>would you care to share with us what it is that you think WIND is going
>to do with this money?
I believe that WIND will be keenly interested in any software technology, or services, that both enhances their core market opportunities while also providing an exciting investment opportunity. WIND's emphasis on software will continue, not least because it views all hardware suppliers and embedded systems developers as potential customers, and the company has no intention of segmenting the market. If the technology is needed but there is little investment opportunity, WIND will limit is relationship to partnering. If the investment is exciting, but essentially unrelated to WIND's core business, then I would expect WIND will pass it by (keeping its powder dry). Potential investments must meet both requirements.
Besides the fact that Ron Abelmann is being more and more descriptive about his reasons for accumulating so much money, it is easy to put two and two together. If WIND was focusing on full-scale acquisitions, then it would mainly use stock as currency, having little need to store up so much cash. Also, this much cash cannot be used for R&D spending, because the implied impact on EPS would be devastating. Cash is primarily needed when funding startups and buying technology, which have minimal impact on EPS. Therefore, I believe WIND will be leveraging its cash and market prowess to help create and direct small startup companies that focus on esoteric aspects of the embedded software business, and to purchase technology that can be integrated seamlessly into the Tornado environment. It will also be used for investing in partners, both to cement relationships and to profit more from their joint success.
The motivation for establishing an active Venture Capital arm of WIND is not just to take advantage of being smack dab in the middle of everything exciting that is happening today in embedded systems. I believe that WIND needs to make these investments to aggressively pursue the many opportunities they absolutely must be involved in as market leader. R&D spending alone can never keep up, since it puts all the burden on WIND's technical management (and short-term earnings).
Remember back to last fall when we first learned of WIND's NC deal with Oracle. Don Dodge commented knowledgeably and enthusiastically about the NC potential for WIND, but he expressed one reservation more than once. He worried that the NC deal might not receive the attention from WIND it deserves because of competing demands on WIND's limited resources. I think Don realized realistically the difficulty of pursuing unlimited opportunities through R&D alone.
Another example is I2O. After careful analysis, WIND obviously decided that the I2O investment was so important and integral to core technology (Tornado and VxWorks) that it needed to be done completely in-house. I am certain we all agree this was a correct decision, but it entailed, and still does, a significant up-front investment in the form of R&D expenditures which conceivably could have threatened EPS. Fortunately in the case of I2O, the collateral impact on Tornado sales due to I2O product development startups appears to have more than offset the current cost.
But what about the other 1,000 opportunities WIND must be facing, many of which cannot be expected to have sizable collateral benefits? After cherry-picking the handful that should be developed in-house, are those remaining to be left rotting on the tree, or worse to be picked by a trailing competitor? Cash investments in technology is the key to a bountiful harvest.
At some point, WIND will probably acquire a company in traditional fashion, because of a need to add something to core capability. But as a rule, sizable acquisitions of technology companies consume far too much management energy than they are worth. Worse, acquisitions often prove to be an extremely expensive way to acquire bricks and mortar, rather than people, since the technical talent acquired are left with their pockets full of marketable stock and panting for the exit. Providing seed money for technology development, on the other hand, highly motivates hard-working technical talent, enabling everyone involved to win, and win big.
Now it should be obvious why I view the convertible bonds in extremely favorable light. WIND needs, and now has, a giant war chest to strengthen its position in a rapidly evolving market, while also being able to make early investments in many companies, a number of which will prove to be leaders in their respective market segments. I like it because it tells me that WIND management sees the world like I see it, and they are not bashful about going for the gold.
The answer to your Post #1804 is mostly #2 with lots of #3 sprinkled in.
Allen |
