This spreadsheet supports STUDENT analysis of the case “Sun Microsystems” (Case 48
This spreadsheet as prepared )y *ssistant +rofessor of ,usiness *dministration Elena -outs.ina# Copyri/ht 0 $&'& )y the Uni"ersity of 1ir/inia Darden School 2oundation% Charlottes"ille% 1*# *ll ri/hts reser"ed# For customer service inquiries, send an e-mail tosales3darden)usinesspu)lishin/#com. No part of this publication may be reproduced, stored in a retrieval system, posted to the Internet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden chool Foundation. !e"# No"# $% $&'$
Ehi)it ' SUN MICROSYSTEMS MICROSYSTEMS 5lo)al Computer 6ardare Sales
Global Computer Hardware Sales: 20040! ) s ( o ' l l ' b & % s e l a S
:&&
8#&;
4&&
?#&; ro
9&&
w t 4#&; *% + )
$&&
$#&;
'&& &
G
$ && 4
$ && :
$& &? Sales
$ & &=
$&&8
&;
5roth
Global Computer Hardware Sales b" #rodu$t: 200! Monitors =#<<;
>ther 4#'&;
+rinters ' <; +Cs 48#9:;
Ser"ers Ser"ers and Netor.in Netor.in/ / $<#'=;
Data source7 Datamonitor% “5lo)al Computer 6ardare7 ndustry +rofile%” Decem)er $&&8#
Ehi)it $ SUN MICROSYSTEMS 5lo)al Softare @ Ser"ices Sales
Global So,tware - Ser.'$es Sales: 2004 – 0! ) s ( o ' l l ' b & % s e l a S
$%:&&
':#&;
$%&&&
'$#&; G
r <#&; ow t* %+ ?#&; )
'%:&& '%&&& :&& &
9#&;
$&&4
$&&:
$&&? Sales
$&&=
$&&8
&;
5roth
Global So,tware - Ser.'$es Sales b" #rodu$t: 200! T Ser"ices ''#8$;
nternet Softare and Ser"ices 99#'8;
Softare ::#&&;
Data source7 Datamonitor% “5lo)al Softare @ Ser"ices7 ndustry +rofile%” March $&&<#
Ehi)it 9 SUN MICROSYSTEMS 5lo)al Softare @ Ser"ices Sales
Global So,tware - Ser.'$es Sales b" S*are: 200!
MS2T EDS' >!C,M 9#?&; $#=&; '#'&; '#&&;
'
EDS as acAuired )y 6+ in $&&8#
>ther <'#:<;
Data source7 Datamonitor% “5lo)al Softare @ Ser"ices7 ndustry +rofile%” March $&&<#
E SUN MIC T ndustr
#r'mar'l" Hardware /es$r'pt'o( *d"anced Micro De"elops and manufactures semiconductors and De"ices microprocessors
*pple
Desi/ns% manufactures and mar.ets personal computers% related softare and mo)ile communication and entertainment de"ices
Dell
>ffers a ide ran/e of computers and related products
EMC
+ro"ides enterprise stora/e systems% softare% netor.s and ser"ices
6elettB+ac.ard
+ro"ides ima/in/ and printin/ systems% computin/ systems% and information technolo/y for )usiness and home
ntel
Desi/ns and manufactures computin/ communications components and platforms
and
nternational ,usiness >ffers computer solutions throu/h the use of Machines ad"anced information technolo/y Net*pp Sun Microsystems
#r'mar'l" So,tware *do)e Systems
+ro"ides stora/e and data mana/ement solutions +ro"ides products% ser"ices and support for )uildin/ and maintainin/ netor. computin/ en"ironments
De"elops% mar.ets and supports softare products and technolo/y
computer
Microsoft
De"elops% manufactures% licenses% supports softare products
No"ell
+ro"ides netor. and nternet directory softare and ser"ices
>racle
Supplies softare for enterprise information mana/ement
!ed 6at
De"elops and pro"ides open source softare and ser"ices
Sources7 ndustry reports and ,loom)er/#
sells
and
i)it 4 OSYSTEMS Companies
e" #rodu$ts 8? microprocessors% microprocessors computers and ser"ers
Notable 1$u's't'o(s for *T Technolo/ies ($&&?
