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

To: Peter Church who wrote (9128)	1/29/2001 3:03:30 PM
From: Brian Lempel	Read Replies (2) \| Respond to of 10309

Peter, Good questions, all of them. Allen is no doubt in a better position to answer them, but I'll take a stab. 1) As you know, the overall royalty forecast is an aggregate of WIND's various lily ponds. It therefore does not follow any type of fitted growth curve, but relies on individual projections for each market's growth. When reasonable predictions or extrapolations cannot be generated (such is the case in out-year estimates for a few of the lilies), conservative numbers are used. 2) The current incarnation of the model as posted to the site represents more of a "what if" type scenario demonstrating WIND's stock value than anything meant to predict exact EPS. However, we will continue to work to develop a complete model encompassing all aspects of the company, including services revenue and margins, R&D spending, interest income, investment income, taxes, etc. With this completed, it will be possible to validate the model in subsequent quarters. 3) no macro-economic issues are being modeled. Rather, one could adjust the unit growth of each lily pond to reflect such concerns. Hope this helps (and is reasonably accurate), Brian

To: Peter Church who wrote (9128)	1/30/2001 2:04:08 PM
From: Allen Benn	Read Replies (1) \| Respond to of 10309

Peter, I would like to corroborate what Brian said about how projections are derived in the model, sensitivity to economic conditions, etc. Each lily pond has its own set of parameters, which in time should be based on documented market research. Values of these parameters would adjust to changing economic conditions as well as general outlook through updates to market research. Please don’t take the lily pond figures too seriously, yet. More work needs to be done before anyone should make specific investments based on anticipated royalties shown in the lily ponds. Having said that, however, already there are a few useful observations that can be drawn from examining existing lily pond projections. How many times have you gotten excited about a particular design win, new product or partnership announcement? For example, WIND is in a variety of digital cameras, all very exciting. But what does that mean for the bottom line. Specifically, how many dollars are involved, now and in the future? How important is this category of device to WIND's current or future stock price? The Digital Camera lily pond provides a reasonable answer to all these questions. Digital cameras should indeed be a nice category for WIND, enjoying triple-digit near-term growth. However, by itself the category cannot significantly affect a broadly based company the size of WIND. Whether you like the answer or not, there it is. As I mentioned before, Server Appliances have the potential to greatly impact WIND’s top and bottom lines. You can inspect the Server Appliance lily pond to see why, and exactly what has to happen to make this projection a reality. Pay attention to market share and changes in ASP along with projected growth rates. Consumer Internet Appliances and Wireless Hand-held Internet Devices likewise have truly big potential. Unfortunately, my visibility into both these spaces is fuzzy. In particular, the latter is still somewhat theoretical for WIND, but you can see the potential is huge. I am extremely comfortable with WIND’s role in the former; with most of the fuzziness due to unit projections. Home Gateway, which also is a biggie, currently summarizes DSL and Cable modems, but in time will include a third line item that will be a specific non-PC device for distributing home/SOHO Internet access. At some point, Set-Top Boxes also may collapse into Home Gateway, but certainly not at the moment. (With Set-Top Boxes thrown in, Home Gateway easily could end up being the top lily pond for the company — perhaps even without Set-Top Boxes.) It is possible that some of the modest lily ponds are poorly understood and presented. I’m most concerned about Broadband Optical Switches and Network Processors in this regard. These are areas about which the company might provide metrics that sharpen our insight. This is exactly what happened in the inaugural Analyst Day last June relative to the DSL lily pond. Perhaps a few other lily ponds will be similarly refined, or a yalp discovered, as an outcome of the next Analyst Day meeting on April 9. After the next earnings release, I will work with Brian to try to make public a forecasting model that incorporates the lily ponds. The model will provide a rather complete history of the company’s prior years operating results along with forecasts of quarterly pro forma operating statements. The pro forma operating statements forecast EPS over the next few years. You can then precisely measure the impact of anticipated lily pond royalties, in concert with other projected revenues and costs. An earnings forecast should be enough for any investor to anticipate roughly the direction and amplitude of our-year stock prices. However, for those timid soles that struggle to make these kinds of assessments, or to convert future prices to a reasonable current stock price, it might be fun to include one or more financial pricing models. BTW, I have just learned that Brian is a student at Wharton. If Brian shows the kind of initiative at Wharton that he has shown here, don't be surprised if he gets the whole school to contribute to the lily pond site. Allen