Sun Microsystems Inc (NASDAQ: SUNW) held its annual investor's day with the investment community yesterday. Analysts seemed not to share Jonathan Schwartz's, CEO of Sun, enthusiasm for where the company is headed.

Here are some opinions from analyst reports which were posted on Barron's Tech Trader Daily:

Richard Gardner of Citigroup believes Schwartz continues to adopt the view that Sun's decision to open source its entire software stack will drive developers and users to its platform(s), eventually creating opportunities to monetize R&D investments. Gardner agrees with the premise that volume drives value, but how much value, for whom and over what time period is still unclear.

Thomas Weisel analyst Kevin Hunt still has concerns regarding the "lackluster" storage business (tape market and integration of StorageTek), and as a result, maintains a Market Weight rating on Sun's shares.

Deutsche Bank's Chris Whitmore believes that Schwartz and his team are driving operational and product line improvements, but that this is more than reflected in Sun's shares. Whitmore believes Sun's operating margin goal requires double digit revenue growth through F09, and maintains a Hold rating with a price target of $5.50.

Goldman Sachs's Laura Conigliaro said, "There are significant execution elements to be hurdled and timing could be lumpy."

While analysts reports are peppered with optimistic caveats, they are few and far between. Also, analysts and investors are still questioning the reasoning behind the convertible bond offering with KKR.

Sun's stock has had a massive rally recently, it might be time to take some profits.

Sun Microsystems Inc (NASDAQ: SUNW) reported a solid 7% increase in revenue for its second quarter, citing good demand for its SPARC chip multithreading servers and x64-based servers as well as the increased acceptance of the Solaris 10 Operating System.

More importantly in the tech world, the company showed strong gross margins, coming in at 45%, up from 43% last year.

Sun generated cash from operations of $153 million and had cash and marketable securities at the end of the quarter of $4.8 billion, a lot of cash.

However, despite good cash generation, improved margins and a strong balance sheet, Sun decided to go forward with a $750 million convert with KKR. During the earnings conference call, analysts could not figure out why Sun did the deal.

Jonathan Schwartz, Sun's CEO, said the KKR transaction will allow it to better explore strategic opportunities. He added there could be some cross selling opportunities between KKR's portfolio companies and Sun. Analyst did not appear to believe him.

The reality is the only reason for Sun to need this extra cash is to make a sizable acquisition. Despite an improved operating performance, the growth metrics for Sun, especially within the US, are still weak.

Look for Sun to do another big transaction this year.

MOST NOTEWORTHY: Sun Microsystems Inc (SUNW) and the Telecom Services Sector were the most notable stocks on today's list.

• First Albany upgraded shares of Sun Microsystems (NASDAQ: SUNW) to Buy from Neutral with a $7 target and has increased confidence that Sun can deliver on its 10%-plus operating margin following KKR's appointment to the Board.

• Morgan Stanley upgraded the Telecom Services sector to In Line from Cautious, citing a positive view on AT&T Inc (NYSE: T) and industry trends.

OTHER UPGRADES:

• Goldman Sachs added Occidental Petroleum Corp (NYSE: OXY) to its America's Conviction Buy List and upgraded shares to Buy from Neutral, citing valuation.

• Bear Stearns upgraded EMC Corp (NYSE: EMC) to Outperform from Peer Perform following its fourth-quarter report citing improved execution and a favorable demand environment.

• Longbow upgraded AK Steel Holding Corp (NYSE: AKS) to Neutral from Sell.

• Raymond James upgraded Brinker International Inc (NYSE: EAT) to Outperform from Neutral.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

Advanced Micro Devices (NASDAQ: AMD) had been steadily gaining market share and customers on Intel Corp (NASDAQ: INTC) for years, but with such a big lead, it seemed to take the industry heavyweight a long time to notice.

In the summer of 2006, Intel clearly got the wake-up call, when Dell (NASDAQ: DELL) announced they would sell AMD-based computers after years of exclusively using Intel.

Now Intel is firing back at AMD by announcing an agreement with Sun Microsystems (NASDAQ: SUNW), which will put their chips in Sun computers. Sun previously exclusively used AMD's Opteron chips.

