Let the games begin.
INTS has reported its quarter, and has released pRISM+ on popular platforms. Presumably it is now positioned to compete head-on with WIND. This has not been the case since before WIND announced Tornado, almost two years ago. INTS lost its competitive edge when Microtek Research acquired Ready Systems and went public (only to submit to a take-over by Mentor Graphics within six months). At the time, INTS relied heavily on tools from Microtek, but the relationship quickly soured when they disagreed over the amount of pass-though payments due Microtek. The disagreement was settled in aribitration in Microtek's favor. These experiences coupled with WIND's continued tool advancements, forced INTS into an acquisition mode trying to assemble a credible counter to the WIND Tornado.
Unfortunately for INTS, being asleep for two plus years, has left them far behind in market share, as indicated by the numbers just reported. Product sales (license fees plus royalties) barely budged year on year, at a little over $17 million. Since about a quarter of INTS business last year was associated with Matrix X, a significant chunk of the $17 million is not in the embedded systems sector. Consequently, pSOS+ related product and royalty sales probably were significantly less than WIND's previously reported nearly $16 million in product licenses and royalties. Moreover, if we assume Matrix X sales increased over last year, then pSOS+ product and royalty sales actually declined.
One of the companies INTS acquired was in the services business, which is what INTS essentially became during the tool-assembly hiatus. Services revenue jumped 67% from the same quarter the previous years, but with much reduced gross margins, from 57% to 40%, versus WIND's 61% gross profit on services income. This isn't necessarily bad, it simply implies that the nature of services in INTS has shifted from the kind of services they used to provide, and the kind that WIND still does. WIND's services are still dominated by highly profitable porting contracts and maintenance agreements. INTS clearly has altered its services by pursuing application engineering support broadly to customers. Application consulting services is not nearly as profitable as the services WIND still emphasizes. (The reason is that the customer beats a path to the door for porting and maintenance services, and is charged accordingly; while the applications consultant competes for business with consequent pressures to limit costs.)
As we now compare the two companies, WIND clearly is dominate currently in product license and royalty sales, while INTS has made major strides at becoming an applications consulting services organization. At issue is whether the continuing cost of developing and selling pRISM+ represents misdirected resources, or whether INTS will become competitive once again with the new product line.The answer to this question should become clearer by the end of both companys' fiscal years.
Meanwhile, I also wonder how the market will react to INTS understandably poor product sales. Some institutional investors voiced impatience with the never-ending promises of soon-to-come royalties. What will they think now? We'll see after the market has had a couple of days to digest the numbers and what is said in the conference call.
Allen |
