Wind River going up, up, up! Message Board

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Technology Stocks : Wind River going up, up, up!

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To: Jason Cogan who wrote (2178)	9/30/1997 3:44:00 PM
From: Michael Greene	of 10309

Jason, welcome back. I hope that you enjoyed your summer in Madrid. Like you, I find the high degree of visibility in WIND's future revenue and earnings streams to be a great comfort during periods of price volatility. However, I do think that your following statement might lead to unrealistic expectations. "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." The DEFERRED REVENUE item in the liability section of the balance sheet is not a slush fund that can be drawn upon to make up for some quarter's profit shortfall. If you look at the 10K you will see that DEFERRED REVENUE "relates primarily to customer prepayments under software maintenance agreements which will be recognized ratably over the life of the agreements as revenue". Having said that, though, WIND does have a built-in "backlog" but it does not show anywhere in the accounts. Ron Abelmann has commented upon the disappearance of the old end of quarter hockey stick and has stated that the first month in the quarter is now usually the biggest. The "backlog" comes from holding back product shipments near the end of the quarter and releasing them after the start of the new quarter. There is obviously a practical limit to how far this can be taken without hurting customer relations. I would suspect that as a percentage of sales this "backlog" probably cannot get larger than it currently is. Still it is very nice to know that WIND is entering each quarter with a good head start. Regards, Michael

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