Between this deal and the deal with Apple Computer (NASDAQ: AAPL) a year and a half ago, Intel is proving that it is not comfortable with its market-leading status and that it can continue to grow its market share -- in this case at the expense of rival AMD, which must make the execs at Intel doubly happy.

A final note on AMD -- The company lowered guidance on January 12, prompting a flurry of downgrades by Wall Street firms. This partnership between Intel and Sun is definitely not going to help AMD's recently attained Neutral, Hold and Underperform ratings.

MAJOR PAPERS:

• The Wall Street Journal (subscription required)
• Google (NASDAQ: GOOG) may be in talks to acquire the in-game advertising company AdScape Media.
• Home Depot (NYSE: HD) directors are expected to meet with activist investor Ralph Whitworth, who wants the company to spin-off its lower margin supply business to better concentrate on its main stores.
• Sun Microsystems (NASDAQ: SUNW) is expected to announce an agreement with Intel (NASDAQ: INTC) that would involve Sun buying Intel chips for its server systems.
• Barron's Magazine (subscription required)
• Shares of Under Armour (NASDAQ: UARM) may be set to take a tumble and some only believe shares should be trading no higher than $40.
• Shares of Alcoa (NYSE: AA) may be set for another run and John Buckingham of Al Frank Asset Management would buy shares up to $32.41.
• The "Technology Trader" says it may be too early to walk away from shares of Cisco (NASDAQ: CSCO).
• The Financial Times (subscription required) reported that a private equity consortium may be after Dow Chemical (NYSE: DOW).

OTHER PAPERS:

• The U.K. Times reported that Tata Steel and CSN are both expected to raise their bid for Corus (NYSE: CGA).
  
• The Telegraph reported that BP's (NYSE: BP) exiting CEO Browne, dreamed of merging with Shell (NYSE: RDS.A).

January's earnings period continues, with Texas Instruments (NYSE: TXN), Sun Microsystems (NASDAQ: SUNW), eBay Inc (NASDAQ: EBAY), AT&T (NYSE: T) and Halliburton (NYSE: HAL) all reporting this upcoming week.

Monday January 22

• Pfizer (NYSE: PFE) to hold a strategic update meeting at 1pm. Deutsche Bank believes the meeting will focus on Exubera and will discuss the drug positively.
• Target (NYSE: TGT) to hold its January mid-month sales call at 4pm. Investors will be looking at the strength of sales after the holiday season.
• Texas Instruments to report Q4 earnings; conference call at 5:30pm. The focus here will be on the company's product mix, cost controls, market penetration rates, and margins. Additionally, the Street will also be looking at Texas Instruments' comments on product development and the future role it sees for semiconductors, particularly in wireless devices.
• FDA PDUFA date for Wyeth's (NYSE: WYE) Desvenlafaxine.

Tuesday January 23

• Sun Microsystems to report Q2 earnings; conference call at 4:30pm.
• FDA PDUFA Date for GlaxoSmithKline's (NYSE: GSK) Coreg

Wednesday January 24

• eBay to report Q4 earnings. Investors will look for comments on sales during the 2006 holiday season, the recent acquisition of Stubhub.com and the performance of Paypal.com against fledgling challenger Google Checkout.
• Atlantic City Council Meeting to hold vote on smoking ban at 5pm. If passed, this would be a negative for the casino sector, as it would ban smoking on the floors of Atlantic City casinos.

Thursday January 25

• AT&T to report Q4 earnings; conference call at 10am.
• Icos Corp (NASDAQ: ICOS) to hold a special shareholder meeting at 2pm to vote on the revised merger agreement with Eli Lilly (NYSE: LLY). Note that HealthCor Management, which holds a 5.24% stake in Icos, plans to vote against the proposed acquisition.

Friday January 26

• Halliburton to report Q4 earnings; conference call at 10am. Investors will be looking for comments on oil services, as well as new contracts relating to government services.

MOST NOTEWORTHY: Advanced Micro Devices (AMD) and SAP AG (SAP) were today's most notable downgrades.

• Advanced Micro Devices (NYSE: AMD) was downgraded by four firms this morning following the company's pre-announcement of lower than expected Q4 revenues:
• Morgan Stanley and Prudential to Underweight, Bear Stearns to Peer Perform from Outperform and Citigroup to Hold from Buy.
  