Macintosh computers% i+hones% i+ods% music related products Des.top and laptop computers% softare and EAual-o/ic ($&&8 peripherals% ser"ers nformation stora/e% 1Mare Consultin/ ser"ices% enterprise stora/e and CompaA ($&&$ ser"ers% personal computers% di/ital cameras% EDS ($&&8 printers and in. Microprocessors% platforms Consultin/ laptops
chipsets%
ser"ices%
mother)oards%
middleare%
ser"ers%
2ilers Enterprise systems and ser"ices% stora/e and MyS- ($&&8 softare platforms a"a% Solaris and MyS-
Creati"e solutions% *cro)at Findos% )usiness and ser"er /amin/ and handheld de"ices
softare%
Enterprise netor.in/ softare !elational data)ases% middleare softare% +eopleSoft ($&&: applications% related ser"ices Sie)el Systems ($&&? 6yperion Solutions ($&&= ,E* Systems ($&&8 -inu
Ehi)it : SUN MICROSYSTEMS !elati"e Sales 5roth% $&&& –&8
#r'mar'l" Hardware Compa('es
4&&;
*pple
9&&;
Net*pp
$&&; 6+
'&&;
&; &; $&&&
'?#'; $&&'
B$:; B$=#9; B$8#<; B$<#?; B'?#<; B''#8; $&&$ $&&9 $&&4 $&&: $&&? $&&=
Dell EMC *MD ,M B''#=; ntel Sun $&&8
B'&&; #r'mar'l" So,tware Compa('es
?&&; !ed 6at
4:&;
9&&;
*do)e Microsoft
':&;
>racle
&; $&&&
B':&;
$&&'
$&&$
$&&9
$&&4
$&&:
$&&?
$&&=
No"ell $&&8
Data source7 Compustat#
Ehi)it ? SUN MICROSYSTEMS Selected *cAuisitions Completed )y >racle%
Tar3et +eopleSoft
!ete. nc# 5B-o/
Complet'o( /ate anuary $&&:
/eal S'e %&MM) '&%9&&
#rodu$t Cat3or" *pplications
*pril $&&:
?9&
ndustry Solutions
Septem)er $&&:
NG*
ndustry Solutions
Sie)el Systems nc#
anuary $&&?
:%<4?#:
9?&Commerce
anuary $&&?
NG*
ndustry Solutions
*pril $&&?
$99#=
ndustry Solutions
Mantas nc#
>cto)er $&&?
'$$#?
ndustry Solutions
Stellent nc#
No"em)er $&&?
9<8#=
Middleare
MetaSol" nc#
>cto)er $&&?
$'=#=
ndustry Solutions
6yperion Solutions Corp#
March $&&=
+ortal Softare nc#
*/ile Softare Corp# ,E* Systems nc#
May $&&= anuary $&&8
*pplications
9%$<$#'
*pplications
48'
*pplications
8%&:?#&
Middleare
S.yire Softare --C
une $&&8
NG*
ndustry Solutions
+rima"era Softare nc#
>cto)er $&&8
NG*
*pplications
Source7 SDC +latinum#
$&&: –&8
Core #rodu$ts 6uman resource mana/ement systems relationship mana/ement softare
and
customer
Mana/ement softare for the retail industry -o/istics and transportation mana/ement softare Customer relationship mana/ement% )usiness intelli/ence and data inte/ration softare >penBstore and multilBchannel solutions softare ,illin/ and re"enue mana/ement communications and media industry
solutions
for
2raud and compliance softare for financial institutions Content mana/ement softare solutions Customer relationship softare for the communications industry +erformance mana/ement softare +roduct life cycle softare for the industrial products% electronics and hi/hBtech% and life science industries Enterprise infrastructure softare Fe)B)ased insurance% financial and enterprise mana/ement softare +roHect% pro/ram and portfolio mana/ement softare
Ehi)it = SUN MICROSYSTEMS !elati"e Stoc. +erformance% anuary 9% $&&?% to *pril '?% $&&<
9G'4G&87 2ed )ails out ,ear Stearns
'&&;
=:#&;
:'#9;
:&;
$:#&;
&;
B$:#&;
B9'#:;
B:&;
B?'#9; 9G'?G&<7 !umors of ,M acAuisition of Sun surface
B=:#&;
B'&&;
$&&?
