Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: peter grossman who wrote (9287)	3/4/2001 6:02:07 PM
From: quidditch	Respond to of 10309

peter, James: some miscellaneous thoughts on royalties and growth rates: It was mentioned during the cc that design wins reported quarterly is not facilitating analysts' understanding of WIND's financial performance in the manner intended. This particular comment was triggered because q-o-q design wins had trended down slightly, implying a tailing-off in WRS business and prospects. This has not been the case. But there are other reasons why design wins per se are not necessarily predictive, including factors such as: design wins that are material (and likely will contribute both to royalty and product sale revenue significantly) vs. those that are not material; lag effect between design wins, product roll out incorporating design wins and consequent revenue recognition; product obsolescence/short lifespan. Design wins' translation into WIND customers' product sales is probably going to be very difficult to project accurately--best guess will be some smoothed average. In addition, a question: is WIND's royalty revenue recognition cash or accrual based? I suspect it is based on estimates of customers' product sales during the financial reporting quarter based on customer royalty reports. Thus, royalty revenue recognition in any given quarter may reflect the further uncertainty of estimates of royalty-bearing product sales by WIND customers, with actual royalties warranting adjustment in the subsequent quarter. With WIND's design wins ratcheting up in number, product roll-outs all over the map and in different product spaces, quarterly adjustments may be substantial, and it may be quite difficult to predict royalty revenue over a given two-to four quarter period. An example of the foregoing is QCOM: for royalty analysis purposes, it operates now in one primary business segment: chip sales in msm and base station terminals. Granted, Q has numerous customers in that segment. Q recognizes royalty revenue each quarter based on estimates of royalties derived from formulas based primarily on handset sales, etc. In the subsequent quarter, it adjusts revenue for the "miss" (upside or downside) in the previous quarter's estimate. If this is the policy WIND follows, its quarterly estimates and adjustments (in respect of the prior quarter) may be significant indeed. Steve

To: peter grossman who wrote (9287)	3/5/2001 10:07:37 AM
From: Carpe per Diem	Respond to of 10309

>>Those four quarterly royalty figures represent 21.7%, 17.4%, 22.5%, and 27.6% of revenues, respectively. A very nice trend. Are royalties seasonal? Again, I'll ask for some help, but I recall a projection of FY02 royalties as a percent of revenue at 25% - 30% ??<< Royalty guidance from management for FY02 is 15 to 25% of revenues, basically unchanged from FY01. Royalties should therefore grow as fast as revenue (30%). The lily pond data forecasts a much higher rate of royalty growth, but doesn't account for other royalty streams outside of the lily ponds, some of which will run the life of their product cycle and die off. No evidence of tornadic growth yet, however WIND is performing exceptionally well under the macro-economic circumstances. Rinks