The Motley Fool Discussion Boards

Previous Page

Stocks S / Sun Microsystems, Inc.


Subject:  Java isn't the reason to buy Sun's stock Date:  1/3/1999  3:37 PM
Author:  tbeyers Number:  816 of 15635

Although I'm new to the Fool, I've held Sun stock for about two years now. I won't sell anytime soon because:

1. businesses are just beginning to discover the potential the Internet holds for doing business. "E-commerce" -- i.e., buying and selling conducted via a web site -- is thriving. Doing business on the Internet requires software, powerful computers called servers and the network links to communicate data. Sun has products that address all three of those functions. Only IBM and perhaps Compaq can also make that claim.

2. the Y2K problem has created interest among many businesses to update their existing systems with new hardware and software that won't fail on Jan. 1, 2000. Sun's servers and software can fill that need quite nicely.

3. Sun is the leading vendor of servers that use the Unix operating system. Despite Microsoft's claim that it's operating system for servers is gaining momentum -- Windows NT (now known as Windows 2000) -- it has not impacted sales of Unix servers. Experts as early as a few months ago predicted that sales of NT servers would rise dramatically, impacting margins on Unix servers, the heart of Sun's business. This hasn't happened, and isn't likely to happen anytime soon.

Of course, Java has the potential to bring in lots more money for Sun over time, but it's real value is that it makes it easier for Sun servers to work in any existing environment because it's what Sun calls "cross-platform." In the most basic analysis, that means that a company using NT servers can also use Sun servers. That means more hardware sales and bigger margins.

Java accounts for a very small part of Sun's revenue currently. Thousands of applications using Java will need to be out before it will become a serious source of revenue for Sun.

Bottom line: Sun is and always will be a hardware company, and it's financial health is predicated on being able to sell it's large systems. Desktop computers, software and chips (i.e., SPARC) are all second-tier Sun products.

So, based on the demand for Unix servers, and the increasing desire for companies to generate business using the web, Sun looks great for '99 and beyond.

What could hurt Sun badly? A slowdown in the demand for servers or a drop-off in interest in Java. Neither of those scenarios seem likely, however.

Copyright 1996-2022 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us