Correction: I previously indicated that my model projected EPS of $.13 to $.15, depending on whether I assumed a 50% or 75% CAGR for 32-bit embedded microprocessors. After an upgrade of my model, I now project $.13 EPS for both of these scenarios. If the CAGR is 100%, I would project $.14; and if it were 136% (H&Q’s estimate), I would project $.15. Since projections and estimates are two different things, and given the possibility of my mishandling the dilution from the recent secondary, I would estimate $.12, but I would not at all be surprised if the Street estimate of $.11 obtained.
Why do I now project the exact same EPS under significantly different assumptions (50% vs. 75%) concerning an important driver of run-time license revenues? The answer is interesting, and worth telling about, because it affects mid-term projections of earnings similarly.
The reason is that the base year used for 32-microprocessors annual growth projections is calendar year 1994 (essentially WIND’s FY 1995). Since WIND’s total license revenues are known for past reported periods (but not the distribution between product and run-time licenses), any change in the assumed CAGR affects the distribution for FY 1996 as well as future years. For example, if the CAGR is changed from 70% to 50%, then the projected run-time license portion of the known revenues is decreased, but the product portion is increased to compensate. My updated model now automatically adjusts projected product sales based on historical growth; hence greater assumed past product sales would result in greater projected future sales. As mentioned for Q2 of this fiscal year, these effects completely wash out any expected difference whatsoever.
While the effect of a change is always somewhat offsetting, by the end of this fiscal year the difference between a 70% and 50% CAGR scenario amounts to 2 cents a share in net earnings. This difference grows to 12 cents a share for the next fiscal year, and 30 cents a share for the year after that.
If all this seems concocted, it is, after all, what modelers do: make projections using available facts, however limited. It also serves as a warning that the model may be over- or under-projecting future estimates, due to the lack of detail in the base data (not to mention the unpredictability of the future). This is also why I desire to know the facts about run-time license fees, separate from product licenses, and would encourage all the Embedded Systems RTOS companies to report run-time license fees as a separate line item. (A good example of a not-to-distant company that does report at this level of detail is Systemsoft, SYSF).
If you are wondering what my updated projections are for this and the next few fiscal years, I am reluctant to post them, because I don’t want them to become estimates against which the company might be judged. Let the analysts’ estimates continue to serve that role. My projections are useful to me in trying the grasp the numerical scope of future for WIND, under a variety of different assumptions about underlying trends and factors. Since my projections respond concretely to the anticipated geometric growth of ubiquitous computing, they uniformly far exceed existing analysts’ estimates, especially for out years. However, I realize that any error in the timing of exponential growth would translate into significant differences in even one or two years out. For this reason, if I were an analyst, I too would use mere extensions of demonstrated growth as the basis of my estimates.
But then again, you should be noticing that revenues increased 17% in FY 1995, 37% in FY 1996, and 45% in the first quarter of FY 1997. I see revenues increasing over 40% for the entire FY 1997, and over 50% for FY 1998. If this seems to you to be the start of something good, then pat yourself on the back for being observant, indeed
Allen |
