Sun Microsystems Essay, Research PaperWith an employee work force of four, Sun Microsystems was incorporated in 1982 by Andreas Bechtolsheim, Vinod Khosla, Bill Joy, and Scott McNealy. Originally began for Stanford University Network, Sun Microsystems has been a planetary leader in introducing merchandises, services and support solutions for building and keeping web computing machine systems. The first system built by Sun, the Sun-1 was introduced in late 1982 and was a high public presentation, UNIX based computing machine constructed of cheap stuffs. Within a twelvemonth of incorporation Sun was runing in Europe, and shortly spread throughout the universe.Corporate MissionFrom Sun s birth, there was ever a corporate accent on the power of the cyberspace and networking. A belief that the cyberspace was the hereafter was built-in in the corporate civilization and was built into the company model through the mission statement:We enable clients to make breaking away concern schemes by utilizing our web computer science merchandises, solutions and services.
In an age where information is power. Sun provides the engineering, invention and partnerships that enable persons or full organisations to entree information. . . from anyplace. . .
to anything. . . on any device. .
. leting users to break differentiate and more efficaciously make breaking away concern merchandises and services.This strong belief is reiterated in Sun s vision statement:Sun is web calculating. Everything we bring to the market is predicated upon the being of the web, where Java is on every client and every waiter.Sun s vision is for a networked computer science hereafter driven by the demands and picks of the client. It is a vision in which every adult male, adult female, and kid has entree to collective planetal wisdom that resides on the web.These strong networking and cyberspace beliefs made Sun the premier company when, in 1994, there was a immense rush in internet use.
At that clip, approximately 30 % of waiters were made by Sun.Business SchemeSun s aim is to spread out its place as a taking planetary supplier of web calculating merchandises and services. To accomplish this scheme Sun is endeavoring to:& # 183 ; Develop web merchandises and engineerings that enable the Internet and the Net Economy& # 183 ; Provide competitory solutions based on unfastened industry criterions& # 183 ; Extend engineering leading and invention& # 183 ; Invest in support, instruction, and professional services& # 183 ; Leverage strong industry relationshipsFINANCIAL PERFORMANCESun is a taking provider of endeavor web calculating merchandises, and has a full scope of services and support. The company s merchandises are used for commercial and proficient applications worldwide. As a planetary rival, Sun is capable to interchange rate hazards. There are a few markets Sun should be particularly cautious of, including: Nipponese Yen, British Pound, Gallic Franc, and German Marc.
Sun holds a big place in these potentially volatile markets. Despite its current recovery, Sun should be wary of the Nipponese Market. Any major displacement in this market could negatively impact its grosss. Another consideration it the value of the dollar. As the dollar strengthens in the US, the dollar value of non-US dollar based gross revenues abroad lessenings. In order to fudge these hazards, Sun routinely uses options & A ; hereafters contracts in foreign states.Common SizeIncome StatemntYear Ending June 30 1999 % 1997 %Net Revenues ( in mil. ) $ 11,726 100.
0 % $ 8,598 100.0 %Costss and ExpensesCost of gross revenues $ 5,648 48.2 % $ 4,320 50.2 %Research & A ; development $ 1,262 10.8 % $ 826 9.6 %Selling, general, admin. $ 3,173 27.1 % $ 2,402 27.
9 %Purchased in-process R & A ; D $ 121 0.9 % $ 23 0.3 %Entire costs and disbursals $ 10,204 87.0 % $ 7,571 88.0 %Operating income $ 1,522 13.0 % $ 1,027 12.
0 %Interest income, disbursal ( net ) $ 84 0.7 % $ 32 0.4 %Income before revenue enhancements $ 1,606 13.7 % $ 1,121 13.
1 %Provision for income revenue enhancements $ 575 4.9 % $ 359 4.2 %Net Income $ 1,031 8.8 % $ 762 8.9 %Net income/common share-dil $ 1.27 $ 0.98Shares used in the computationNet income per common share-dil 814 778Presently, grosss outside the United States are increasing. This is chiefly due to the continued market credence of Sun s web calculating and merchandise services.
