Only thing I have to add is that this setback should in no way affect anyone's long term opinion on this company.
We all realize that, while licensing and services are important, the real potential lies in royalties, which have the potential to dwarf other sources of income. And as long as WIND continues to gain market share in an exploding market, they will come through this economic downturn unscathed.
WIND has the cash and current profitability to get through this--many competitors will come out much weaker. There is nothing at this point to suggest that WIND is losing market share. At first,I was worried by the statement that companies were paradoxically shifting to less outsourcing in this downturn. But that does not refer to OS development, but rather services. Because the labor market was so tight, WIND was in high demand. But now companies can use their existing employee base and not pay the price for Wind River Services. Also, the dry venture capital pool has meant fewer startups--a traditionally strong customer base in the services division.
That said, WIND should emerge from the downturn with a greater market share. As was stated in the conference call, the best customer relationships will be formed at times like this. Furthermore, there was the hint of several announcement to be made public in the next two weeks--new products as well as partners.
I furthermore am not overly concerned with the issue of lower product revenues in this quarter. Anecdotally, it seems that the problem was not demand for licensing--rather smaller purchases were made as a result of internal beaurocracies in other companies. But if the engineers desire to use WIND tools, they will have to come back for the rest of the purchase.
This lower level of licensing is only disturbing if it reflects a loss of market share. And I don't think at this point that it does. However, it is important to note that if the product cycle lengthens, one of WIND's main selling point--time to market advantages--becomes weakened. From a royalties standpoint, WIND's significant deign wins of the past year should carry it through this this product cycle. But just to reiterate, it must be closely monitored to make sure that they are designed into the next
generation as well.
In closing, I'd simply like to add that for a long term WIND investor, this is a non-event. While there are added risks in the short term, there is also a very good chance that the company will emerge in a much stronger position. As I personally resume my efforts over the next 4 months (now that the university is winding down for the summer) to develop the lily pond model, there will likely be a great buying opportunity for those that can see through the short term fog to the picture in 2-3 years.
Kind Regards,
Brian |