• SAP AG ADS (NYSE: SAP) was also downgraded by four firms following the company's first fourth quarter miss in seven years:
• To Sector Performer from Outperformer at CIBC, to Hold from Buy at Jefferies, to Neutral from Buy at Goldman Sachs and to Underperform from Market Perform at JP Morgan.

OTHER DOWNGRADES:

• Morgan Stanley downgraded Sun Microsystems (NASDAQ: SUNW) to Equal Weight from Overweight, citing valuation.

• JP Morgan downgraded Netflix Inc (NASDAQ: NFLX) and Blockbuster Inc 'A' (NYSE: BBI) to Neutral from Overweight; JP Morgan downgraded Netflix as they believe Internet data suggests there is the potential for the firm to miss subscriber targets and downgraded Blockbuster due to weaker-than-expected in-store rental trends, which they feel will more than offset strength in online subscriber growth.

• Oracle Corp (NASDAQ: ORCL) was downgraded to Sector Performer from Outperformer at CIBC; the firm believes SAP AG ADS's (NYSE: SAP) forth quarter miss, coupled with a tough May quarter comp, will put a ceiling on valuation in the coming months.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).

A good leading indicator of stock market performance is looking at the leading Internet companies. So far in 2007, the leading internet companies are doing quite well:

• Yahoo!, Inc. (NASDAQ: YHOO): +13.0%
• Google Inc (NASDAQ: GOOG): +7.2%
• Level 3 (NASDAQ: LVLT): +14.0%
• Sun Microsystems (NASDAQ: SUNW): +10.2%
• ebay , Inc.(NASDAQ: EBAY): -2.5%
• Amazon.com, Inc.(NASDAQ: AMZN): -3.3%

Search is doing well (Yahoo and Google), the physical network of the Internet is also doing well (Level 3 and Sun), but internet retailing is having a tough time early on (ebay and Amazon).

Overall, the strong performance of these leading companies is a good sign for the market. Often, the best of the best take off way before the market does. This strong start in 2007 bodes well for tech in 2007.

Sun Microsystems, Inc. (NASDAQ:SUNW) had a mixed bag of news recently. According to research firms Gartner and IDC, its server sales were up sharply in the third quarter cementing it place as the No. 4 provider [subscription required] behind International Business Machines (NYSE:IBM), Dell, Inc. (NASDAQ:DELL) and Hewlett-Packard Co. (NYSE:HPQ).

However, in Sun's bid to be part of the Pentagon's new initiative to build out its supercomputer capacity, the company rolled snake eyes. The Defense Advanced Research Projects Agency awarded $500 million worth of contracts to IBM and Cray, Inc. (NASDAQ:CRAY). The plan is to build a supercomuter that is several times faster than the most advanced products available today.

Cray is a much smaller company than Sun. Its market capitalization is only $250 million. Cray's revenues last year were only $200 million.

For Sun, that has to hurt.

Douglas McIntyre is a partner at 24/7 Wall St.

Sun Microsystems, Inc. (NASDAQ:SUNW) has had a resurrection of sorts, but it still has a long, long way to go. The company's stock has popped from $3.64 last November to $5.50, right around its 52-week high. This 51% jump in less than a year is probably not justified.

Sun's purchases of See Beyond and StorageTek have helped it keep its revenue moving up year-over-year, but the top line improvement was not organic, it was purchased. Over the last four sequential quarter, Sun has shown very little growth with revenue averaging about $3.3 billion. Operating losses have improved as the company fired thousand of employees.

Although several brokerages including Morgan Stanley and Lehman have upgraded Sun, Thomson/First Call shows a mean price target among ten analysts surveyed of $4.32, well below the current price. Morningstar has a "fair estimate value" of $3.50 on Sun.

Sun has still not reversed the opinion among a number of skeptics that it will ever be able to take enough share from server giants like IBM (NYSE:IBM), Dell, Inc. (NASDAQ:DELL), and Hewlett-Packard Co. (NYSE:HPQ) to move the needle. And while Sun's new Niagara processor has gotten good reviews, whether that will translate into a lot of sales remains to be seen.

Morningstar gives some indication of why its price target is so low: Sun's higher priced workstations are not a good fit in an IT climate where less expensive machines are the trend.

Enough said.

Douglas McIntyre is a partner at 24/7 Wall St.