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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Northern Marlin who wrote (39441)	2/17/2001 3:35:31 PM
From: tinkershaw	Read Replies (2) \| Respond to of 54805

Phil, When I calculated WINDS's ROIC, I used 20% operating margins and then used a 30% tax rate. This is well above where they are now. So I used "virtual" data to see what type of operating efficiencies WIND would have if they had already achieved 20% operating margins, and even with a lower tax rate of only 30%. I then projected this 20% operating margin forward the next 3 Qs and used the forward year revenues as my earnings base (numerator). This is why the ROIC that I got was so surprising. In 1999 WIND did have an ROIC of 32%. But it seems to me that WIND is now the dominant embedded software company. It should be seeing benefits in this regard, even prior to gorillahood. Yet, I am not seeing them financially. So I am weery of WIND after this analysis. No doubt barriers to entry are there (MSFT is kidding themselves if they think they will take WIND's market), value chain is there, but I am just not seeing the tell-tale ROIC signs that gorillas exhibit with WIND, even using "virtual" numbers which are far better than WIND's current performance numbers. Some say that this very low ROIC is related to acquisition costs, perhaps I forgot to subtract out any goodwill, I'll have to double check. But in my mind, I think one sign of Wind becoming a gorilla will be a dramatic rise in this ROIC. Gorillas usually have sustained ROICs of 50% or greater, sometimes much greater. Wind is not even close at this time. Tinker