Member, Board of Directors, The Gap, Inc. since November 1999.
From April 1997 to November 1999 he served as Executive Vice President, The Gap, Inc. and President, Gap Division. From November 1995 to April 1997, he served as Executive Vice President and Chief Operating Officer of The Gap, Inc. From July 1993 to November 1995, he served as Executive Vice President and Chief Financial Officer of The Gap, Inc. Robert L. Long
Independent Management Consultant
M. Kenneth Oshman
Chairman of the Board of Directors, President, and Chief Executive Officer, Echelon Corporation
Naomi O. Seligman
Senior Partner, Ostriker Von Simson, Inc.
Ms. Seligman is also a Director of Dun & Bradstreet, Exodus Communications, Inc., Martha Stewart Living Omnimedia and Ventro Corporation.
Top Management
The top management at Sun Microsystems serve as a crucial strength in the success, fortitude, and innovation of the company. Focus is a common term that falls from all of their lips. When asked what has driven their success in a short seventeen years, the following responses were given:
Scott McNealy, Chairman of the Board & Chief Executive Officer:
?Some companies change direction more often than I change the oil in my car. Sun?s focus is right where it?s always been: the Net.?
Ed Zander, President & Chief Operations Officer:
?Our focus is simple: Be the number one provider of technologies, products and services that drive the Net economy.?
Bill Joy, Cofounder & Chief Scientist:
??it?s always been about the network?that?s our focus.?
Greg Papadopoulos, Senior Vice President & Chief Technology Officer:
?All of our R&D?is dedicated to bringing the power of the Net to anyone, anywhere, anytime, on anything.?
Sun has a very strong focus on bringing the Net to the people of the world. Fluid as their objectives may seem, their focus has always been on the Net. The aforementioned managerial quotes testify to the uniformity of this focus down through the ranks of Sun. When questioned on Sun?s secret to success, hockey enthusiast Scott McNealy replied, ?The key to our success? Focus. As Wayne Gretsky used to say, ?Do not skate to the puck; skate to where it is going??. It is very important and exhilarating that a management team can concur and spread the fundamental truth of a company so large and successful to their employees. Everybody from the CEO to the intern pee-on must know what Sun stands for. And they do.
Another attribute of Sun?s management team is that they are very open-minded to the changes of the technological and social environments of the world. As they are very concerned with the latest technologies, they are also sensitive to what current and potential customers want now and in the future. But, never is the sight taken from the focus: to provide every man, woman, and child with access to the Net anywhere?. In analogy, Sun is to Focus as a fish is to food. Not that Sun should be compared to the (lack of) ingenuity of the fish, but rather the tenacity a fish possesses to spontaneously dart off in a new, more advantageous direction.
Societal Environment
When analyzing the Societal Environment, four major areas must be studied to get a view of what external forces affect the long-run activities of a business entity. These areas are:
1. Economic ~ this is mainly concerned with money and its exchanges
2. Technological ~ ideas and inventions for problem-solving
3. Political-Legal ~ involves justice and regulations on law and distribution of power
4. Socio-cultural ~ involves customs and morals, and values of a society
To keep the information pertinent, comments will only be made on factors that are directly influencing Sun at the current time.
The Economic environment has been a little uncertain in the past month, due to the chaos of the presidential election in the United States. The stock market has dropped steadily, thus affecting investor confidence in the market directly, and in Sun indirectly. Sun experiences lower investments when the market dips, thus how they are affected during the presidential election. When the president is finally selected and no legal issues are pending, then the market is assumed to rise to where it was before the election. Economists reveal that the U.S. may be in the beginning of a recession, which if not slowed and/or reversed, dips us into a depression. Sun, like any other company feels this economic phenomenon by decreased sales and investments.
Technologically, the world is evolving at a rapid rate, with the U.S., Japan, and Europe leading. Consumers are adapting to the rapid changes and, resultantly, expect more innovative products in a shorter period of time. Sun is capable of meeting these standards, as there R&D department is heavily funded. Reviewing Sun?s past products in congruence with the changes in the technological environment, one may assume that Sun is very capable of competing in the ever-morphing market of technology.
The political and legal happenings of the current times involve many threats to Sun Microsystems. For example, anti-trust regulations (Sherman Anti-trust Act), lawsuits, and elections have an effect on the economic, operational and ethical cores of the business. Currently, Sun is entangled in a lawsuit against Microsoft. Microsoft allegedly was licensed as a user of the Java platform, but Microsoft took the platform and coded it so that it was not compatible with Sun?s version of Java. Sun is suing Microsoft for $35 million. Anti-trust laws are also regulating Sun. These laws monitor Sun?s success of gaining market share and post red flags if Sun is appearing monopolistic, as was aforementioned Microsoft. Ethically, legal and political matters can affect Sun. If Sun is dealt a blow, like a lost lawsuit or an anti-trust accusation, employees may lose pride in Sun or feel threatened by the competition.
