>In particular, the Asian turmoil has raised concerns about the
>telecommunications/networking sector, which is one of WIND's
>prime markets. And if the overall economy suffers, WIND could
>see reduced demand in the office automation and consumer markets.
I agree the market may be making this connection, but it is wrong.
The telecomm/network sector has been, and will continue, to experience explosive unit demand. The problem for networking companies is that supply finally caught up with demand (helped by the Asian imbalances, but only helped). This high growth, highly profitable sector has become a commodity business and is suffering from rapid price erosion.
This is good news for WIND. WIND makes money on unit sales, which are accelerating, not declining. For example, lots of networking devices are starting to be built around the Intel I2O chip, for which WIND gets around $1.50 irrespective of the final price of the device. Furthermore, price squeezes force networking companies to get new and upgraded products to market faster than ever. This is not the time to quibble about Tornado licensing fees, a negligible cost of product development. Finally, reduced component prices of memory, processors and the like, with the need to differentiate products by enhancing functionality, means that more products than ever will require a sophisticated RTOS.
>And if the overall economy suffers, WIND could see reduced demand in
>the office automation and consumer markets.
The overall economy is not suffering, and is not expected to suffer significantly from the Asian turmoil. PC sales and office automation will be fine in 1998, no doubt aided by reduced prices, as disk drives, tape drives, memory, network devices, etc. all reflect commodity pricing and the impact of Asian price reductions. Unit sales should boom.
The irony is that one would be hard pressed to scope out an economic scenario more favorable to WIND, yet admittedly the market so far has failed to make the proper associations. It will.
Allen |