Approximately one half of the additions in gross are due the continued strong demand for endeavor and work group waiters, every bit good as increased grosss for their storage merchandises division. Recently, the company has made an overall displacement to premium service and support contracts in the service division. This alteration is advantageous due to the big installed base of high-end waiter merchandises, and is chiefly responsible for the increased unit gross revenues in the service division. Sun has besides experienced increased gross from their professional and educational merchandises.The company continuously evaluates the fight of its merchandises and service offerings. These ratings could ensue in re-pricing actions adversely impacting grosss in the short term.
This is due to the company s belief that to maintain the competitory border in the market topographic point, a company must continually better bing merchandises every bit good as introduce new 1s. The company will accomplish this even if it means the cannibalization of bing merchandises.Fiscal Statements and Ratio AnalysisAfter reexamining the company s one-year studies and other historical figures, we can measure the current stock pricing tendencies and fiscal well being of the company.
Based from this information, the company s cyberspace grosss have continuously increased over the last five old ages making 11.726 billion in financial twelvemonth June 30, 1999. A common-size income statement analysis of the company shows us that Sun s cost of gross revenues as a per centum of cyberspace grosss has decreased in 1999. In the engineering sector, monetary values for merchandises can frequently fall faster than fabrication costs to bring forth them.
Tight control over costs of gross revenues is a positive mark for a company in this industry. This shows us that Sun is keeping their competitory place in this country. The outgos on research and development have increased somewhat in 1999. This can be attributed to the uninterrupted development necessary to remain competitory in this industry. Tech companies tend to turn much faster than companies in other industries.
Because of this, R & A ; D outgos are particularly of import in the long term wellness of engineering companies. Sun appears to be adequately utilizing financess in this country.The merchandising, general, and administrative disbursals have increased in dollar value but remain changeless as a per centum of gross. Some grounds for the additions in SG & A ; A are attributed to its uninterrupted betterment of internal concern procedures, increased selling costs, and increased caput count needed to run into rising demand.
However, it is imperative that the investings in SG & A ; A should non lift as a per centum of gross for the company to stay competitory. The purchased in-process R & A ; D line on the income statement reflects the sum of write-downs associated from freshly acquired companies.The information provided from the one-year study for twelvemonth stoping 1999 nevertheless, is slightly deceptive. Two months after the one-year study was filed with the SEC, Sun acquired Star Division Corp.
on August 5, 1999. All the capital stock of Star Division stockholders was converted to the right to have hard currency. The entire purchase monetary value of the company was about 60 million.
No extraordinary disbursals or the associated alterations will demo until the new one-year study is filed for financial twelvemonth 2000. Because of this, any premises made based on the 1999 figures will be distorted until the concluding effects of the amalgamation can be evaluated.It is Suns belief that the Star division will increase grosss with the debut of new package later this twelvemonth. Star s current way in package development is consistent with Suns package architecture including the usage of portal engineerings. These engineerings will let users to entree office applications via a individual waiter utilizing the Internet from many different devices including cell phones & A ; personal information helpers.
Sun believes they can tackle synergisms from this amalgamation to magnify shareholders returns. The future success of this operation may greatly impact the companies competitory place. On a cautious note nevertheless, the company should be careful to non pretermit the uninterrupted development needed of bing merchandises to stay competitory.
Both the company s speedy ratio of 1.94 and current ratio of 2.44 far surpass its industry ( Diversified Computer Systems ) norm of 1.33 & A ; 1.
71 severally. This shows us that Sun maintains an advantage over its rivals by holding well more assets compared to liabilities. The 1999 one-year study besides boasts of holding about no debt compared to equity.
However, we know that with the amalgamation of Star Division, Sun has picked up some long term debt raising its debt to equity ratio to.36 from 0. Even with the added debt, Sun is still crushing the industry norm of.44. This shows much internal strength for the company, but raises some concerns that debt purchase may non be presently utilized to its full potency.
The companies ROA and ROI ratios are continuously crushing the industry. These values indicate marks of good direction from within the house. The house received big returns on investing for financial twelvemonth stoping 1999. This nevertheless, may non be representative of future public presentation as it is non income generated by the houses primary operations.
