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Wednesday, August 23, 2006

Sun Stands Tall

Stocks: (SUNW)(HPQ)(DELL)(IBM)

After a withering series of setbacks in the sales of its servers over the last several years, it appears that Sun Microsystems is at the beginning of a potential comeback.

According to global tech research firm IDC, Sun's share of the global research market moved from 11.2% last year to 12.9% in the second quarter of this year. Adding to Dell's string of bad news, Sun displaced Dell in third place for server sales worldwide.

Sun's server revenue grew in its most recently reported quarter, according to Reuters, and the company said that this trend is occuring in the current quarter as well. And, Sun is just completing the roll-out of its new UltraSPARK IV+ servers, the product line that the company hope will drive much of its sales in coming quarter. In other words, the global server gains could continue if reception for the new products is good.

Sun still has to contend with the two giants in the server business, IBM and Hewlett-Packard. IBM's global share in Q2 was 31% according to IDC and HP's share was 27.8%. It is unlikely that they will take Sun's success lying down.

Sun's stock has had a rally of sorts recently. Its shares, which bottomed over the last year at $3.58, are now trading at $4.64. The 52-week high is $5.40.

Sun has to continue to battle the perception that it has "bought" its growth by acquiring Storage Technology and SeeBeyond. If Sun and Storage Technology had been combined in the quarter ending March 27, 2005, Sun would have shown no growth year-over-year for the quarter ending March 26, 2006 according to "pro forma" figures in Sun's 10-Q.

Sun can now demonstrate that it can grow organically with its acquistions fully in place. If its does not, Wall St will be disappointed.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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