>Volume > 1 million today. Any explanations?
The probable villain was INTS reporting out today after the bell. INTS took a slightly less proportional hit on small volume of 57K, while WIND suffered more with very high volume. Apparently the market feared, but did not expect, a powerful earnings report depicting pRISM+ as a Tornado-killer.
What did happen?
INTS had another poor quarter, which was depicted as the beginning of a turn-around by management. Revenues including services were up 12 percent, but product revenues were up only 3%. EPS came in at 7 cents, which was 1 cent above estimates, but down 46% operationally year-on-year.
The good news for everyone is that management reiterated that the embedded systems sector is healthy and remains unaffected from the Asian turmoil. The bad news for INTS is that they have not completed their turn-around, and cannot provide analysts visibility into future earnings. 3% product growth in a market growing at 30% is poor.
Perhaps the most significant weakness of the quarter was the obvious spin management was putting on pRISM+, without the willingness to supply numbers. Competitive pressures precluded the release of such basics as the number of pRISM+ seats installed, or the average number of seats per sale. Accordingly, there is no way to determine how much of the embedded systems products sales were due to pRISM+ or merely to pSOS and royalties on past design wins.
Strangely, management flatly refused to state how much of the pRISM+ development cost was capitalized during the quarter. I don't quite understand their reluctance because depreciation and amortization can be gleaned from the SEC report which will be filed in less than a month - unless every month counts. At issue is whether INTS made the 7 cents by not expensing development at traditional levels. (I am a fan of aggressively capitalizing development costs, but I detest obfuscation.) If I were an analyst following INTS, I would assume they capitalized the maximum amount allowable under standards accounting procedures.
INTS does a whopping 23% of their business in Japan. Management argued their Japanese business was in the form of embedded systems in electronic products that usually were sold around the world, including the US, and was expected to continue growing, despite the Asian turmoil. I like and believe the answer. Nevertheless, I suspect some analysts fear imaginary consequences of any business in Asia, so 23% may be interpreted as a negative.
INTS responded obliquely about their role in I2O. They talked about being an alternative to the Intel solution, but their solution also ran on the i960 chip family, only faster and better than the competition, or something. Hogwash.
INTS remains a secondary player in the embedded systems space, with a goal to be number one. This is a refreshingly honest admission that WIND is the leader, an admission that contrasts sharply with their many PR statements as of late.
If WIND sold off the last few days in fear that INTS might be regarded as a serious threat once again, then that fear was put to rest at least for another couple of quarters (in management's words describing the continued turn-around). The simple fact is that WIND continues to dominate the embedded systems space, and should soon be invincible.
Allen |
