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To: Eric Jacobson who wrote (25739)	6/2/2000 7:02:00 PM
From: hueyone	Respond to of 54805

WIND From briefing.com Message 13821218 <<<< Wind River Systems Inc. (WIND) 35 5/8 -3 3/8: WIND shares are trading lower today, despite reporting another solid quarter. WIND is one of those stocks that trades up prior to the earnings release then sells off on the good news.This quarter was no different as the shares ran 18% from Friday's close to end yesterday's session at 39, then promptly gave up 8.6% after the release. But don't blame the company, for they once again posted strong revenue growth of 34% Y/Y, and even posted a slight sequential sales gain in a quarter that traditionally comes in weaker for Wind River. Consensus revenue estimate for the quarter was $86.4 mln and Wind topped that by 6% posting Q1 sales of $91.6 mln. Earnings also topped forecasts, coming in at $0.10 per share on an operating basis ($0.01 gain on sale of securities) versus the First Call mean estimate of $0.08. Gross margins were squeezed, as expected due to the integration of Integrated Systems which historically operated at lower margins than Wind River. Blended GM was 75.8%, versus Q4's 77.3%; Wind River historically enjoys margins of about 80%, and is in the process of bringing the combined company's GM back to the 80% neighborhood. What we really liked about this quarter's report was the fact that run-time royalty revenues were broken out and came in at 22% of total sales, going forward expect this highly visible recurring revenue stream to represent a larger percentage of sales as more OEM products come to market. 847 design wins was also encouraging for a traditionally weak quarter. The only item that may have been a negative surprise was the high R&D expense line ($18.3 mln or 19.9% of revs). The R&D can be explained by the challenges involved in integrating the numerous products of their recent acquirees into the Wind River line as well as new engineer hirings. The high R&D line is not what is causing the stock to dip today, and is not an issue of concern given the strong top line growth and the seemingly excellent integration job Wind River is performing. Prospects for the embedded systems market continue to look very strong as more non-PC devices flood the consumer and industrial markets. As we mentioned last time we wrote on Wind River, the company's largest competitor, Integrated Systems is now in-house and Wind River dominates the embedded system software space with a commanding 30% share of a rapidly growing market. - Matt Gould, Briefing.com >>>>

To: Eric Jacobson who wrote (25739)	6/2/2000 11:46:00 PM
From: John Stichnoth	Respond to of 54805

Thanks your insight, Eric. I believe that the slight margin tightening is attributable to the merger just completed--various actions and items that could not be set out separately as "non-recurring". One example, mentioned in the cc, was the decision to retain as many people as possible and reassign them--instead of eliminating the people with the slots, then having to go out and compete for unseasoned personnel. It front-ends some expense, but should pay off in efficiency as growth continues. Best, JS

To: Eric Jacobson who wrote (25739)	6/3/2000 11:53:00 AM
From: DownSouth	Read Replies (2) \| Respond to of 54805

Eric J. A decline in GM from 77% to 76% q to q does not seem remarkable to me. 77% GM is very, very high. I would like to hear an explanation from management, however, but what is more important is for us to see if this becomes a trend and to understand what management's goal or expectation for the future is. Sometimes declining GM can result from rapid growth. Materials shortages (caused by rapid growth) can cause materials costs to increase. OTHOH, as a company's production of product increases, that company can command deeper discounts from its suppliers in exchange for larger orders, assuming that the materials are in ample supply. This is a good thing for GM.