As such investors and direction likewise should be cautious. The company s ROE is somewhat draging the industry. This is likely due to the deficiency of debt purchase presently being utilized. The company s plus and stock list turnover ratios are lower than its industry. This can at least be partly explained by the company s dependance on its providers. Sun often enters into big contracts that are non-cancelable to retain its providers.
This consequences in carrying and more significantly wasted or disused stock list. The engineering sector is continuously altering & As ; any stock list non instantly sold runs the increased hazard of going obsolete in the hereafter. This is an country where Sun could utilize some polish. One possibility would be the usage of JIT fabrication or a more perpendicular integrating with its providers.The company s gross border of 51.96 % represents increased demand of higher-end market waiters. The operating border is besides solid at 13.86 % compared to 10.
23 % for its industry. This can be attributed to the tight controls on costs of gross revenues as compared to the increasing grosss. Sun s net net income border is 9.75 % . Although apparently little compared to the S & A ; P 500, this border significantly beats the industry norm of 7.23 % . The low net income borders throughout this industry qualify this extremely monetary value competitory market as it converts merchandise to gross.Sun s stock is rated by Wall Street Analysts as a strong bargain.
It has been forecasted to execute better than norm on 2000 & A ; 2001. The companies EPS prognosis for financial twelvemonth 2000 is $ 0.90 and judging from its first two quarters, it appears to be right on path. Although Wall Street has high assurance in Sun, the following net incomes release will be April 13, 2000 and any important fluctuation from expected net incomes could hold really inauspicious affects on the monetary value of stock.
The P/E ratio skyrocketed from merely 53.8 in June of 1999 to its current monetary value of 122.16 as of March 15. This indicates that investors are willing to pay a important premium for Sun s net incomes ( about $ 122 for every dollar of net incomes ) . Both the Gross saless and EPS growing rates besides indicate investors are paying big premiums for growing relative to Sun s equals. These premiums may bespeak an hyperbolic stock Price.
Future PredictionsOne of the best ways to value a company can be to calculate future hard currency flows & A ; so dismiss them back to today s net nowadays value. Using this technique, we projected net incomes 10 old ages into the hereafter utilizing the net income from the 1999 one-year study and a growing rate of 20 % . The 20 % rate is consistent with the company s historical growing rate. Next we discounted those future hard currency flows at a rate of 15 % to counterbalance for altering markets and the cost of capital.
By making this we were able to get at a NPV from those hard currency flows. Finally by deducting long term debt and dividing by the figure of current portions outstanding we were able to get at the companies intrinsic value of about $ 35.00. By comparing this value to the current stock monetary value of $ 89.81, we can see that Sun appears to be overvalued by investors at this clip.
This is likely due to the investor exhilaration from the increased grosss and its strong ROA and ROI.Sun s direction will necessitate to be really cautious of any unexpected alterations in net incomes. These alterations could trip an inauspicious affect on the current stock monetary value and kerb investor exhilaration in the company. This could hold a negative effect on the company s hereafter operations. Management must ever look at how the house is valued from outside beginnings if it is to go on the end of maximising stockholder value.
CompetitionHewlett Packard ( HP ) is a leader in the computing machine industry. They got their start out of a garage in 1938. Considered to be pioneers their concern has grown over the old ages.
The chief focal point of Hewlett Packard is to be a planetary supplier of calculating and imaging solutions for concern and place. This takes into history the quickly turning cyberspace with an accent on e-business. While HP s public presentation is strong they are non every bit volatile as Sun because they own a large ball of the pressman market. They are viing with Sun in the immense waiter market. Hewlett Packard realizes the enlargement of the cyberspace and they will be a rival for a long clip in the hereafter.Next we have Large Blue International Business Machine ( IBM ) and they have been a planetary force for many old ages.
Their chief focal point is to supply clients with solutions through the usage of advanced information engineering. These solutions include engineerings, systems, merchandises, services, package and funding. IBM is a stable company that is seeking to maximise stockholder wealth and at the same clip recognizes the key to the hereafter. They will be a large rival of Sun s due to the turning demand for internet solutions.
