Folks,
Just for fun I decided to formulate a model to predict I2O royalties and hence WIND's share price over the next few years. The model is very simple. The simpler the model the easier it is to communicate it to others.
Assumptions:
1. The model does not include any future income from TMS, Intel's IXA, embedded Java/Jini, webphones, OSEK, xDSL and cable modems, etc.
2. This year (ending Jan 2000) WIND will take in about $5 million in I2O royalties. This $5 million is made up of $3 million from LSI (750K minimum per quarter) and about $2 million from Intel. We know this from the last two CC's.
3. Going forward lets assume that the LSI portion stays flat for one more year. This is because we do not know the underlying I2O growth rate for LSI, hence we do not know when LSI will break through the minimum payment level.
4. The model assumes I2O will grow at 200% y/y for the next few years. This will be driven by iRAID, InfiniBand, iLAN (Intelligent LAN), the general increase in the number of servers required in future years (perhaps 20X), storage area networks (SAN), network attached storage (NAS), Linux(which will push I2O since it benefits from it) etc, etc.
5. The model does not include any future I2O vertical solutions that WIND might produce. This was hinted at in the last CC when Jerry said "WIND will not just be an observer in I2O". Any solution level products would of course have higher royalty rates, perhaps 5X higher.
6. The model does not include the ISI (INTS) merger.
7. The model assumes that all of WIND's other products will have zero growth rates going forward.
8. The model assumes that WIND's earnings for the year ending Jan 2000 are 0.62 cents of which 0.08 cents are from I2O. Therefore 0.54 cents are non-I2O related. Lets assume that the 0.54 cents remains flat going forward and only the I2O earnings increase. If you run the numbers you get the following:
Cal year/ I2O earnings/ Total earnings/ Share price (PE=100)
1999......0.08...................0.62.................$62
2000......0.14...................0.68.................$68
2001......0.42...................0.96.................$96
2002......1.26...................1.8..................$180
2003......3.78...................4.32.................$432
2004......11.34.................11.88................$1188
Interesting points
1. By the end of 2001 I2O could make up 50% of WIND's earnings (it's 12% at present).
2. The share price on the right hand column is calculated using a PE of 100. Of course the PE used is totally arbitrary. The share price on the right hand side is only awarded after the earnings have actually been earned. In reality the market will begin to anticipate the higher earnings hence giving WIND and even higher PE than 100.
3. Windows CE, RT Linux etc do not enter into the equation !!!
4. The above model does not include TMS, Intel's IXA, SUN's embedded Java/Jini, future growth in xDSL/cable modems, OSEK (auto's), webphones, the 20 VAR deals in the pipe, plus the many other projects we are not even aware of.
Regards
JC. |
