Sun's Relaunch of Sparc Sounds D.O.A. (SUNW)

Late yesterday Sun Microsystems (SUNW-NASDAQ) made an announcement that was a bit lost in the shuffle.  The company announced a formation of a Microelectronics group, which will be led by its own Dr. David Yen out of Sun’s storage operations.  The Microelectronics group will oversee the developments in network, cryptography and high-performance computing and serve as a supplier to Sun’s existing Systems businesses, in addition to serving OEM customers across the globe. So this is Sparc all over again.

OK, so it sounds like the company itself is going to be its biggest customer.  Outside of that it will get to re-compete against a tough crowd: IBM (IBM), H-P/Intel (HPQ), Intel (INTC), and AMD (AMD).  Maybe this really is just an internal change, maybe not.  Maybe it is really just competing against Intel and AMD, and maybe only for servers.  Sun needs to look at how difficult the market is out there and reconsider.

The company all but mothballed this before.  It is hard to know now if that was the right decision to make back then, but the field has come a long way since.  One of the only potential wins here is that maybe the company is setting this area for a spin-off or carve-out.  Are there any takers?

Sun will start selling its newer generation of servers, the "APL-advanced product line" later this year as well as beefed up chips this year and next.  The company better have its sales lined up or it better have Wall Street using these.  Otherwise it is going to be a hard sell and the analysts on the street are going to think "been there, done that."  This may even leave its newer storage initiatives with a tad less firepower.  We’ll find out soon enough.

CNET news has a more detailed backgrounder on this, but their message is mostly the same.  SUNW closed down 2.5% yesterday at $6.06, down from its recent highs of $6.78 in late January and early February.  The short interest data just came out yesterday, and the 38.457 million shares in February’s short interest grew to 41.505 million shares in March.

Jon C. Ogg
March 28, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.