IBM has formed confederations with Cisco, Intel, Motorola, Nokia, and Palm to get down e-service. This is to battle the radio revolution. IBM in 1998 started to make an substructure to take advantage of the fast growth cyberspace. The mission for them is entree anytime anyplace. The key to IBM acquiring more involved is because Experts say that in the close hereafter there will 1 billion radio endorsers. Everything digital is due to duplicate in the coming old ages. IBM every bit good as Sun does non desire to be left in the dust.
Our 3rd major rival is Compaq Computer. They were incorporated in 1983. They presently sit as the # 2 computing machine company in the universe. They began their onslaught on e-business dorsum in 1988. They use a company called Electronic Data Interchange ( EDI ) . This gave them a direct portal to acquire information to their clients faster over communications lines. They besides use a Just in Time procedure to cut costs, cut down rhythm times. Overall this improves their rhythm times.
Their chief focal point is to plan, develop, industry and market hardware, package, and services to persons.Don t Lashkar-e-Taiba Compaq s Numberss fool you. Compaq has had their jobs in the yesteryear of turning excessively fast, and are reconstructing for e-commerce.
They are poised and confident that they will take consumers to a paperless environment.Silicon Graphics is a leader in digital media solutions. They accomplish this through big waiters. Their key to success is to prosecute in production of a wide scope of ocular calculating systems. These systems deliver advanced 3D artworks and calculating capablenesss. They have a definite power in supplying sound and picture over the cyberspace. Huge waiters store the tremendous sums of informations needed to carry through these types of applications. Clearly they are in a turning manner.
There systems have been recognized merely late at the Academy Awards for the Phantom Menace, Stuart Little, and The Matrix. To this point Silicon Graphics is in the ruddy but with the growing available to them, they could steal market portion. Sun truly has to watch out for this mover and shaker.Management EffectivenessHewlett Packard IBM Compaq Sun IndustryTax return on Equity 16.34 % 39.
96 % -6.35 % 26.23 % 26.23 %Tax return on Assetss 8.86 % 9.09 % -3.
10 14.52 % 11.85 %Tax return on Investment 14.24 % 16.02 % -4.86 21.
90 % 20.94 %External FACTORSStrengthsWe found Sun to be one of the most influential companies within its industry, which possesses much strength. Most significantly, Sun has had and continues to hold strong international presence. We assigned the strongest weight to this because we feel that holding a strong international presence will hold a similar consequence in the domestic market. As for some other strengths, for the last several old ages Sun has managed an mean 10 % gross revenues growing. Scot McNealy is one of the strongest and respected leaders in the industry. He has greatly motivated his employees with such things as his slogan, Kick butt and have fun. They besides have one of the largest hard currency balances, which allows for any necessary investings.
Last but non least, they have one of the largest market portions with their waiter webs.FailingsEven with Sun being among the leaders of its industry, there are still some failings that they need to work out. First of all they have a strong dependance on their providers. This isn T leting them to be every bit flexible as they need to be. Another job is that they need to work on their stock list prediction. For this, we believe that they need to develop a Just-In Time stock list system. For these jobs we have assigned the strongest weights because it can be really unsafe for a company to hold excessively much or excessively small stock list in such a rapid changing industry. As for some other jobs, Sun has had a really long and ongoing blood feud with Microsoft that has likely been more of a distraction of their ain advancement if anything.
Sun jobs have besides resulted in the slow development of their Java systems. This has allowed other companies to bring forth and market similar merchandises. Although, Sun has one of the largest hard currency balances, they need to break use their debt resources. They need to utilize purchase because hard currency sitting in the bank is non doing them any money.
INTERNAL FACTORSOpportunitiesWith such a fast growth industry, there are enormous chances afoot. Sun has had a strong cyberspace history. They created a vision statement and have continued to follow it through with great success. Sun has besides developed a strong planetary place. They presently provide about half of the waiters for the international sector. For these two grounds entirely, we have assigned them the highest weights. We feel that it is normally of import to hold to hold a strong background in order to seek other chances.
