If I am reading it correctly WRS Networks business unit's revenue will grow from a current guessimate of $40 million to roughly $150-200 million verily quickly followed by a sustained growth rate of 100%+. Therefore if WRS Networks business unit outgrows the rest of the WRS business units you would therefore expect the over-all growth rate of WRS to slowly converge to that of it's fastest growing business unit i.e. WRS Networks ?
You are correct. The growth rate of any organization composed of components, or business units, over time will converge to the growth rate of the component with the highest SUSTAINABLE rate of growth. Unlike many casual investors, the Street is completely familiar with this drill. That's why large companies nowadays are exposing high-growth units through tracking stocks, spinoffs or plain old segment reporting. (New FASB regulations provide addition encouragement.) I think you will see that there is a connection here also with lily ponds.
However, the key is SUSTAINABLE. The Street must be convinced the smallish unit in question isn't just benefiting from an early sales kick from an easily saturated market. Also, the Street finds it harder to get excited when slow-growing units suffer negative growth, which fortunately is not the case at WIND. As far as I can tell, all areas of WIND's business are enjoying positive growth, just not as much as growth as WRS Networks.
For you information, your observation has been a major focus of mine for the last year. I was pleased beyond description that the presentations at the Analyst Day gave concrete evidence that the company fully appreciates the importance of your observation.
To be frank, now that everyone is on board this observation, I, and I suspect the company, are beginning to ponder things at the next level. There is too much context to get into it now, but the next level will probably poke through somewhat when I get around to posting on the Linux threat.
Allen |
