Sun Microsystems Inc.JAVA

Morningstar Rating

Stock Research and Analysis

by Rick Hanna

While Sun Microsystems is transforming itself into an open-source software company, its hardware business continues to get squeezed at the high end by companies such as IBM IBM and at the low end by companies such as Hewlett-Packard HPQ and Dell DELL. Read more

Bulls Say

The company boasts attractive new server and storage offerings that offer solid price performance.

Sun has swung to profitability and promises further margin expansion with additional workforce reductions.

Solaris has now exceeded 13 million licenses downloaded as a result of open-sourcing, and Intel, IBM, and Microsoft MSFT are now all committed to working with the operating system.

Sun's recent MySQL acquisition gives it a strong open-source database software offering to complement its Solaris and Java businesses. Read more

Bears Say

Sun's servers will continue to get squeezed by IBM at the high end and HP and Dell at the low end, putting downward pressure on prices and profits.

It is uncertain whether open-sourcing Solaris will significantly increase overall revenue opportunities.

Revenue and profit growth will be further challenged by lower-end servers being substituted for higher-end servers.

Sun does not have the depth and breadth of service offerings to compete with IBM and HP for enterprise customers. Read more

Strategy

The heart of Sun's strategy is to open-source its software and use its position to sell additional hardware and recurring software maintenance revenue. The firm is positioning its Solaris operating system as an open-source offering that can run on industry-standard hardware systems in addition to its own proprietary hardware. Read more

Management

Jonathan Schwartz replaced Sun founder Scott McNealy as CEO in April 2006. Schwartz held various strategy and operations positions before being appointed COO in April 2004. McNealy is still company chairman. The management team has strong industry experience, averaging 13 years, but its total of 10 executive vice presidents seems a bit top-heavy for a company facing such stiff price competition. Read more

Profile

Sun is a leading supplier of networked computing products, from servers and storage to software and services. Its traditional strength was its proprietary scalable processor architecture and Solaris operating system software. Read more

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