The ratings on Santa Clara, Calif.-based Sun Microsystems Inc. reflect a good, but not leading, position (based on all operating systems) in the highly competitive global server market, a relatively narrow market base--particularly in comparison to major competitors--and inconsistent profitability. These factors are partly offset by moderate debt levels and strong liquidity. Sun's ongoing investment in new product development, and a significant base of relatively consistent service revenues has led to a recent return to total revenue growth (excluding the impact of acquisitions). The ability to achieve sustained, profitable revenue growth will in part depend upon greater market penetration into Sun's targeted base of customers who invest in highly scalable, high performance computing systems. Although Sun's strategy also incorporates building
