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Technology Stocks : Wind River going up, up, up!
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To: Allen Benn who wrote (8419)9/5/2000 3:12:52 PM
From: cfoe  Read Replies (1) of 10309
 
Allen - Thank you for your analysis of wrs' latest quarter and for putting the results in perspective - both historically and prospectively. I wanted to make an additional comment on profit margin.

One of the reasons management has been giving (over the last few CCs) for lower operating margins is the level of investment they will be making in products and services. One of those expenses must be additional professional staff, the cost of which is a current expense, resulting in lower margins.

I do not expect this to end anytime soon and I don't think it should. However, as investors we have to watch that these investments are paying off in increasing revenues, and improving (if not stellar) margins.

Regarding these "investments" I found something I recently read in Geoffrey Moore's new book (Living on the Fault Line) about metrics for managing shareholder value to be of relevance. In speaking about using P/E, he says the following:

"Ultimately ... all fairly priced stocks must generate future earnings to match their market caps, but in a high-growth market [and I would put Wind there] it is important to defer present earnings in order to capture a greater share of future earnings. That is, winning market-share battles during the early years is the key to winning margin-share battles over the remaining life of the market."

So, I conclude that Wind is in the right business and doing the right things, which leaves the ultimate result up to execution, execution, execution!

Again thanks for your timely and thorough posts.
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