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: Mark Brophy who wrote (1177)	5/30/1997 10:58:00 PM
From: Michael Greene	of 10309

>>The company most similar to Wind River is Phoenix Technologies... >>Phoenix is growing 30% ANNUALLY and is likely to continue at that rate... Here are the revenue numbers for WIND and PTEC for the last five fiscal years. WIND -- PTEC 66.47 -- 78.14 44.86 -- 51.97 32.78 -- 110.00 27.82 -- 66.58 25.17 -- 61.02 WIND's revenues have gone up 164% in four years versus 28% (6% ANNUALLY) for PTEC. In addition, over the longer term WIND has had a record of consistently increasing revenue and earnings while PTEC has been a roller coaster ride for both revenue and earnings. >>They both (WIND and PTEC) have a few pesky little competitors that keep unit prices low and margins from rising as high as Oracle.... Oracle has had a stable net margin of 14% for the past three years. Wind's net margin for its last fiscal year was 18% which is the latest in a series of improving margins, a trend which shows no sign of slowing. I do not know what kind of margins you are used to in the companies that you invest in but 82% gross margin, 25% operating margin and 18% net margin are quite acceptable to me in a company which is currently investing heavily in its growth. If margins like these are not up to your standards you should not have to wait too long for even better numbers. Product license revenues carry about 90% gross margins versus about 60% for services. There has been a clear trend in recent quarters toward an increasing proportion of product license revenues. This can reasonably be expected to continue as the large sales of Tornado developer licenses over the last 18 months lead, with the usual product development lag times, to increasing runtime revenues. It is important to remember that the 90% gross margins for product license revenue is itself composed of lower margined developer licenses and higher margined (approaching 100%) runtime licenses. Although the runtime revenues constitute only a little over 20% of product license revenues at present they are growing significantly faster than developer revenue. This is a trend that will be greatly accelerated by the large I2O runtime royalty stream which is about to commence. One should also not overlook the considerable drag on operating and net margins created by the substantial investment in international subsidiaries. The operating margin of 25% is actually composed of a 34% domestic operating margin along with international margins in the single digits. As sales volumes increase in the international markets their operating margins should approach the domestic one resulting in a marked impact on the bottom line. Perhaps all of this will still not result in margin performance that meets your high standards. If so, good luck with Phoenix or whatever. WIND is good enough for me as long as they continue the flawless execution exhibited over the past several years.

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