Simon’s Blog

Sun Microsystems inc., going from strength to strength? No, I’m not crazy!  I’ve seen the share price! Despite that, though, I think Sun Microsystems inc., is actually becoming fundamentally stronger, as it fills out gaps in its hardware line (from high-end to low-end); and steps ever nearer to the completion of its software stack (data center management, back-up and recovery, virtualization, operating system, relational database, application server, VM-based multi-language programming platform, developer tools).  The company can offer complete solutions, with hardware tuned to run its software well; and the support to go with it.   It’s a truly compelling offering.

What do I mean by “filling in the gaps”? Well, just as one example, there’s long been a hole in Sun’s Intel/AMD-based server line for people that want to buy a server with a decent amount of on-board storage,  say 1TB.   Previously, if you wanted to put 1TB of storage on a Sun Intel/AMD server, you had to buy relatively expensive external storage systems.    Now that’s changed - Sun has great, competitively priced offerings in that area.  For example, take the Sun Fire X4140.  Right now, in the US, you can pick up this 1U box with 8 cores (2 X Quad-Core 2.3GHz Opterons), 32GB RAM, 1.2TB fast disk array (8×146GB SAS drives), 4 GigE network ports and redundant power supplies…  for $7,245.   This kind of box is great for virtualization, running databases etc. That’s a good deal. If I can get a deal like that in the UK, I’ll be looking to buy a few of these shortly.

While Sun’s offering is strong, though, it hasn’t quite yet got its story clear and easy to understand from the point of view of customers.  For example, although all Sun software is supposed to be free and open source (FOSS) - “no exception” - it actually isn’t.  The company’s new data center automation tool, xVM Ops Center, isn’t FOSS.  I’ve asked several members of the Ops Center team about this over a period of time, but I’ve never been given the impression by them that a version of Ops Center will made be available as a free download (despite the FAQ saying it will be).   When I ask, I just get pointed at other products in the xVM product line that are FOSS e.g. xVM VirtualBox.  VirtualBox is great, but it isn’t a data center automation tool!!

So, if Sun’s offering is so strong, how come its share price is on the floor?  Well, for at least the last decade, public markets have been massively dominated by investors that have the shortest of time horizons.  How short?  Probably 5-10% holding shares for as little as sixty days, while up to 80% of the others hold shares for a period of months, not years.   The truth is: unless these kind of investors believe shares in a company will increase in price tomorrow, they won’t buy the stock today.   And, if these same investors believe that shares in a company won’t increase tomorrow, they’re quite likely to sell the stock today.  For stocks with those characteristics, this means there will be more sellers than buyers in the market… which mean the share price will fall.

Sun is such a stock.  Until Sun can grow its revenues and profits, the company’s share price is unlikely to increase, and may even fall further if future quarterly results disappoint.  The truth is, though, that revenues and profits are a lagging indicator of a company’s health (assuming it has plenty of cash in the bank). The fundamentals at Sun look strong. So, while its share price today might be hovering around 5-year lows, its offering has not only never been stronger, but it’s also more compelling that that of its competitors.  A couple of days ago Sun’s CEO Jonathan Schwartz appointed a new head of global sales.  Time will tell if he can get the story out, get the sales organisation in shape, and grow Sun’s top line…