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Technology Stocks : Wind River going up, up, up! -- Ignore unavailable to you. Want to Upgrade?

To: bythepark who wrote (6117)	8/19/1999 8:07:00 PM
From: Mark Brophy	Read Replies (2) \| Respond to of 10309

It implies that Wind River is fairly valued. The price of Metrowerks is really $75m after you subtract the $20m book value, or a price/sales of 2.5. Using the same valuation for Wind River, 2.5 * $146m + $168m = $533m, or $12/share. The same valuation for Phoenix would mean it's worth $15.25/share. You could also reach the same valuation for Wind River by assigning 20 P/E to $0.60 EPS. Wind River is worth more than Metrowerks because it's profitable. Check out the Metrowerks thread at Subject 12543. Chinacat has been busy there, so maybe he has some comments. Historically, it has been very difficult for development tool software companies to make money because the existance of the products benefits both chip makers and the software company. Wind River has solved this problem by getting the chip makers to pay for VxWorks ports. Microsoft subsidizes their tools development with profits from operating systems and applications. IBM has always considered software as a means to sell hardware, which is why they rejected the generous offer by Microsoft to sell 25% of the company during their OS/2 partnership a few years back. Motorola more than likely bought Metrowerks to increase sales of their chips. I think undervalued microcaps like Metrowerks, Texas Micro, and SBS Technologies will continue to be bought by larger companies. Motorola bought 11% of Microware a few years back. Maybe now they'll buy the remainder.

To: bythepark who wrote (6117)	8/23/1999 10:03:00 AM
From: Mark Brophy	Read Replies (2) \| Respond to of 10309

Sun announced another merger comparable. They bought Forte Software for $540m, which has book value $37.6m and forward looking revenue $88.8m (most recent quarter * 4), which implies a valuation = 5.66x revenues. Using the same valuation for Wind River would yield $994m or $22.87/share. Forte Software looks like another example of a software company that makes more money for the hardware company than itself. Intel has clearly targeted servers as their growth engine as it has become clear that competing against AMD will reduce margins on desktop PCs. If Sun can keep Forte software off Intel and H-P servers, it might be a wise purchase. Sun also originally developed Java as a loss leader to sell hardware, but they claim it is profitable now.