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Technology Stocks : RATIONAL SOFTWARE- BUY OR HOLD

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To: Len White who wrote (2693)	10/19/1998 8:14:00 PM
From: ratlong	Read Replies (1) of 3115

It seems like the natural assumption is that the deferred revenue results from product licenses. I think one of the issues that we are seeing is that Levy is not explaining where the deferred revenues results from. If it is from services, we have a different message to analysts- a model of corresponding total revenues can then be applied. Without the analysts knowing exactly where the deferred revenues are coming from, they cannot and will not take a significant stand on what they mean going forward. Also, I believe RATL stops shipping products once their numbers are in hand. The side effect here, unless they have taken a policy stand with their sales force, is that they are generating a potential management problem WRT sales compensation. Sales people live and die by their numbers and if management is not booking their numbers in a quarter, they have to figure another way to compensate them. The last thing RATL can afford to lose right now are people... On another topic, a competitive environment is shaping up in this space and it will be interesting to see who survives. PLAT and RATL have bought tools and still have small gaps in product functionality. They are seen as one product companies and often have inferior technology to the niche players. On the other side you have MERQ, SLCTY and Technology Builders, Inc. having formed a little consortium with integrated products and reseller rights. Combined, the latter three companies have a serious technology message but not the marketing power. It will be interesting to watch whether RATL and PLAT kill them with market initiatives and turn this space into a 2 player game. (BTW, I am still not sure how much of a threat Sterling Software is going to be but they are definitely lurking...)

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