The socio-cultural environment of the world is becoming very receptive to new technologies, thus making Sun?s products appealing to the masses. Sun has experienced rapid growth in the last five years, which testifies to the acceptance of the world?s societies to Sun?s ideas and merchandise. People (users) are still wary of using the Internet to purchase products with their credit cards, which hints that they have not fully accepted technological companies? missions to simplify consumers? lives.
Industry Analysis
The Internet/software industry is a very competitive place to be at this time. Sun is up against giants such as Microsoft, IBM, Intel, and others. Relatively new to the scene, Sun has assumed a respectable position amongst these Goliaths. Despite their apparent success, certain industry precautions must be taken. It is evident that the industry environment is always changing and the following are a few examples of the current threats:
Interest Rate fluctuations: the market is currently stable as far as interest rates go, due to the United States? thriving economy (assuming we get a President soon). As interest rates stay relatively low, investors will continue to buy shares in Sun. Assuming the rates skyrocket, this is damaging to Sun, as investors invest less and/or sell their shares.
Foreign Currency Exchange Risk: as Sun handles business in other countries, the currencies of those countries and their fluctuations may have an affect on Sun?s gains and losses, but Sun estimates that as of June 2000, Sun could incur maximum potential one-day loss of fair value of only $27 million. This figure is based primarily on the Japanese yen, British pound, and the Euro.
The Euro Conversion: as of January 1, 1999, many European countries entered into a 3 1/2-year conversion of their currencies into the uniform Euro. During the ongoing conversion, Sun has embarked on several tasks including a reassessment of currency risk, negotiating and amending licensing agreements, and processing tax and accounting records. These ongoing tasks will make the transition very smooth for Sun?s overseas business, when Europe completely converts to the Euro.
Other factors that Sun may face in the environment are threats from other companies and legal factors. This was covered in the External Factor Analysis Summary (EFAS). Repeatedly, Sun has been noted for its high adaptability to factors of the outside environment, so one may assume that Sun will never be totally blind-sided by the aforementioned industry threats.
Corporate Structure
The Sun?s Headquarters are located in Palo Alto, California. Its significant operations outside the United States include manufacturing facilities, design centers, and sales offices in Europe, the Middle East, Africa, as well as Japan, and the rest of world. Its manufacturing activities take place in 2 countries while its International Research & Development activities take place in 9 countries (China, India, Japan, Ireland, France, U.K., Canada, U.S., Israel). International Sales, Service, and Support activities take place in 53 countries. International Distributors are located in more than 170 countries.
Sun designs, manufactures, markets, and services network computing systems and software solutions that feature networked desktops and servers. Various product divisions including Computer Systems and Storage, Enterprise Services and various other divisions organize the Company.
Each division has a divisional executive vice president who reports to the President of the Company. In addition to the aforementioned divisions, finance and administration, as well as other corporate groups also report to the President of the Company. Products in the Computer Systems and Storage segment include a broad range of desktop systems, servers, storage, and network switches, incorporating the UltraSPARC processors and Solaris Operating Environment.
Corporate Culture
The products and services that Sun Microsystems provides, as mentioned previously, are made to be able to work within any operating system, program, and/or Internet server or website available. Again, doing this is an integral art of Sun?s purpose and mission.
The ?humanitarian? focus with respect to Sun?s dream of providing every man, woman, and child access to the Internet anytime, anywhere, and from any machine along with the attitude that McNealy has brought to the company have created a corporate culture that boasts both efficiency and adaptability. This says a lot about an enterprise. Though the world is changing at speed never before experienced and demands change by the minute, Sun has been able to efficiently change its direction without veering from its main goal.
After McNealy took over in 1984, he started to change e the function of Sun Microsystems at he, after a few years, gave the company the strength and foresight it has need to maintain its success and growth. In 1986, after the company went public and experienced its first quarterly loss as a public enterprise, McNealy decided to reorganize Sun. He pushed profit and loss responsibility down to individual product organizations, which he called planets, which made them feel the troubles if things weren?t going perfectly well.
McNealy?s influence over the corporate culture is immense; his personal traits are magnified in the operations of the company that he oversees. The corporate culture at Sun is based on his own motto: ?Kick butt and have fun.? This motto has led Sun to become recognized widely as an aggressive marketing force as well as a place where one can be juvenile in his/her behavior. Such a culture leads to extended productivity as work becomes play and the employees feel that they form an integral part of Sun?s success.
Marketing
In 1998, Sun Microsystems developed new graphics capabilities along with the fastest workstation available. This allowed them to capture and steal market share from their competitors at the markets’ high-end. They took on a more aggressive marketing tactic to deal with the markets’ low-end. It was a trade-in program designed to ensure investment protection for their current customers while appealing to their potential customers. They called it “Jurassic-Back,” “Mac-Back,” and “Paq-Back” specifically to target Silicon Graphics’, Apple Computer’s, and Compaq’s users. It was a means to encourage the use of the Sun platform instead of the other personal computers and workstations.
