Hi Allen,
When the Asia Crisis started, we thought that WRS was going to sail through it because of WRS' business model and because of the drop in semi prices, but WRS was hit, eventually.
WRS had a great quarter, but did the management guide the expectation down enough for this year? The current tech slowdown is very dramatic. Revision after revision, expectations are getting lower almost everyday. Even Oracle, which I thought was more immune than most tech companies, had a cliff dive in sale in the last two weeks of the quarter.
Let's take a look at the end-to-end internet/communication market that's 60% of WRS' sales. JDSU just had its 3 warning in two months. JDSU provides the key elements in optic switching. Its customers includes Nortel, Lucent, and Cisco. These are also some of the biggest customers of WRS. Yesterday, CopperMountain and Broadcomm warned. This is a clear sign that the last-mile market is slowing. SUN reported today that server inventory is three times of normal, adding this to the Oracle numbers, the server market is slowing much faster than SUN thought a month ago. These companies provide the enabling technologies for the end-to-end internet/communications market. The importance of this slowdown is how dramatic it is. For example, CopperMoutain lowered its already-revised guidance for Q1 from $51 million rev to $8 -- $10 million. The numbers coming out of CopperMountain is more severe than that of most Internet/communications companies, but CopperMoutain is a typical example of the companies that are building the new generation of equipment. Much of these equipment were used by CLECs. Today, CLECs are dropping off like flies. My guess is that this new generation of equipments are mostly powered by VxWorks or TMS. This leads me to believe that WRS' royalty revenue will take a hit, no matter how the accounting is done. Still, the main piece of revenue is licensing. As we heard from the CC, design wins are slowing using historic method of calculation. This leads me to think that licensing may encounter some problem this quarter, but no one will know until the last two weeks of the quarter.
I am not sure if WIND will sail through this high tech slowdown. The data coming out this weeks is increasing the possibility that the management has under-estimated the impact of the macro environment.
Regards,
Khan |
