Why Sun Has Potential

Sun Microsystems (Nasdaq: Java) should be quite a familiar name to techies, at least to those who are around my age.

Long long time ago when Linux was immature and M$ was shitty, Sun computer's Unix heritage and the Ultra-Sparc architecture at one time was synonymous to high computing power and solid performance.

Unfortunately, the past years Sun was not paranoid enough to sense how the market landscape has been changing: Moore's Law charges forward, and some OSes have advanced enough to be suitable for public consumption (what get in my mind are, in no particular order, Linux, BSD series of Unix including OS X, and Windows XP. Though I am no big fan of M$, but honestly I must admit Windows XP, up until SP2, is a pretty decent and usable OS now)

Sun got back to my radar when it introduced its open-source Niagara 2 processor. At that time I thought it was a publicity gimmick, because come on, how many people will and can manufacture processor in this world? Hacking processor source code for fun anyone? Not me.

Then Sun introduced the OpenSolaris with the ultra sexy ZFS. The development is getting more and more interesting when Sun acquires MySQL. Now Sun has in hand an impressive system portfolio which consists of processors, OS with fail-safe file system, and a database.

With the patents it currently holds, it is not likely those technologies will be implemented in competing products. To me, it seems Sun has the potential to be the Apple in the high margin, lucrative server market. The potential lies in a total solution for customers. Right until now, there is no single company that provides an integrated solution from chips to database.

There sits a huge market for servers. The tricky question is how Sun is gonna to monetize the products?

I must point out there is still a long way before Sun can build an eco-system that brings in profit. Cuppa's few pointers for Sun:

• Make an impeccable system with all hardware and software components play well with each other. Apple is a good example
  
• Maximize the adoption of its platforms so that there is a critical mass of people who are comfortable in using Solaris
• Price the product competitively, especially in the early years where not many people have used Sun products before
  

Finally, will I buy its share now? I will say no, because I foresee there will be turbulences ahead. It will need sometime to digest the MySQL acquisition. However if I were to start a company, I will get a Sun server/workstation if its price is sane enough.

With the current price of $12.41 and PE ratio of 16.90, I think there will be more downward movement. I feel a PE ratio of 12 is more reasonable, which translates to a price of $8.81.

Recommendation: Wait and See if you wanna buy its shares