In November of 1998, there was a union between America Online, Netscape Communications, and Sun Microsystems. This allowed Sun to broaden its product line to include Netscape’s corporate and electronic-commerce software with their hardware. Netscape’s software had already established a solid reputation for itself. Sun also became the supplier of hardware for American Online, which had proven itself to be the largest online service. Thus, this alliance further assisted Sun in marketing itself as an even more respected company. It now had a larger customer base and could gain a greater distribution of its software technology. This union proved to be the greatest marketing decision in and of itself.
Finance
1. Liquidity Ratios
Current Ratio = 1.4
This is a short-term indicator that Sun has sufficient current assets to cover its current liabilities.
Quick Ratio = 1.33
This is the indicator that Sun has sufficient current assets to cover its current liabilities without including inventories.
Inventory to net working capital = .26
This is the indicator that Sun still has a bit of cushion even if they are threatened by unfavorable changes in inventory.
Cash Ratio = .39
This shows that Sun can cover its current liabilities with its cash and/or cash equivalent.
It is quite evident that Sun Microsystems has done a great job of being able to cover their current obligations with its highly liquid assets.
2. Profitability Ratios
Net Profit Margin = 11.8%
This shows that 11.8% of the after-tax profits are generated from $1 of sales.
Gross Profit Margin = 52%
This shows that 52% of the net sales are available to cover other expenses even after cost of goods sold has been satisfied.
Return on Investment (ROI) = 16%
This shows that 16% of the net profits after taxes are generated because of the total assets utilized in the company.
Return on Equity (ROE) = 31%
This shows that 31% of the net profits after taxes are generated because of the book value of shareholders? total investment in the company.
Earnings per share (EPS) = $1.18
This shows that $1.18 of the after-tax earnings are generated for each share of common stock.
Sun has been rather profitable due to their invested assets and shareholders? equity. Meanwhile they are generating enough revenue to post a profit.
3. Activity Ratios
Inventory Turnover = 17.5
This means that about 17.5 times the average inventory of finished goods were sold within one year. This is up from 17.3 of 1999 which means Sun is moving inventory quicker.
Days of Inventory = 27 days
This means that Sun has approximately 27 days worth of inventory on hand at any given time.
Asset Turnover = 1.11
This means that Sun generates 1.11 worth of sales by each dollar of fixed assets.
Average Collection Period = 48 days
This means it takes approximately 48 days for Sun to collect on its receivables that are made on credit. This is down from 59 days in 1999 which means Sun is collecting receivables quicker.
Days of Cash = 43 days
Sun has tried to maximize its utilization of assets as well as minimize its collection period in an effort to cover its payable period.
4. Leverage Ratios
Debt to Asset Ratio = 0%
This means that there have been no borrowed funds to finance Sun?s assets.
Debt to Equity Ratio = 0%
This means that there has been no funds provided by creditors versus the funds provided by the owners.
Long-term Debt to capital structure = 29%
This means that the owners fund 29% of Sun?s long-term debt.
Current Liabilities to equity = 65.1%
This means that 65.1% of the owners? equity are current liabilities.
5. Other Ratios
Sun has never declared cash dividends and presently intends to continue this policy. Sun?s principal credit agreements limit the payment of cash dividends without the consent of its lenders. (As per 2000 Annual Report) Therefore, these other ratios cannot be defined.
Additionally, the cash provided by operating activity went up 50% from $2,511,000 in 1999 to $3,754,000 in 2000. Although the cash used by investing activities soared upward, this was offset by the cash financing activities provided. Thus, cash on hand at year-end went up 60% to $1,849,000. This all proves that Sun is not only profitable, but also has the ability to maintain itself with its operating activities.
Research, Development, and Logistics
Even though Sun Microsystems vision and strategy has remained consistent through the years, Sun realizes that the market opportunities for their products and technologies have expanded as more and more businesses take advantage of the Internet. ? All of our Research and Development, all of our intellectual property investments, are dedicated to bringing the power of the Internet to anyone anywhere, anytime, on anything.??Greg Papadopoulos Senior Vice President and Chief Executive Officer. Sun Microsystems? business is increasingly being driven by customer efforts to use e-commerce, middleware, and network storage and enterprise services to help them build, monitor, and manage their network computing environments. Sun Microsystems component technologies, JAVA, JINI, and ULTRASPARC are increasingly being implemented in consumer and telecommunications environments. JAVA is Sun Microsystems? cross-platform technology for building network-aware applications. For technology that enables devices and services to form spontaneous networks, customers can look to Sun Microsystems JINI to get connected and share information. Speed is the key to a business success.