Sun Micro math
July 30, 2008 10:37 am GeneralCan someone who understands markets better than me explain why this doesn’t imply I should go to the bank & borrow 10 or 12 billion dollars right now?
- Sun Microsystems assets (end March 08): $14.262 billion
- Sun Microsystems market cap at $10.21 per share: $7.98 billion
Incidentally, Sun’s market cap on the 15th of July, at $8.78 per share, was $6.86 billion.
Of course, you have to clear liabilities, and get a good price for the profit-making businesses, but doesn’t this smell to anyone else like a fire sale in the waiting?
July 30th, 2008 at 11:36 am
My guess:
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.
July 30th, 2008 at 11:51 am
Looking quickly, the liabilities are ~8.4 billion, so net worth is only ~5.8 billion. Of the net worth, ~3.9 billion is “intangibles” like goodwill (goodwill is amount paid for acquisitions over their net worth, it has no inherent value but preserves accounting identities). Anyway, Sun’s price/net-worth ratio appears to be 1.4 even including intangibles, and much higher if you count only tangible assets that could be liquidated for money.
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.
July 30th, 2008 at 12:46 pm
http://finance.yahoo.com/q/bs?s=JAVA&annual
Look on the row called “Total Liabilities”. Ouch.
July 30th, 2008 at 5:00 pm
Apple should buy them to get the server side fixed.
August 1st, 2008 at 11:43 am
Sun also keeps a *lot* of money in the bank, compared to other tech companies.