>>A quick question, what is the definition of a design "WIN"? A lot of the stocks that I follow have design wins but somehow I cannot correlate that to the bottom line.
A design win occurs when a customer selects a tool offered by a company to help in the development and possibly production of a product to be produced and offered for sale by the customer. A design win can be a one time revenue event, or an initial revenue event which is only a prelude to future revenues that are expected to flow from the win.
Embedded systems RTOS vendors generally want both an initial product licensing fee, followed by a unit royalty on each product ultimately sold that uses the RTOS - all subject to volume discounts and negotiation.
The point of announcing design wins is to convey to other potential customers that the announcing company is an important player in the particular space in question, and to announce to the investment community that serious future revenues can be expected to flow from the deal and similar deals that might be anticipated. Hot ticket items get lots of appreciation by both parties.
Two and one-half years ago, ISI announced a HP set-top box win, and moved the stock from $16 to $18 in one day. Today, a similar announcement will have no effect, because the market has given up on set-top boxes ever generating serious royalty income. Consequently, ISI emphasized recently that they have 30 STB design wins under their belt, and actually hope that at least a few of them might result in major production runs. Rather than move the stock, this caused one fund manager to retort, "Design wins, design wins, this is the third quarter I have listened to all the design wins, yet none of these seem to get reflected in the bottom line. How come?"
Patience. Design wins do count for a lot, and some will ultimately contribute mightily to the bottom line, but they all develop slowly - and unit royalties may not be nearly as high as you might guess. Take WIND's I2O design win with Intel as an example. The win was announced in January or February of 1996, but by then the project was well underway. Had it been announced when Intel and WIND initially agreed to undertake the development work, typical of most announced design wins, the announcement would have occurred much earlier, say in the summer of 1995. Royalty revenues stemming from I2O should begin to be noticeable in the second half of 1997, or two years or more from when the project was launched. Really significant royalties will not start until 1998 or 1999, three or four years after the start. But this is not too high a price to pay to enable your children to clip WIND coupons derived from I2O royalties long after you have entered investor heaven where the laws of physics and the inevitability of stock volatility are both suspended.
Allen |