As for some other chances, Sun has formed an confederation with America On Line. This was a wise determination because AOL is the universe s largest cyberspace supplier. E-commerce tendencies have besides been skyrocketing and we feel that there is plentifulness of room for growing. Finally, there has been an on-going conflict between the Government and Microsoft. This has slowed Microsoft down and should let Sun to derive a better place within its industry.MenacesWhile in an overall strong place, Sun still has several menaces that could do serious injury. The strongest menace we have found is the rapid industry alteration.
The chief job is with their heavy provider dependance. Again, they need to develop a JIT system in order to stay more flexible with the altering times. Another job is that we feel there is a consumer credence issue that may harm them. Simply because Sun is non about mainstream as some of the competition. Microsoft still has a monopolistic clasp on the industry that may still present as a menace.
Although, we feel that Sun is in a strong adequate place to dispute their progresss. Finally, there is a ferocious monetary value competition that can function a menace to their concern. This competition is normally non good for concern, but consumers should profit from this.
SWOT ANALYSISWe feel that overall Sun is a great company, but with any company there is still room for betterment. Therefore, we have made several recommendations within the TOWS Matrix that should profit Sun. For our Strengths Opportunities Strategies, they should utilize their resources to spread out their Internet and planetary placement. They should besides beef up and make new confederations to increase market portion. Their confederation with AOL was a measure in the right way. For Strengths Threats Strategies, they should use their international place to battle competition.
They should besides utilize some of that big hard currency balance to broaden consumer credence. For Weaknesses Opportunities Strategies, Sun can utilize confederations to construct a better provider web. Sun should besides set more accent on the Internet industry, because this seems to be the fastest and most promising turning country. For their Weakness Threats Strategies, we feel that they need to concentrate less on their blood feud with Microsoft. This go excessively much of a distraction for them.
Finally, they need to develop a JIT stock list system in order to remain in front of competition and avoid any related menaces.TOWS MatrixInternal Factors Strengths WeaknessesS1 Strong international place W1 Vendetta w/ MicrosoftS2 Gross saless growing W2 Dependence w/ providersS3 Strong leading W3 Slow development of JavaS4 Large hard currency gross W4 Inventory predictionExternal Factors S5 Server webs W5 Utilize debt resourcesOpportunities SO Strategies WO StrategiesO1 Strong cyberspace history & # 8211 ; Use resources to spread out & # 8211 ; Use alliances to constructO2 Alliance with AOL Internet & A ; planetary place provider webO3 Strong planetary place & # 8211 ; Strengthen alliances to & # 8211 ; Emphasize cyberspaceO4 E-commerce trends addition market portionO5 Government vs. MicrosoftMenacesT1 Microsoft monopoly & # 8211 ; Utilize international place & # 8211 ; Less concentrate on MicrosoftT2 Rapid industry alteration to battle competitionT3 Consumer credence & # 8211 ; Use hard currency to broaden & # 8211 ; Just in TimeT4 Price competition consumer credenceRecommendationSun has a great history. They may be immature, but Sun is still a force. We as a group feel that it is critical that Sun Microsystems focal point on itself. Sun should understate the Microsoft legal conflict.
They should reenforce their laterality on the waiter market and the cyberspace. Expand their webs to a place where everybody else has to catch up to them. They need to guarantee that they avoid information. Sun does non desire to reconstruct. They should desire to stay a planetary leader. Last we feel they should concentrate on their providers and utilize more of their corporate musculus. They need to be more demanding on their providers, make providers bend to Suns demands. If providers don T Sun has the chance and money to purchase what they want.
Sun has the ability to order its hereafter.MentionsE*Trade.com, March 2000 QuotesSun Microsystems, Inc. 1999 Annual ReportSun Microsystems, Inc. s place page: www.sun.
comSun Microsystems, Inc. 1999 10-K ReportWheelen, Thomas and Hunger, J. David, Strategic Management and Business Policy, Prentice Hall ( 2000 ) .328