Look on the row called “Total Liabilities”. Ouch.

The valuation of a company like Sun would probably hinge on tangible net worth only in bankruptcy. Right now the market cap is no doubt based on present value of future earnings.

That is, it probably hinges on whether Sun can make any money. Note that profits are different from sales; you can lose money selling lots of stuff, if you don’t have enough competitive advantage to mark it up adequately. And in fact Sun lost money for something like 6 years until 2007, eating into rather than adding to net worth.

According to Morningstar’s analyst on Sun, their costs are much higher than other OEMs, so if they sell a product at the same price as Dell or HP, they are losing money, while Dell or HP will be making money.

This is not a good situation to be in. It means net worth will tend to decline, or at least not grow very quickly. It also means Sun has little room for error and high operating leverage; the profits can quickly disappear from year to year.

Anyway, Sun may or may not be undervalued, depending on what you think of their ability to reinvent the business into a long-term profitable one. Far from clear-cut however. Investing in Sun would clearly be very risky.

Good people doing interesting things doesn’t always mean there’s a good business.

1.) a lot of debt
2.) assets have low liquidity
3.) some combination of the two

The biggest factor is probably #2. Acquiring a company to sell off its parts isn’t an attractive proposition if there are no buyers for those parts.