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

To: Peter Church who wrote (7673)	4/23/2000 7:18:00 PM
From: Allen Benn	Read Replies (1) \| Respond to of 10309

*For me, as an investor, it is important to understand why the company's stock was so badly trashed last year* Nobody could agree with you more than me about the need to understand the reason for the slowdown. *I rather think that the slowdown was a complex basket of internal and external events that put a cumulative cloud over the company for a year.* No, No, No! This is a cop-out that leads to indecisiveness. There are always multiple factors and complications, internal and external. Clearly something big happened that you need to know won't happen again, or it will only happen under certain circumstances. Over time, I will probably post many thoughts about how the business of embedded systems is evolving. There are a lot of interesting shifts and developments, many with the potential to have huge impact going forward. But there was only one cause of WIND's slowdown in 1999: the Asian crisis. If you re-read your post delineating all the reasons given by analysts, you can understand why the market tanked the stock. Nobody on the Street had the foggiest idea what was really causing problems. Therefore, no one had a clue about what might constitute a recovery, other than re-acceleration of revenues and earnings. Further, if you don't know what caused the last slowdown, then you have no idea if there will be another, or what might be the cause. At the first sign, like missed earnings by a penny, and the stock could tank. Personally, I question the need to beat the estimates every quarter, nor do I think the stock must tank when estimates are missed. The market reacts radically when it doesn't know why estimates were missed, even by a penny; the market react reasonably when a solid explanation is provided AND the outlook is credibly positive. Micron Technology's stock reaction following its recent earnings report is a great example of market reasonableness following a quarter in which EPS substantially missed the lower end of the range of analyst estimates. The trick is to be as transparent as possible to the Street, provide an honest description of activity during the quarter, and present a concrete, credible outlook. Then, let the Street price the stock accordingly. If Asia was the cause of the slowdown, why was it so difficult to trace? I guess what you are saying is that a two year delayed response to an external crisis may be intrinsic to WIND's business model (design wins, revenue two years later?). It looks like you are beginning to see the difficulty in ascribing the cause to something that greatly lags the event. (And don't forget that that out-sized lag suggests that WIND is extraordinarily robust, a hint that the future WIND has the potential to become the most robust of companies.) The malady WIND suffered was not easy to diagnose because normal operating/accounting data cannot answer that particular question. All anyone can know from routine data is that growth in product license, royalty and other sales are changing in various ways relative to one another. Without special analysis, you can only guess at the cause mainly using anecdotal information, which almost always leads to erroneous conclusions. As for WIND's future volatility relative to the tech market as a whole, at current levels of P/E, it should decline noticeably. This is because revenues are accelerating along with an accelerating outlook. Stock crashes clearly are buying opportunities that should be recognized by more and more money managers and individual investors alike, which should soften consolidations going forward. However, if the stock explodes to the upside, as always possible, volatility would increase accordingly. I think volatility has been particularly sizeable lately because shorts have been free to manipulate this stock with abandon. The last half-hour on the 31st of March was clearly a coordinated dump (short) of LBRT, WIND and some other stocks. The shorts may win this trading game more often than not, but on any given day they risk loosing it all, many times over. It is dangerous beyond belief to short this stock. Allen