Is the worst over for Sun?
What's the state of things at Sun Microsystems? Judging by the robust attendance at the annual JavaOne, an encouraging report from Goldman Sachs' Laura Conigliaro, and a sharp rise in the stock price today on heavy trading, it appears that Sun may be shaking the doldrums that have depressed the entire stock sector this year. A research report by Goldman Sachs' Laura Conigliaro suggests the worst may be over for Sun, but it will take an uptick in the worldwise economy and the firm addressing some internal miscues.
Conigliaro's report, issued this morning, concluded that despite some internal miscues and a depressed tech economy, the Sun should rise in the next 12 months.
"After meeting with Sun yesterday, we came away concluding that, while these issues are not fully behind Sun, the worst part probably is," she wrote. "We do not think it is time to officially call a bottom but there is some evidence that it could be close at hand."
The best sign of this, she wrote, was the emergence of a few thousand new enterprise accounts in 2001, which should contribute to this year's bottom line. These new customers will be needed to offset decreased expenditures in the telco field -- where Sun has been historically strong -- and the loss of 8,500 small and medium business accounts in the United States.
In terms of internal miscues, she cited Sun's approach to the rapidly growing network-attached-storage field as being misguided. "The most critical [mistake] surrounds Sun's networked storage vision which, while sound in theory, overlooked the nearer term realities of the market, including a need for large enterprise direct attached systems," she wrote. "We guess that this may have cost Sun about B in revenue over the past two years as well as the opportunity to keep its accounts from needing to go to a competitor for storage."
Lest we get too optimistic, we should point out that Conigliaro was not totally positive after her meeting with Sun officials. She says that Sun is reporting more customer briefings and account activity, but this activity isn't yet translating to orders yet. The United Kingdom high-tech economy is still soft, and business in the United States is "stabilizing," not necessarily growing. "We have heard that some companies are beginning to suggest that demand is showing some signs of upticking in the United States," she wrote. "While Sun is not yet at that stage, we sense that it is pretty close to a bottom."
In addition, some high-end orders are being deferred, as the market waits for the release of the StarCat line, scheduled to be released in December.