Jet-lagged, awed, apprehensive but hopeful. The 21st Century belongs to China - and of course WIND. China will either become the dominant economy on earth, or it will cause itself and all of us much misery and thereby dominate our attention and energies.
I read all the posts in my absence, and I have to say that you people are well-informed and smart-thinking investors. There were many well thought-out posts, although I did have to grin at the frustration many of you displayed when responding to Mark Brophy. Mark is special.
I recall I did correct an error in my stated assumptions used in a pro forma valuation of WIND, but the counter-analysis presented by Mark in Post # 1109 is the same old junk he presented previously. He showed that cumulative earnings would be $67.47/share in year 2011, which he then translated to an intrinsic value of $67.47/(1.1)^14 = $17.75 for WIND. Wrong, wrong, wrong! It simply makes no sense at all to suggest that earnings should be accumulated for a number of years, and then discounted to establish value. That is not how you discount a stream of earnings (even if we loosely accept earnings as the equivalent of free cash flow). Even more important, there is a missing term that should contain an approximation, estimate or whatever, for the future value beyond year 2011.
Moreover, the 10% bond return is presented meaninglessly. The present value of a bond is the discounted stream of after tax return plus the discounted value of the face value of the bond upon maturity (although these is a delicate issue about how to value reinvested proceeds).
Mark suggests that we should all be thankful that WIND has performed so well for us, but that we should cash in and invest in other stocks that will double over the next year. This is an very important suggestion. It is important because it is so misguided, yet it is followed often by amateur investors. Of all the aggravating things Mark says (not because he is negative, but because he misstates and misinterprets facts), this one is the worst because it reinforces the wrong behavior in investors.
The single biggest mistake investors make is to sell winners and hold losers. Every rich, successful investor, probably without exception, does the exact opposite. Why? Because great growth companies (real winners) are as scarce as hens teeth. That's why Coca Cola and Gillette get mentioned so often as great growth companies. There aren't many. If you ever find one, by all means stay with it until proven otherwise. And as few as there are in general, there are even fewer great high-growth companies in technology. Intel and Microsoft have both done exceedingly well, and they each may yet prove to be great growth companies. But not necessarily so. They each have weaknesses that could slow them down, even bring them down. Microsoft is facing a paradigm shift and market saturation. Intel faces market saturation, and more open price competition for embedded processors in tomorrow's hidden computers.
Qualcomm may end up being a great growth company, but there is still much to prove (along with dodging bullets from Ericsson and Motorola, a company that has been and desperately wants to continue being a great growth company). Cisco certainly has a chance at it, if it can use its market dominance to refresh its technology while keeping competition at bay.
Of all these companies, by far and away WIND has the best chance to develop a lasting franchise and become the next great growth company. Knowing this, why would anyone feel the need to take WIND profits and invest them in throw-the-dice, yet-another technology company? Mark's analysis may be nonsensical, but it pales in comparison to his investment advice, which runs contrary to what Phil Fisher, Warren Buffett, Peter Lynch and all the great investors preach over and over.
Enough, for now there is news afoot! VxWorks will provide an underpinning to Adobe's Postscript printers. What does this mean?
Postscript is a Smalltalk-like language that is application-specific in use. Postscript printers don't print from downloaded ASCII files like in the old days, they receive downloaded computer programs, which they execute (interpret). The program is generated on the fly by the application. Most of the program crams literal text into strings surrounded by all sorts of page layout functions. Actually, you don't have to just send your Postscript printer page layout programs that print, you can communicate with it interactively in the Postscript language, albeit most printers have limited I/O capability beyond printing, making most interaction boring. Consequently, you can think of Postscript printers as Application Specific Operating Systems (ASOS), that nowadays must also communicate over various networks, perform FAX-type functions, and probably baby sit your kids.
Those latter functions cause ASOCs lots of problems because they need to handle all the communication protocols and many other newly added functions needed by regular computers/operating systems, not to mention being able to run on every new processor that emerges.
At some point ASOC vendors either get replaced by generic, open systems or realize that the application portion of their product is their core business, not the OS portion. When asked about RTOS competition at the H&Q Show, for example, the Geoworks CEO responded that he thought of them as partners, not competition. He tried to explain this by saying that RTOSs are best at handling communications in a smart phone, while GEOS is best for the user-interface and end-user applications. Really, said I, "Are you suggesting that a smart phone should have two, separate operating systems?" He answered, "This is a highly technical issue of exactly what is an Operating..". In other words, he realizes, but he hasn't come to grips yet with the notion, that GEOS needs to sit on top of an RTOS like VxWorks.
PRLS makes embedded systems software (ASOS) for printers, and lusts after HP as a potential customer. Good luck. HP will not retreat from VxWorks to an ASOS because of a nice application feature or two. Rather, expect PRLS to partner with WIND, just like Adobe. XION is a competitor to PRLS, and as I recall they recently decided to use pSOS to out-source the OS portion of their product line.
ASOCs are just another form of roll-your-own OSs that must all give way ultimately to a commercial RTOS. The same thing is happening when Japanese Electronic Consumer companies substitute a commercial RTOS for their in-house OS in a digital camera. The same thing is happening when telecomm and network equipment manufacturers drop their home-grown OSs.
What does this do for WIND? Lots. Substitution design wins like these ramp up faster than those that entail building a product from scratch - mainly because the market already exists for large-scale product sales. Moreover, once more, this is the beginning of a long-term arrangement that will slowly carry over to all Adobe Postscript products. This is an example of what we mean when we say WIND is creating one of the world's great franchises.
By the way, Ramsey. Do you still believe that QCOM will display less volatility going forward than WIND?
Allen |
