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Report Card: Steven Milunovich

Steven Milunovich
Merrill Lynch
Report Card
2* Overall rank
3* Rank by institutions
1* Rank by stock picking
Makes money for me
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Makes me think
Tells the truth
Meaningful service, not overkill
*Out of 25.
Best star rating is 3 stars. Click here for our methodology.
2nd Place Computer Hardware


B.B.A., University of Wisconsin-Madison; Master of Management, Northwestern University. Milunovich joined Merrill Lynch in 1997 where he covers the server and enterprise hardware sector. He worked at Morgan Stanley from 1992 to 1997, and prior to that worked at Salomon Brothers and CS First Boston.

Industry Outlook and Style

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Milunovich sees two trends creating a positive environment for computer hardware. The analyst, who focuses on enterprise hardware and storage and does not cover PC hardware, is positive on his group, seeing a backdrop of strong spending. "We're probably in year three of a multi-year buying period for Internet infrastructure, which could easily go on for another 10 years." But the Merrill Lynch team has concerns about the PC sector (which is followed at Merrill by Steve Fortuna). As Milunovich explains, "We've argued that the profits in the computer industry are going above and below the personal computer: above, into enterprise computing and, below, into information appliances." The first positive trend he sees is renewed demand for large servers -- particularly UNIX servers. While demand for "big iron" declined significantly in the first half of the 90s, the requirements of current applications necessitate a return to powerful processors. Milunovich sees Sun Microsystems (SUNW) as the primary beneficiary. The second trend is in storage. Whereas storage used to be subservient to the computer, it is fast becoming an equally important and separate purchase decision; a customer, for example, may buy a Sun server but EMC storage to go with it. Milunovich likes Sun and EMC (EMC) in enterprise storage and Network Appliance (NTAP) in storage. (Merrill Lynch has done investment banking for Network Appliance.) He also sees growth among appliances, that is, devices that are optimized to do one thing well. As examples he cites Network Appliance again, as a server appliance specializing in storage, Cobalt Networks (COBT), which is for Web-hosting, as well as the companies making handhelds: Palm (PALM), Research in Motion (RIMM) and Handspring (HAND).

Where does Milunovich see trouble in the group? In what he calls the "legacy vendors" such as Unisys (UIS) and Xerox (XRX), and on the software side BMC Software (BMCS) and Computer Associates (CA), which have not positioned themselves to benefit from the infrastructure buildout. IBM (IBM), on the other hand, is between the two extremes, he explains, with parts of the company being more legacy-like and thus slow-growth while other parts are seeing a boost from the e-business phenomenon. In sum, he says, "We're modestly positive on IBM, more positive on the infrastructure pure plays, and less positive on the Unisys and Xerox names - companies that have had some real disappointments recently."

Stock Pick

Favorite stock for next 12 months: EMC

"Storage demand is growing in units at 100+% per year and in revenue, maybe 25% to 30%, and while there's more competition, EMC is the king of the hill."

Rate Their Stock Picks:

Which stock do you like best? Milunovich: EMC Niles: Compaq Young: Gateway

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