenue ran from $7.1 billion in 1996 to $18.3 billion in 2001, it fell to $12.5 billion in 2002, and was $11.1 billion for fiscal 2005. So, the company has lost nearly 40% of its revenue.
Sun has also had negative operating income every year since 2001, accumulating a $5.5 billion operating loss from fiscal 2002 through 2005.
New management has done nothing to signal that the company's focus or business strategies will change in any important way. The anticipated cutting of another 5,000 jobs may drop expenses, but the devil for Sun has been the top line, and that remains the issue. Even though in the quarter ending March 26, revenue was up 21% to $3.2 billion, a great deal of this was due to the acquisitions of StorageTek and SeeBeyond. According to the 10-Q, if Sun had owned StorageTek during the quarter a year ago, revenue would be essentially flat. So, neither company's core businesses grew at all. And Sun's operating loss grew to $212 million from $142 million a year earlier.
To use Tennyson's language Sun is now "Shatter'd and sunder'd". It is time for the company's board to look at alternatives beyond running the company as an independent "business".
Douglas A. McIntyre is the former Editor-in-Chief and Publisher of Financial World Magazine. He is also the former president of Switchboard.com, which was the 10th most visited site in the world at the time, according to MediaMetrix. He has been chief executive of FutureSource LLC and On2 Technologies, Inc. and has served on the boards of TheStreet.com and Edgar Online. He does not own securities in companies he writes about. He can be reached at douglasamcintyre@gmail.com.
posted by douglas mcintyre at 3:58 PM
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