TO ALL, tidbits from the AEA Monterey Classic.
WIND, INTS and MWAR all presented at the American Electronics Association Monterey Classic last week. I took the opportunity to listen to each and ask questions. The following are some objective observations mixed with a few subjective impressions.
One question that I asked each of the 3 companies was "In what percent of your bids are you bidding against another embedded systems company rather than just the in-house alternative?". The responses varied from 30 to 50 percent. Ron Abelmann (WIND CEO) added that they only see any particular competitor about 10 percent of the time. He also added that probably 40 percent of INTS wins are business that WIND is not even aware of. It is clear that there is ample opportunity for all competitors at this time and no reason for price pressure. This is also consistent with a quote from David Larrimore in a recent issue of EE Times "...only limit on growth is the ability to hire". I asked Ableman about their hiring situation and he said that it is OK . They have been hiring in California, doing R&D in Japan and France and are starting an R&D facility in Israel.
Here are a few bullets from the WIND presentation.
· 32 bit only represents 5% of the market today
· There is a sizable backlog which allows them to pick a comfortable growth rate and hit it
· 3 biggest markets are communications (73% CAGR), office automation (44% CAGR), and consumer (over 200% CAGR)
· Gross margins are 90% on licenses, 60% on services giving 80% overall
· Revenue is seasonal - 20% in 1Q, 23% in 2Q, 25% in 3Q and 32% in 4Q
· E.S. West show went very well generating over 1300 leads
· Abelmann said that the INTS booth at E.S.W. was sparsely attended despite PRISM intro
· Will be about 1 year before starting to see revenue from Oracle Network Computer and this should be a big stream
· I2O deal with Intel for i960 chip will yield 98% gross margin
· i960 license fee is on the $1 side of a range of $1 to $5
· WIND has service agreements with the big chip companies (Intel, Siemens, ARM, Hithachi, Motorola, etc.) that no other company has. Philips, however, is very tough to penetrate (INTS owns Phillips). I asked about further deals along the line of the i960. Abelmann said that there are discussions going on which could possibly lead to as many as three more similarly structured deals. We did not get into any details on these.
· I asked why WIND had not licensed Spyglass technology like INTS and MWAR. The answer is that they will but WIND does not want to offer it under their name until the technology is more stable.
I had an opportunity on the side to ask Ron Abelmann about his stock sales. He maintains that this was not a result of a negative view of the company and in fact he is VERY positive about the future of WIND. He still has a very sizable stake since he has options on about 400,000 shares. He did seem to have a little nervousness about the general market and the fate of high valuation stocks should the market have a set back. I asked about the activities of the founders, Jerry Fiddler and Dave Wilner. The response indicated that there is a lot of joy at the top at WIND. With everything going so well Jerry has time for his main interest, music, while still being available for Ron to try business and strategy issues on him. Dave can immerse himself in the technology which is his first love. This leaves Ron to do his CEO thing. Ron gave the impression of being on top of a world where everything is going right.
The INTS presentation, although positive, did not have the same upbeat feeling that one got at the WIND presentation. David St. Charles (INTS CEO) says that they have great technology but weak marketing and they are going to fix this. He acknowledged that their new open IDE, PRISM, which is intended to challenge Tornado is far from finished. He said that it was rolled out at E.S. West as kind of a pre-announcement like IBM has frequently done in the past. He says that it will not ship in 1996 and is a 1997 product. Naren Gupta (INTS Chairman) stressed that their architecture now uses a Cobra Bus which gives them an advantage over WIND. He said that INTS now offers a true enterprise-wide development environment whereas WIND only offers a project by project environment. Furthermore, they intend to concentrate on selling their products enterprise-wide. He cited some recent big wins such as Philips which will use INTS worldwide and Samsung and six China Telecoms. He also mentioned a deal with SONY which will use one million copies of pSOS in a consumer electrical product. I asked Gupta about the competitiveness of Microtec since their acquisition by Mentor Graphics. He thinks that they are falling behind and are they are seldom seen out in the field. I asked his opinion on WIND's I2O deal with Intel. He said that he could not evaluate it since WIND will not give out any details. However, he claims that Motorola believes that the I2O standard will not fly. He also said that LSI will be shipping chips packaged with pSOS. Perhaps his most revealing comments to my questions were the following. We should look for 30% CAGR and operating margins of 16% (significantly below WIND's recent performance). The business revenues breakdown approximately 50% pSOS, 25% consulting and 25% MATRIX. I asked him to break out the development tools and run-time license fees from the pSOS component which he did. Development tool are 70% and run-time 30%. Therefore, it appears that run-time license fees are 15% of INTS total revenue stream or 20% of revenues excluding MATRIX. Given this I would guess that WIND's run-time revenues are also no more than 20% since it is my understanding that INTS has historically pursued higher volume markets than WIND.
Moving on to MWAR. Ken Kaplan (CEO) surprised me with the statement that MWAR is going to get out of the development tools business and leave that to third parties. He discussed the three potential high growth markets that they are going after , Digital TV, Wireless Communications and Internet Appliances. (See Allen Benn's posting 310 on these markets). In the DTV market they have sold 25 DAVID licenses and he feels that they have a good chance to become the standard. He considers the Sun/Thomson Open-TV standard to be only aimed at the top end. He seemed to be more concerned about Scientific Atlanta whom he considers to be a major competitor. SA has not put forth an offering but they have a long time relationship with Time-Warner and he expects them to jump in with TW. In the WC market he believes that digital cellular has big near term potential. For each of the 3 markets MWAR has developed an impressive array of application modules that reside above the OS-9 RTOS. Their strategy is to license these modules along with the ROTS so that their unit royalties are significantly higher than those obtained by WIND and INTS. Their target is 2% of manufacturing cost for high volume products. Kaplan said that we should look for run-time license royalties to start increasing rapidly about mid-CY97. He also mentioned that they have a heavy load of in-progress technical services for strategic customers. 12 major projects are in-process now.
I should mention an embedded player that I was unaware of appeared at the AEA. The company is Peerless Systems (Nasdaq: PRLS) a provider of embedded imaging software for digital document products, e.g. printers, copiers and multifunction products. They are a recent IPO (9/25/96) with an impressive customer list, Cannon, Xerox, IBM, HP, etc. At this time most of their business is related to B/W laser printers, however, they have products ready for the emerging color printer and multifunction (printer, copier, fax, scanner) markets. In addition to many application modules they also have a RTOS. I questioned the value of providing their own RTOS when there were already several good ones available on the market. The CEO, Ed Gavaldon, agreed that it probably did not make sense for them to provide the RTOS and he said that he would likely be talking to both WIND and INTS in the near future |