$&&= Sun
>racle
Data sources7 IahooJ 2inance and Fharton !esearch Data)ase Ser"ice#
$&&8 S@+ :&&
$&&<
Ehi)it 8 SUN MICROSYSTEMS Comparin/ >racle and Sun Microsystems (in )illions of U#S# dollars
OR1C5E
Employees 2I&8 !e"enue
SUN MICROSY
8?%:&& K$$#49 )illion
9&%&&& K'9#88 )illion
4#? ?#$
$#4 '=#'4;
?#9 4:#&&;
''#?
2I&8 +rofit
K:#:$ )illion
K4&9 million
Ley +roducts
Data)ases% )usiness softare from Sie)el% +eopleSoft
Ser"er computers% stora/e de Solaris technolo/y
Data source7 Don Clar. and ,en Forthen% “>racle Snatches Sun% 2oilin/ ,M%” !all treet "ournal, *pril $'% $&&<#
TEMS
:#9
ices% a"a% and
Ehi)it < SUN MICROSYSTE T Companies 2inancial
T'$6er
Sto$6 #r'$e %&)
S*ares Out %MM)
Mar6et Cap %&MM)
78 /ebt %&MM)
#r'mar'l" Hardware *d"anced Micro De"ices *pple Dell EMC 6elettB+ac.ard ntel nternational ,usiness Machines Net*pp Sun Microsystems
*MD **+DE-EMC 6+ NTC ,M NT*+ *1*
9#:? OOO ''#&? '$#8' 9?#9& ':#?& OOO '=#:< ?#?<
?&< 88< '%<44 $%&4' $%4'? $%:?$ '%949 99& =9<
$%'?8 '&<%='9 $'%:&: $?%'4$ 8=%=&8 9<%= '9?%&:$ :%8&8 4%<4'
4%<88 B $%&'' 9%4&4 $&%4:8 '%<88 99%<$: '%$?: '%$:=
#r'mar'l" So,tware *do)e Systems Microsoft No"ell >racle !ed 6at
*D,E MS2T N>1>!C!6T
$4#=& '<#$& 9#<4 '<#&? '8#9$
:$4 8%8 949 :%&4? '<&
'$%<44 '=&%=<: '%9:9 %'8& 9%48$
9:& $%&&& '$$ ''%$98 B
Mar.et data as of *pril '=% $&&< Data sources7 IahooJ 2inance% Moodys% ,loom)er/% and company filin/s#
S Data
Cas* 5e.ered 7o(d I(.estme(ts 7eta Rat'(3 %&MM)
OOO
, '#'' '#'$ '#9< '#$: '#$& <9 '#8& '#=9
OOO << OOO OOO OOO
B *$ B *$ *' *' B ,a'
<99 $4%4<& <%:4? ?%44? '&%'4& 8%84& '$%<&= $%?&4 9%&?'
B *aa ,' *$ ,,
$%&'8 9'%44= '%&?= '$%?$4 ??9
5TM Sales %&MM)
5TM 5TM 5TM E7IT E7IT/1 Ear('(3s %&MM) %&MM) %&MM)
:%8&8 ('%<:: 9=%& =%<84 ?'%'&' 9%'<& '4%8=? '%:?< ''8%?<= '&%9:4 9=%:8? 8%<:4 '&9%?9& '?%=': 9%4?4 ''? '9%498 ($%$9'
9%4=? OOO <4& OOO ?$8
' $$%'$8 '& 8%4&? 8&
(=9$ 8%=9< 9%<:< $%?$? '4%'=: '9%:=& $$%'?: $8? ('%=:=
(9%&<8 :%=$8 $%4=8 '%94? 8%&:& :%$<$ '$%994 '&' nGa
'%$9' $4%48: :: '&%$<' ''<
8&< '=%$9$ (': :%=9< 8:
Ehi)it '& SUN MICROSYSTEMS !ele"ant Security Iields% *pril $&&<
Corporate 7o(d Y'elds *** ** *P * *B ,,,P ,,, ,,,B ,,P ,, ,,B ,P , ,B
U9S9 Treasur" Y'elds '8&BDay 'BIear 9BIear :BIear '&BIear 9&BIear
:#:&; :#==; ?#$=; ?#9:; ?#:&; =#:4; =#?$; 8#?4; ''#4$; ''#4<; ''#=&; '9#$8; '4#=&; ':#4?;
^ :4; '#$$; '#='; $#8$; 9#??;
Data sources7 ,loom)er/% U#S# Treasury% and ))otson *ssociates#
Ehi)it '' SUN MICROSYSTEMS Sun Microsystems 6istorical and +roHected ,alance Sheet (in millions of U#S# dollars 's$al Year;E(d
>
>>
200?E
9%?$& $%9$$ $%4 :$4
$%$=$ '%&98 9%&'< ?8&
'%8=? '%'8: $%$:8 :??
