Interview with Dr Marc Tremblay
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I agree with most of the comments here about this being an exciting new opportunity for SUN. I think the challenge for the stock will be that although Wall Street is supposed to look to the future and reward innovation like this, most of the time it just looks backward.
Indeed, to a large extent most of the people on Wall Street don't have a slighted clue about the kind of technical issues being discussed. This was true in the dot.com boom too. To them "MHz doesn't equal performance" is seriously advanced thinking. To be fair to them, trying to predict future competitiveness of computer systems is hard for me - even if you assume everything will come out on time/to plan, there are a lot of unknowns since we just don't have enough info.
I think Sun's presentation at the analyst 2003 conference took the right attitude - just show real (predicted) performance as a simple graph, and don't get too technical. They should have explained more about the other good side effects though, like power consumption, time to market and design costs.
I listened to the general Q&A session at the conference, and not one single question was technical. Nobody even asked about the new chips or the systems they'd come in. So, it seems fair to say "they don't get it". (knowing better than Wall Street is a handy tool to get a good return on shares, but of course, there's always a large amount of uncertainty in trying to predict the tech market's future)
In a couple years if Intel, IBM and AMD are all gaining good share in the low end market, even if the new Sun chips will be twice as good for half the price, Wall Street won't reward Sun until it produces the goods and more likely, till the profits start coming in.
As has been pointed out here recently, Sun grew revenue market share in the low-end last year. I think it's reasonable to expect a repeat this year with US3i systems, server blades and upgrades. (I think IBM might grow their low-end market share with their RISC systems this year too) If Sun's 0.09um chips come out more or less on time (current plan is for early 2004 last I heard), and ditto for the low-end new systems planned for 2004, then they'll probably grow this market again in 2004. And then it's Niagara's turn in 2005.
What effect Niagara systems will have is hard to predict, since the jump in competitiveness should be quite large. If compute demand didn't grow at all, then for the categories Niagara systems are in, Sun's volume and revenue will go down because customers will be able to buy fewer, cheaper systems to do the same task! (which also means their market shares will go down) But of course, demand will grow - Sun will win contracts they wouldn't have otherwise (gone to competitors instead), and existing customers would be more likely to launch new services/applications with the new systems - ie their IT budgets stay constant, but they get more out of it. Niagara systems are low-end though, so additional revenue from software, storage and services would be lower compared to Sun's high-end systems.
However, these Niagara boxes would also often come as part of a larger system - eg they might be the front-end for a database / app server, so having more competitive low-end systems would help sell more high-end systems (and associated storage, software and services), though putting numbers to this sort of thing would be very hard. By itself, the low-end server market is only 10% of Sun's revenues or something, so the direct benefit to Sun's bottom line probably wouldn't be too noticeable. Of course, if Sun starts taking 5 points of market share per year in the low-end, that'll start to add up - the volume for the low-end is very high compared to the rest of the server market.
As an AMD investor, I'm comparing it to Hammer. Many have said it is very exciting, but it has done little for the stock so far.
Not necessarily - the stock could be in much worse than it would have been otherwise...
In my opinion, AMD's strategy is about the best they could reasonably be expected to do. As with Sun, making the best of it is another matter. A problem for AMD is that they're highly dependant on just a few products, and coupled with the low-end market being more price and performance sensitive, this can make for large swings in AMD's fortunes from quarter to quarter (might can make for good investment opportunities if you could predict this and were willing to play short term). Sun are more diversified - they have desktop, servers, storage, software and services with many categories and products in each. The enterprise market is somewhat quieter too, even if it's in a big slump right now.
Hammer/Opteron is very interesting for AMD and I do follow the AMD board, but don't post too often (too much traffic really). AMD also get a fair amount of revenue from Flash but as a whole I see that market going the same way as DRAM - lack of differentiation leading to small/negative profits. (AMD are focusing on the high-density end of the market, so might be better off than most)
If Sun can execute, it sounds like it would be a good trade to sell AMD and Intel in 2 years and buy Sun to take advantage of the time required for Wall Street to realize this is a winner.
The best thing that could happen to Sun's fortunes is for the enterprise market to wake up - that could easily increase Sun's revenue by 30% in 3-6 months, and $500m profits/quarter. Compared to that, their planned new products wouldn't have as big a bottom-line impact in the short term. On the other hand, nobody knows when the enterprise market will come back (it's been "wait until next year" for a long time now), while Sun's product roadmap has rough dates...
I would also encourage those of you that see this to buy AMD now and hold until Wall street starts to realize that Opteron is a winner.
Currently, I have about 10x more cash than shares, and I had been looking at a bunch of stocks to invest in around now, but the war has complicated things. From a personal perspective I'm more interested in pure technology than share trading, and Hammer/Opteron is very interesting to analyze. However, from a share perspective, what I'm interested to see with Opteron is not what performance the CPUs will have, but what OS, ISV and OEM support it'll have (CPU price and performance do affect OS, ISV and OEM support and demand though of course).
This is really the opposite of Netscape. With Netscape (and many others of course) the company got the reward in stock price for the idea. Now days Wall Street has moved to Missouri (the show me state). A good idea will give your stock a 5% boost, but to get the big payoff, you have to deliver.
Wall Street is still very interested in expected performance, so AMD getting a major OEM deal with Opteron should boost the stock big-time though the immediate pay-off would be small. Sun's stock didn't seem to get any benefit from their new announcements, and the actual release of the systems may not make too much difference by itself either. However, if Sun can announce that Google (for example) is moving entirely to Niagara/SPARC systems, and can give similar examples of major x86 installations queuing up to move to Sun, that'd certainly perk the stock up.
PS A number of companies' stock prices are suffering "unfairly", and some are starting to de-list - i.e. the benefit of being private now outweighs the benefit of being public. The Economist had an article on this last week, though you need to pay to see it.
Here's a snippit:
Estimates of the additional costs for a public company range from a conservative $1m to $3m, depending on the size of the firm. The cost of public equity, which in normal times is lower than that of unlisted private equity because investors value the liquidity that comes with being traded on an exchange, has soared for firms, because research analysts and run-of-the-mill investors have shunned them, making the market for their shares painfully thin. In today's depressed stockmarket, it is almost impossible for such firms to issue fresh equity or for investors to sell large blocks of shares in them without accepting a big discount to the quoted price.
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The case for going private is less clear for a second list, of 20 larger firms, recently compiled by Mr Larson. These firms also suffer from the high costs of being public, trade cheaply (although not below liquidation values) and - in the cases of Circuit City and Celera, for example - appear to have been misunderstood by the market. At the least, he says, these firms should investigate carefully whether remaining public still makes sense.
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