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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: John Stichnoth who wrote (25737)	6/2/2000 5:13:00 PM
From: Eric Jacobson	Read Replies (3) \| Respond to of 54805

John, I don't follow WIND closely, so I don't pretend to know much about their financial situation. However, I made a beeline to the gross margins, which declined from 77% to 76%. This doesn't have anything to do with SG&A or R&D - those only affect the net margins (which also declined, from 10% to 7%). Usually rapid growth is associated with expanding gross profit margins due to efficiencies in the scale of production. I think you have to ask yourself why the gross margin declined when the top line was growing in excess of 30%. There can only be a handful of answers, and none of them are particularly good - a shift in product mix to lower margin products, pricing pressure (either due to competition or a buildup of inventory), or inability of management to effectively handle growth. Declining gross and net margins offset the benefits of rapid top line growth and signal to many that something is amiss. I suspect this is one of the reasons the stock is taking a hit today.