$&& '%&:8 '&%?88 '%:&4 $%:'4 ?99 4<< @AB!=!
$'? '%$'8 8%449 '%?'' 9%$': :?: :&? @4B=40
'88 <<: =%&?8 '%?'? '%=49 $?< :9? @@B2=2
$%$$$ '
$%'$' B
'%?&& ::4
$%&4=
$%$9?
$%94'
'%'8$ :%4:' '%$?4
'%9'' :%??8 '%$?:
'%'$? :%?$' ?<:
?:<
?89
?9:
Total -ia)ilities
'%$8: 8%?:<
'%'9? 8%=:$
<=? =%<$=
Stoc.holders EAuity Common Stoc. Treasury Stoc. !etained Earnin/s >ther Stoc.holders EAuity Total Stoc.holders EAuity
?%<8= (9'' '8< 9'4 =%'=<
=%9<' ($%=$? 49& 4<9 :%:88
=%:8$ ($%:?< ($%&:: 94= 9%9&:
@4B=40
@@B2=2
1ssets
Current *ssets Cash(' Mar.eta)le De)t Securities Net !ecei"a)les n"entory Deferred +repaid Taes($ >ther Current *ssets Total Current *ssets +roperty% +lant% @ EAuipment% Net 5oodill ntan/i)le *ssets >ther Noncurrent *ssets Total 1ssets 5'ab'l't'es - Eu't"
Current -ia)ilities *ccounts +aya)le ncludin/ *ccrued +ayroll ShortGCurrent -on/BTerm De)t Deferred Taes($ >ther Current -ia)ilities ncludin/ Farranty !eser"e Total Current -ia)ilities -on/BTerm De)t Deferred -on/BTerm Char/es ($ >ther Noncurrent -ia)ilities
(9
Total 5'ab'l't'es - Eu't" Data sources7 Company filin/s and case riter estimates#
@AB!=!
('
(Sun MicrosystemsQ lon/Bterm strate/y is to maintain a minimum amount of cash and cash eAui"alents in su)sidiaries for operational purposes and to in"est the remainin/ amount of our cash in interestB)earin/ and hi/hly liAuid cash eAui"alents and mar.eta)le de)t securities# ($
Deferred taes and related accounts are not epected to "ary ith sales or continue t o accumulate as a company /roth# (9
ncludes deferred settlement income from Microsoft as of une 9&% $&&<% $&&8% $&&=% and $&&?% lon/Bterm ta lia)ilities as of une 9&% $&&<% $&&8% $&&=% and $&&?% and lon/Bterm restructurin/ lia)ilities#
Ehi)it '$ SUN MICROSYSTEMS >racle 6istorical and +roHected ,alance Sheet (in millions of U#S# dollars
's$al Year;E(d Ma" =@ 200
200!
200?E
1ssets Current *ssets
Cash @ Cash EAui"alents Net !ecei"a)les n"entory >ther Current *ssets Total Current *ssets +roperty% +lant% @ EAuipment% Net 5oodill ntan/i)le *ssets >ther Noncurrent *ssets Total 1ssets
=%&$& 4%:8< B '%$=4 OOO '%?&9 OOO :%4 ?49 >>>
''%&49 :%=<< B '%$?' '8%'&9 '%?88 '=%<<' 8%9<: '%&<' 4B2D!
'$%?$4 4%49& B '%:$= '8%:8' '%<$$ '8%84$ =%$?< 8&$ 4B4@D
Total Current -ia)ilities -on/BTerm De)t Deferred -on/BTerm Char/es >ther Noncurrent -ia)ilities Total -ia)ilities
9': '%9:8 =%='4 <%98= ?%$9: '%'$' <'& OOO
989 '%&&' 8%?4: '&%&$< '&%$9: '%$'8 $%=?' $4%$49
$=' '%&&' =%8== <%'4< <%$9= 48& 9%4?& $$%9$?
