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

To: Allen Benn who wrote (8419)	9/4/2000 11:02:14 PM
From: the hube	Respond to of 10309

Q2 displayed a recovery in pricing power that approximates what it regularly accomplished before the merger. I took another look at their earnings release after reading your post, and I am amazed that I didn't notice the product margin improvement on the first read. Since I like to keep things simple, I ignored your step of backing out the royalties from product revenues. Here is what it looked like to me. Compared to last year, Wind increased their product revenues by $20 million, and their cost of product revenues only rose by $450 thousand. The impact of that is staggering, and shows exactly why profits should rise faster than revenues. I agree with you that the marketing expense level is troubling, but there is probably an explanation. Personally, I wonder how much of it is related to their Quickstart Program windriver.com and whether there are any costs relating to the merger that are lumped in here. If Wind sends a Field Application Engineer out to a customer site for two days for every product sale, and they are busy migrating customers from pSOS to VxWorks, they may have a lot of FAEs busy on the transition on "sales" that don't result in the normal level of revenue. Similarly, a lot of new product licenses would result in the FAEs spending a lot of time in the field. Remember that deferred revenue continues to rise. A lot to like in the earnings report.

To: Allen Benn who wrote (8419)	9/5/2000 1:59:48 AM
From: Bong Lewis	Respond to of 10309

allen, thanks for a long report. i never see any real and dedicate investor like you. i never hear you concern about the stock price neither. by reading your posts, i have had enough faith to hold wind through bad time, and now it has been reward. i can't take it for grant, i have to say thank to you.

To: Allen Benn who wrote (8419)	9/5/2000 3:12:52 PM
From: cfoe	Read Replies (1) \| Respond to of 10309

Allen - Thank you for your analysis of wrs' latest quarter and for putting the results in perspective - both historically and prospectively. I wanted to make an additional comment on profit margin. One of the reasons management has been giving (over the last few CCs) for lower operating margins is the level of investment they will be making in products and services. One of those expenses must be additional professional staff, the cost of which is a current expense, resulting in lower margins. I do not expect this to end anytime soon and I don't think it should. However, as investors we have to watch that these investments are paying off in increasing revenues, and improving (if not stellar) margins. Regarding these "investments" I found something I recently read in Geoffrey Moore's new book (Living on the Fault Line) about metrics for managing shareholder value to be of relevance. In speaking about using P/E, he says the following: "Ultimately ... all fairly priced stocks must generate future earnings to match their market caps, but in a high-growth market [and I would put Wind there] it is important to defer present earnings in order to capture a greater share of future earnings. That is, winning market-share battles during the early years is the key to winning margin-share battles over the remaining life of the market." So, I conclude that Wind is in the right business and doing the right things, which leaves the ultimate result up to execution, execution, execution! Again thanks for your timely and thorough posts.