April 3, 1998 6:30 PM PST

NC blamed for Sun, Oracle slides

Sun Microsystems (SUNW) and Oracle (ORCL) saw their stock prices fall today because of growing concern about the commercial prospect for network computers.

Sun's shares declined about 3 percent to close at 41-1/8, while Oracle's stock dropped more than 6.5 percent to finish the day at 28-1/8. Wall Street traders attributed the slide to concern over current and prospective sales for NCs.

"If there is still one person out there who thinks the NC is viable, they just got back from six months in Guam," said Jeff Matthews, a general partner in Ram Partners, a Greenwich, Connecticut-based investment partnership. "It was a top-down thing, and top-down things don't work."

Simply put, sales of network computers--in particular, NCs based around the Java programming language--aren't great. Only 144,000 NCs were sold last year, about half of projections, according to a report from Dataquest earlier this week. Federal Express, one of the early adopters of Java-based NCs in 1996, recently decided instead to use PCs and Windows-based terminals.

The primary drag of sales continues to be a dearth of NC software, analysts say. Unlike PCs, network computers store their data and applications on a central server, which is also used to manage the desktop.

Centralization is supposed to lower operations cost. Unfortunately for NC promoters, however, few corporate applications based around Java for the NC exist. NC productivity applications for clients are also still in their early stages.

NC hardware has also been a problem, as few companies have signed up to manufacture them. Sun itself only released its JavaStation for commercial release last week. Earlier this week, Sun and IBM announced that they would collaborate on developing and marketing a common Java-based operating system for NCs.

Called JavaOS for Business, the new OS makes NCs more attractive to buyers because it will effectively set compatibility standards for NCs from different manufacturers. JavaOS for Business, however, won't be out until midyear and likely won't be fully implemented on IBM or Sun NCs until early 1999.

Sales of "thin-client" NCs are expected to climb to 482,000 this year, but Dataquest points out that many of these will not be network computers at all. Many of so-called thin-client devices could be Windows-based terminals or stripped-down PCs that are centrally managed through existing Windows technology.

Allstate Insurance became the largest purchaser of NCs ever this year. The company, however, is not using its IBM NC network to run Java applications. Instead, the Allstate system runs Unix programs and Windows NT, according to an IBM spokesman.

NC woes may not be entirely to blame for Oracle's stock slide. Yesterday, Oracle president and COO Ray Lane told a meeting of Wall Street analysts that the company continues to see IS spending diverted away from new database and tools software spending and directed toward fixing Year 2000-related problems, according to a report issued today by Furman Selz.

Lane also said a continuing reorganization of Oracle's sales force has hindered the company's ability to gather new database sales to offset Year 2000 problems. The company expects to have a streamlined sales organization in place by the end of this month.

And Oracle CFO Jeff Henley added that, although database sales improved last quarter, some of the deals may have been pulled in from the current quarter.

Its stock may also be taking a hit because of comments by Oracle at the company's analyst meeting that a sales force reorganization this quarter could disrupt revenues.

Reuters contributed to this report.

 

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