Stoc.holders EAuity Common Stoc. Treasury Stoc. !etained Earnin/s >ther Stoc.holders EAuity Total Stoc.holders EAuity
OOO B ?%$$9 4&9 OOO
'$%44? B <%' ?'8 $9%&$:
'$%<8& B ''%8<4 $'? $:%&<&
>>>
4B2D!
4B4@D
5'ab'l't'es - Eu't"
Current -ia)ilities *ccounts +aya)le ShortGCurrent -on/BTerm De)t >ther Current -ia)ilities
Total 5'ab'l't'es - Eu't"
Data sources7 Company filin/s and case riter estimates#
Ehi)it '9 SUN MICROSYSTEMS >racle 6istorical and +roHected ncome Statement (in millions of U#S# dollars
Softare !e"enues
's$al Year;E(d Ma" =@ 200 200! 200?E OOO '=%849 '8%8==
Ser"ices !e"enues 9%=8: Net !e"enue OOO Sellin/% 5eneral% @ *dministrati 8%=<& !esearch @ De"elopment $%'<: *mortiRation of ntan/i)le *sset 8=8
4%:8= $$%49& '&%4?8 $%=4' '%$'$
4%9=: $9%$:$ '&%$'= $%=?= '%='9
>ther >peratin/ Epense Total >peratin/ Epense >peratin/ ncome
':< OOO :%<=4
'?: '4%:8? =%844
$94 '4%<9' 8%9$'
ncome Ta on >perations Net >peratin/ +rofit *fter Ta
'%=&< 4%$?:
$%9'? :%:$8
$%98& :%<4'
Effecti"e Corporate Ta !ate
$8#?;
$<#:;
$8#?;
Data sources7 Company filin/s and case riter estimates#
Ehi)it '4 SUN MICROSYSTEMS Sun Microsystems 6istorical and +roHected ncome Statement (in millions of U#S# dollars
Net !e"enue Cost of Sales 5ross Mar/in Sellin/% 5eneral% @ *dministrati" !esearch @ De"elopment mpairment of 5oodill >ther >peratin/ Epense Total >peratin/ Epense >peratin/ ncome Depreciation @ *mortiRation as # of $rior %ear $$&' Net ++@E as ; of Sales
>>> '9%8=9 =%?&8 ?%$?: 9%8:' $%&&8 B <= :%<:? 9&<
>>> '9%88& =%4$: ?%4:: 9%<:: '%894 B $<4 ?%&89 9=$
:'= 94#4; '%?'' ''#?;
4=? $<#:; '%?'? ''#?;
's$al Year;E(d
4=4 $<#9; '%=88 ':#?;
:9? 9&; '%:$& '$#&;
4:? 9&; '%:?? '$#&;
Data sources7 Company filin/s and case riter estimates#
Exhibit 1: DCF Model
200
NOPLAT - Net PPE !C!! Te$%&na' a'e
101
337
392
(196)
(62)
(172)
268
(6)
(2,01"#6)
172#2
229#"
-
-
-
Ente$*$&+e a'e
1,676
et a'e
1,2"7
E.&t/ a'e
19
of ha$e+ (P$e) of ha$e+ (Po+t) P$&eha$e+ 4e%a$5+ 2 A**'/&ng $o:th (g)
201
(2,236)
- Change of NOWC
1A**'/&ng Ta 4ate
201
28#6 3
Exhibit
2: WACC Calculaon
;a$5et a'e of et1
20
1,2"7
;a$5et a'e of E.&t/
80
,91
Leeta
1#73
4&+5-f$ee $ate
2#82
;a$5et P$e%&%
6#00
Co+t of E.&t/
13#2
?nte$e+t ?nte$e+t A@e$-Ta WACC
4e%a$5+ 1A**'/&ng oo5
11#2 8#1" 12.20%
20@ '9%:$? =%=9: :%=<'
20@ '9%88: =%88< :%<
20@4E '4%$49 8%&=: ?%'?8
:%'$' ?=&
:%$4< =4=
:%9=$ =
4=& 9&; '%?$9 '$#&;
48= 9&; '%??? '$#&;
:&& 9&; '%=&< '$#&;
201
2013
201E
78
"33
"68
(77)
("8)
("8)
("7)
(3)
(3)
33#62
32#3
67#61
-
-
,93#