In 20 years, will I be writing this column in Microsoft Word version 34.0, running on a super-cooled Pentium XIX-based PC? Probably not.
Although the current PC paradigm and Microsoft's dominance of application software will likely be intact for a few more generations, Sun Microsystems has outlined a new vision of the future that has captured the interest of both technologists and investors.
Sun's vision is web-centric. It is service-based, with software functionality coming over the Web, provided as a service to the end-user, where complexity is located at the server, not at the client. Administration and management issues are separated from the customer--and upgrades to capacity and functional services take place at the server, not at the client.
Sun often uses the telephone network as an analogy to describe its vision--a simple handset that accesses complex services through a robust network. To extend the analogy: Sun wants the Web to also become a ubiquitous network--and similar to the familiar dial-tone, users will have access to "web-tone" everywhere.
Sun has been mentioned frequently in this column, as a provider of servers that run web sites, as a provider of computer appliances, and as a provider of core middleware that enables Internet-based e-commerce. In short, the company is a technology innovator.
But is their vision of the future (which, of course, is based on technology that they provide) simply self-serving--or is it realistic? Put another way, does their vision stem from their product strengths, or have their product innovations been driven by their vision?
Given Sun's heritage I think the latter is true--and that's good news for future growth, and for investors looking for continued profits from Sun's emerging web-infrastructure.
Certainly, near-term, the company has been helped by competitors' product delays and lack of focus. As recently as six months ago, Unix was proclaimed a dinosaur--but with continued slippage in both Merced and Windows 2000, as well as the phenomenal interest in Linux, the benefits of Unix and its likely longevity is becoming increasingly apparent to both the industry and investors. While other companies moved away from Unix, Sun remained steadfast and now has positioned itself in a prime spot to grow in the next few years.
Also, complexity has become a key issue in running and maintaining networks and in creating new software--and customers are realizing the benefits of centralization and commonality to combat this and simplify administration. Sun's Java language is meant to simplify software development, and its "write once, run anywhere" mantra is designed to remove disparate platform issues. Sun's Jini is also designed to simplify network administration--a network plug-and-play scheme that works!
Behind it all is the concept that bigger, centralized servers can be more easily supported and managed, allowing easy functional upgrades. Again, Sun's creation of these technologies, and its strength in scalable servers puts it in a unique position to grow.
Finally, we all know that outsourcing is the rage for many companies--either from a manufacturing perspective or a service perspective. Solectron, SCI, and Jabil have built big businesses taking over manufacturing from computer companies. IBM has grown its outsourcing group significantly by taking over customer's data centers--even Xerox is seeing that outsourcing of customer's print-shop operations is one of its fastest growing segments. So it stands to reason that software applications will also be outsourced--and provided by an independent entity.
While we are a long way from purchasing ERP services from a vendor, it's not too difficult to see companies start to outsource applications, such as email, and progress from there. Sun's middleware and web-enabling technologies will likely benefit as this trend accelerates.
Sun stock has seen strong appreciation over the last six months, but if the company's vision proves correct, I believe there is significantly more upside. Also look for other companies to ride these trends. Of course, the risk is timing--even if the vision does align with customer desires, it is difficult to predict how long it will take to become a reality. But I still put my confidence in innovation, and set Sun squarely in the crosshairs of creativity.
Philip Rueppel is a research analyst with BT Alex. Brown Incorporated. This column is not a publication of BT Alex. Brown Incorporated and may not represent Mr. Rueppel's complete or current opinion with respect to any company. Persons who want to make an investment decision with respect to any company mentioned by Mr. Rueppel should obtain a copy of Mr. Rueppel's current and complete opinion as contained in the most recent publication of BT Alex. Brown Incorporated. Mr. Rueppel's opinions are not intended as an offer or solicitation, nor as the basis for any contract for the purchase or sale of any security, loan or other instrument.