Dylan,
Hello Dylan and everyone else. I'm back from my summer, trading options in Madrid. It sure is nice to have steady Internet access again. I followed the discussions when I could for the past few months, but it is good to be able to go to Prof. Benn's lectures on a more regular basis.
Dylan, I know Allen's already commented on the pain of a short-seller attack, but I thought I'd add my two cents.
<<In a market panic all the eloquent post and rationalizations won't
help a bit. Lots of WIND's profits are "in the future",increased
sales are "in the future" lower pe is "in the future".>>
It is true that in a market panic, no amount of rationalizing will help a stock. But in the end, all stocks are worth the net present value of their earnings. That is the simple rule of investing that Peter Lynch, Warren Buffet, and Richard Rainwater have followed to perfection. They have long known that value investing works because it's methods uncover value. WIND is truly an amazing growth stock. But it is also a value stock at its core.
The reasoning is because of the very future profits you allude to. Unlike most companies, Wind's future profits are to a large degree known. And unlike most companies, WIND's future profits are a lot more certain as well. This is because of the relationships that they have. Intel and the I2O initiative is just one, even though I2O alone probably justifies the price of the stock. Think of the number of embedded IO processors that will eventually be in everything, from servers to cars to phones and televisions. Any place with a network (phone, PC, TV), communication system (Car, Spaceship) or computer (servers and terminals) will eventually need sophisticated IO processing. Most of those processors will likely come from Intel (and WIND), but if not, WIND will gladly take the royalty from DEC and Motorola and Siemens (and almost every other large chip maker).
But beyond I2O, wind collects royalties from many other known entitites. Automotive Design (General Motors, Toyota, Nissan), Telecommunications (Siemens, Qualcomm), Military and Aerospace
(Boeing, JPL), electronics companies (Toshiba, Hitachi), and the unbelievable network buildout (Cisco, 3COM, COMS, Adobe, Oracle). These companies are certain to sell products in the future. In combination, lots and lots of products. And WIND will get some small royalty (or maybe even large royalty) from all of them. Cars, computers, phones, everything. This is the beauty of the WIND River story. Much of their future profits are guaranteed.
<<How about this one just for fun. Bill Gates speaks to a crowd somewhere and says
"I used to wake up thinking about browser market
share. Now I wake up and think about embedded computer market share.">>
As Allen articulated long ago, (check the early posts 1-300 for a reference), this is not the death knell some automatically assume. A while back, we had a whole long discussion about the everpresent Microsoft threat. While Bill Gates is certainly not one to take lightly, he does not automatically win every battle he fights. He tried to take over the database market, but the last time I checked Larry Ellison had about $10 billion dollars. In addition, WIND River boasts two very important things that Microsoft does not.
1. They are not Microsoft. Computer billionaires loathe to make deals with Bill Gates if they can help it. Even if you toss away all of WIND's technological superiority (which is sizeable), the Larry Ellisons and Scott McNealys will always want to deal with another software partner. WIND RIVER is a very capable partner. This leads to reason number two.
2. As Allen alluded in a much earlier post (again, 1-300 on the thread), WIND's current relationships make them very strong indeed. All of the companies above have already made very sizeable investments in WIND River technology. Their engineers are comfortable with Tornado. Their products are built around IxWorks. Their products are proven to work. All of these reasons make these companies reluctant to give up their WIND River software. This further solidifies WIND's future royalty stream, and makes it a more certain asset.
What's more, WIND's immediate future profits are certainly guaranteed. WIND has been steadily building up a profit reserve, in the form of a deferred liability account. This means that should by some chance WIND fail to meet their earnings target in the future (highly unlikely given the growing royalty stream), they could still pull out money from their reserve account and meet Wall Street's expectations. Exactly the kind of stock I like to own, and one that is ultimately suicide for the short sellers.
Anyway, it's good to be back. Any and all thoughts appreciated. Let's see what kind of price action we get from the Intel conference over the next few weeks.
Ciao,
Jason Cogan |
