No. of Recommendations: 1
Had some more l'union discussion of SUNW, thought I'd share the most recent bit with KP as well. Here's the link to the message included below, sould you want to follow the discussion backwards.

Not earth-shattering, bankrupt-the-company omens, but just enough to make a potential investor wait for next quarters numbers before diving in.

I'd agree that it isn't earth-shattering.

From the 10-Q, we see: The increase in inventory and slight decline in inventory turns is primarily due to Sun's changes in business processes to carry more inventory in order to better meet customer demand and provide effective customer service. This is certainly an explanation I can live with, so long as it is not the sign of the beginning of a trend.

DSO has increased by just 5 days (to 52.7) in the last quarter, though it is still 15% below the level at this point last year (62.0 days). I'd agree that these are both something to watch, but I'm not sure if I'd go so far as to say that I'd do so before getting in. Instead, I'd watch it to determine if it is indeed the beginning of a new trend, and if it continues unchecked, then I'd get out.

At this point, these numbers are not bad ones, and in fact are superior to a number of companies, both larger and smaller than SUNW. Here's a sample. The DSO and DIO numbers are for the most recent quarter, while the ratio is simply the size of the company's revenues in comparison to SUNW (current TTM figures).

Company DSO DIO Ratio
------- ----- ----- -----
AVNX 42.3 66.2 0.003
BRCD 49.2 2.3 0.015
CIEN 77.9 80.5 0.041
CPQ 52.6 25.6 2.220 (*)
DELL 33.6 5.9 1.638 (*)
EBAY 38.8 0.0 0.017
EXTR 55.9 91.8 0.016
FDRY 62.9 80.2 0.015
HLIT 119.4 150.4 0.013
IBM 90.5 31.6 4.317 (*)
MCDT 75.9 28.5 0.008
NTAP 55.9 20.7 0.097 (*)
RBAK 66.2 30.1 0.009
SUNW 52.7 23.2 1.000
TXN 63.4 58.4 0.556

Companies marked with (*) are ones that I do not normally follow (I don't have spreadsheets for them), so I had to do the calculations by hand. I double- and triple-checked most, so I think they are right. Also, the ratio is on the most recent quarter only, since I do not have TTM numbers for those companies, who are all in the midst of their fiscal years.

In any case, SUNW seems to come out looking good. For DSO, the company is only bested by AVNX (with just .3% of SUNW's sales), BRCD (1.5%), DELL (163%) and EBAY (1.7%). CPQ is neck-and-neck for DSO - just a tenth of a day better than SUNW (on 222% of sales). In any case, this number doesn't seem out of line. What's more, with the exception of 48.3 just last quarter, 52.7 is the lowest number that the company has seen since the quarter ending in December of 1994, and that was only 51.5 days. Other than those two examples, 52.7 is the lowest ever turned in (back to quarter ending September 1993, which is all I have on file).

In DIO, the company has another excellent showing, being bested by BRCD (again, 1.5% of sales), DELL (163%), EBAY (1.7%, but who carries no inventory) and NTAP (10%). Again a solid number. Similar to DSO, DIO has turned in only 4 quarters better than this one - ever (20.9 days last quarter, 16.4 in 6/99, 20.1 in 3/99 and 22.4 in 6/98). The only reason I noticed it was because it was up from the most recent quarter, itself the third best ever.

We all know that DELL is the king of execution, and their numbers come as no surprise, even on larger sales - while SUNW is surely at the forefront of their market, DELL is at the forefront of theirs. It's also a volume market with much lower margins. Here's a post I did on the KP board that offers some comparison of the two companies.

What's more, the Flowie is down 8.5% year-over-year, the WCC is down a whopping 72.8% year-over-year and the CCC is down 13.3% year-over-year. These are the trends I like to see. I can handle a blip up from the bottom, so long as it doesn't become a habit.

I think that the numbers are good. Impressive, even. Though they do bear watching.

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