Everything looks like a nail!
The people on this thread keep making the same mistake over and over again, which can be summed up with the following proverb:
When the only tool you own is a hammer, everything looks like a nail!
You may see embedded systems everywhere, but that doesn't mean there's going to be a Wind River RTOS inside each one.
A good example is the GPS golf gadget. It was developed 2 years ago, so there's little chance that it includes I2O. I2O is for high performance I/O, but the golfer doesn't care whether he gets his answer in one millisecond or 50 milliseconds. The golfer wants a gadget that's cheaper than a caddy, so Trimble Navigation is unlikely to even consider the extra cost of an RTOS. Also, the code is fairly simple, the algorithms are mature, and it doesn't need a 32 bit processor.
Another example is the Adobe deal. Adobe has been losing a great deal of market share lately in the printer controller market to Xionics Document Technologies, including all HP and Lexmark printers and multifunction peripherals. Adobe can no longer afford to amortize their software development costs over as large a number of units, so it makes sense for them to use RTOS services to reduce costs. Nevertheless, the future belongs to companies like Xionics that develop both the firmware and the ASICs. The synergy between hardware and software allows them to bring multifunction peripheral products to market faster and cheaper than their competitors. You can already buy 32 bit processor cores and sooner or later most firmware vendors will enter the emerging soft cores business, leaving behind companies like Wind River that only support general purpose processors.
Others might be more diplomatic, but I think any stock evaluation method that produces a big change in conclusions after a small change in assumptions is unstable and it's no exaggeration to label it as "discredited". There's no useful method for determining the commencement of the residual period, nor is there an algorithm for calculating the residual value. You calculated the absurd valuations below for Wind River without any explanation of the inherant difficulties of your numerical methods:
The intrinsic value is around $375 discounted at 8%; $190 discounted at 10%; and $64 discounted at 15%.
Any analyst in the business may understand the shortcomings of your method, but none of the cheerleaders on this thread mentioned your inflated valuation. It didn't even occur to anyone to question such outrageous numbers! They admitted only that you baffled them (an accountant - not an analyst) with your post, so I think it's useful to point out the problems.
I suspect the this company is misunderstood because when people hear the phrase "operating systems", they immediately think of Microsoft and high growth for an extended period. That's the superficial analysis many analysts and investors use to evaluate a stock. This is an entirely different business and will fizzle out a lot sooner. If Wind River were going to enjoy high growth for a long time, the first scene in a new remake of "The Graduate" would have the wise old man saying to the new college graduate:
Benn, I want to say just one word to you - RTOS!"
The only companies likely to enjoy a high growth rate for an extended period are Cisco and Fore and their P/E ratios are substantially lower than Wind River. They're addressing markets that anyone can see are becoming huge and they're finding it easier to grow because they're the market leaders. So, the line should be:
Benn, I want to say just one word to you - networks!" |
