Sun Microsystems (SUNW..now JAVA) is a buy
8-24-07: After much debate, we are putting our support behind Sun Microsystems (SUNW). We believed SUNW is poised to take off. Currently trading around $5 per share, our opinion is SUNW is undervalued. This stock has the potential to double in the next 2 years. The primary reason for our optimistic view is SUNW is finally taking the necessary steps to improve its competitive position. Corporate spending also remains strong, which should benefit Sun.
Since the dot com crashed, SUNW has been on a slippery slope. As the dot com went bankrupt one by one so did Sun’s revenue stream. The customers that are left slowly abandoned the UNIX platform and opted for more cost effective alternative such as Intel based computer on a LINUX operating system. Sun quickly fell behind as there were not many compelling reasons to keep running Solaris on an expensive hardware from Sun.
The company’s Java product was a huge hit when it first launched in 1995, but Microsoft kept putting up road blocks which impeded Java's growth. It got to the point where Microsoft decided not to bundle Java with its operating system. While the legal battle against Microsoft has been settled, the two companies still hates one another. Microsoft ended up paying SUNW over a billion dollar for their Java license infringement.
A lot has changed over at Sun. Scott McNealy is no longer CEO. The company is now in the black. Last quarter’s earning looked respectable. While the company resorted to cutting employees from it payroll to keep cost in line with its revenue, it was a positive move. For the longest time, SUNW resisted the idea reduction in force despite the declining sales. The new management team, headed by their new CEO, Jonathan Schwartz appears to have a good long term strategy. The strategy appears to be cost containment and partnership. Its recent partnership with IBM to sell Sun’s product looks promising.
There are several other reasons to be excited about SUNW. About a year ago, KKR (KKR is a private equity firm) decided to invest in SUNW giving the company a much needed infusion of cash. With the KKR investment, there is a chance SUNW could go private and restructure itself.
Our opinion is there are many challenges ahead of SUNW. As the technology sector continues to evolve, we must not count out Sun. Moreover, the fact Sun appears to have gotten their finances in order is a positive sign. We will look to add SUNW to our portfolio. At current price, we believed the risk is minimal compare to the upside.
NOTE: 8/27/07- As of today, Sun's ticker has been changed to JAVA.
Comments
Could you please confirm the Sun Microsytem ticker symbol? It appears that has been changed to JAVA.
Thanks
Posted by: Adam | August 27, 2007 05:08 AM
Yep, it appears Sun has changed their ticker to JAVA to take advantage of the Java brand.
-ibooyah
Posted by: ibooyah | August 27, 2007 09:19 AM
Could you post comments right around there is an opportune time? Last time the turnaround was too quick to miss. According to DOW theory since transports have closed under support for many times (it actually slashed the February lows); DOW should stop it's decend right around 10,800. Do you believe in that theory or rather are you following that theory?
Posted by: Tushar | August 28, 2007 08:34 AM
Looks like JAVA is making a nice run right now. Do you have any theory regarding a top side for this stock?
Thanks
Posted by: Adam | October 11, 2007 06:15 AM
Adam, JAVA is indeed on the move. We've been loading up in the mid $5 per share. As far as the upside potential, if they report good number next month, I think we'll see the stock break the $7 mark. If not, we'll be back in the $4 range. We are however optimistic and believed the company will report favorable number with semi-aggressive guidance.
Posted by: ibooyah | October 15, 2007 04:14 PM