>When do you expect the first inclusion of I2O in
> 1. Analysts' Estimates for earnings?
> 2. Actual earnings?
Products containing I2O are in production shipment now. For this to be occurring, vendors must have started receiving sizable shipments prior to the quarter ending September. This suggests that noticeable I2O royalties (for the quarter ending September) will begin to show up in the 4th quarter ending January 1998.
As I understand it, Intel will report the I2O production to WIND within 60 days after the close of each quarter, after which WIND is free to invoice for royalty payment. I believe WIND is not expecting that this process will be fast enough to enable WIND to accrue quarterly royalty within WIND's one-month offset quarter. Hence the lag. (Obviously this could be changed if management decided they wanted to speed up the accrual accounting - for example by getting Intel to provide preliminary figures earlier. Government contractors routinely deal with preliminary figures, improvising with such inventions as provisional indirect rates. When the rates are finalized in audit, variances are accounted for going forward, so as not to require reissuing past financial statements.)
Since royalties, as accrued, should not be material until the beginning of next fiscal year, I would expect analysts to begin to incorporate, about 10 million I2O units, in their FY 1999 estimates, starting no later than after the Analysts Conference Call in February 1998. However, they might start earlier, once they and management are convinced that I2O revenues will be forthcoming at expected levels. Earlier, rather than later, inclusion of I2O in estimates makes for a possible shift in WIND's traditional trading pattern.
Many traders have observed that WIND share price trades up prior to earnings announcements, then sells off on the "yet another great quarter" news. I suspect some traders have gotten so smitten with this pattern, that they not only sell on the news, but they short the stock as well. What could be more fun, and certain?
Well, anytime a trading pattern becomes obvious, look out. I can imagine traders pushing up WIND's share price prior to the announcement, and then selling massively on the "great quarter" announcement -- just as it becomes clear that I2O will now be counted at significant levels. Rather than falling per usual, the stock might well gap up in recognition and excitement of economic realities. Of course this would squeeze the shorts, causing mass covering, propelling the stock higher yet. Less aggressive traders, who merely sell existing shares into the news, would find themselves stranded at the station with the train long gone.
Long-term investors get to watch these shenanigans with amusement - whichever way they go.
Allen |
