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

To: JMD who wrote (7941)	6/9/2000 9:07:00 AM
From: quidditch	Respond to of 10309

One (last?) note on revenue recognition stream of consciousness (relevant to WIND's metrics, but not as interesting to the very bright software experts on the thread): It may state the obvious, but the reference point for revenue recognition and the ramp in WIND's royalty revenues which are in turn a function of its design wins subsequently implemented into commercial product by WIND's customers depends on what WIND's license agreements provide. The agreement could be structured on one or more (hybrids for different products/tools/OS) bases: 1) Upfront pre-paid royalty for the life of the use of the product and its manufacture; 2) Periodic/recurring royalties at a specified rate paid on the basis of reporting of products sold/delivered; or 3) Combination of 1 + 2, as in the case of QCOM's royalty payment structure. Thus, in the case of #3, WIND would report the pre-paid royalty in the period in which paid (usually on license execution) and in future periods would report royalties as received in accordance with the license terms. Revenue deferral/recognition issues only arise in the case of #1 above, and as noted by several, GAAP provides the performance/delivery benchmarks that permit revenue (from the pre-paid royalty) to be recognized in any given future period. Note also that deferral might not only result in the establishment of a contra (liability/deferred revenue) account, but depending on the service to be performed to justify revenue recognition (and less likely in WIND's case), the performance items may have in part been expensed. Probably a lot for an MBA or accountant to poke holes through here, but the terms of the license have to be the starting point to understand how increasing royalty income might reflect WIND's tornado or occasional gusty days. Steve