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To: DownSouth who wrote (25760)	6/3/2000 12:14:00 PM
From: DownSouth	Respond to of 54805

Looks like we got an explanation for the declining GM: "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."

To: DownSouth who wrote (25760)	6/3/2000 2:46:00 PM
From: John Stichnoth	Respond to of 54805

DS--Mgt did in fact address this, in the q&A of the cc. They admitted that they've got a lot of redundancies in their system right now, as they combine the various operations they have purchased or merged. Something like 7 billing systems, and 6 warehouses that they are shipping product from. (But, my impression is that they don't have much in the way of materials costs or supplier discounts available--they're a software company). You hit it on the head: It's very much an issue to watch, as an indicator of management effectiveness. They are guiding to 20% operating margins as a target for 2003 full year--with the caveat that further acquisitions would delay reaching that goal. Edit--re your following post. The explanation they give doesn't really explain why the pro forma margins declined somewhat. The numbers they're quoting are for "old" Wind River vs. "new" Wind River--the "new" being the combined entity. Eric's concern--Why did GM decline pro forma--is as you state still the issue to watch. Best, JS