Foolish Forecast: Do We Need A New "Mr. Golden Sun"?

The sun has been setting on Sun Microsystems (Nasdaq: JAVA  ) for some time. Can management still turn this frown upside down, or is the servers-and-software maven growing too irrelevant, too fast? Some people are even calling for the head of Schwartz hanging under a tiny golden parachute. I wouldn't go quite that far -- yet.

What Fools say:
Here's how Sun's CAPS rating stacks up against some of its peers and competitors:

 

Market Cap (billions)

Trailing P/E Ratio

CAPS Rating (out of 5)

International Business Machines (NYSE: IBM  )

$119.9

10.0

****

Microsoft (Nasdaq: MSFT  )

$152.9

9.2

***

Hewlett-Packard (NYSE: HPQ  )

$86.2

11.0

***

Oracle (Nasdaq: ORCL  )

$84.7

15.2

****

Red Hat (NYSE: RHT  )

$2.7

34.9

***

Sun Microsystems

$2.7

N/A

**

Data taken from Motley Fool CAPS, Jan. 26.

Sun looks like "a company that's putting all its fingers in random pies while blindfolded hoping to lay claim on something sweet," says bearish CAPS member DestyNova. "But because of the blindfold, they don't realize that they're in a cow pasture not a bakery. I know people who have worked there and their assessment is that it looks pretty much the same from the inside than it does from the outside: directionless, throwing money everywhere, desperate, etc."

Yikes. Well, "Longleaf as an activist is a warranty," said gpiazzolla in defense of an "outperform" rating on Sun issued back in November. All-star member ebitebit likes the company's products in the server, storage, and software markets, also noting in November that "Any of the above would be a good bolt on acquisition for several competitors. Putting these technologies together can be a potential winning value proposition but need new managent vision and drive."

What management does:
Sputter! Cough! Hack! Barf!

Rivals like Oracle, IBM, and HP have shown that both hardware and software businesses can survive and even thrive despite the dark economic times, but Sun hasn’t been able to follow suit.

Margins

6/2007

9/2007

12/2007

3/2008

6/2008

9/2008

Gross

45.2%

46.3%

47.2%

47.3%

46.5%

44.6%

Operating

2.9%

4.5%

5.7%

6%

4.8%

2.5%

Net

3.4%

4.4%

5.3%

4.6%

2.9%

(10%)

FCF/Revenue

3.4%

5.7%

6.4%

7.8%

5.8%

2.5%

Growth (YOY)

6/2007

9/2007

12/2007

3/2008

6/2008

9/2008

Revenue

6.2%

2.7%

1.4%

0.5%

0.1%

(1.8%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As much as I respect Sun's stature in computing history and enjoy CEO Jonathan Schwartz's freewheeling bravado, I still wish that the company could sit down and decide what it really wants to be. Sun is too small to be another IBM, juicing software returns with hardware lock-ins and vice versa. It needs to choose a side and then get really, really good at either hardware or software. It hurts to sit on the fence like this.

Schwartz revived Sun from the brink of death when he took the CEO seat back in 2006, breathing new life into flagging sales and cash flows. But the old magic isn't there anymore. Maybe the man needs some new advisors, or perhaps three weeks of sipping margaritas in sunny Belize could regenerate the former genius.

Either way, he'd better get it done quickly. If I was a shareholder, I'd start losing my patience with Sun right about now.

Further Foolish sunsets:

Microsoft is a Motley Fool Inside Value pick. Try any of our Foolish newsletters today, free for 30 days.Or just sign up for a free CAPS account to find the identities of your fellow Fools who were quoted above. They might have more to tell you!

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the Punxsutawney Phil of financial forecasting.


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