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

To: bythepark who wrote (9289)	3/5/2001 4:52:59 AM
From: lkj	Read Replies (1) \| Respond to of 10309

Hi Alan, Some general knowledge regarding the networking processor market. It is realized by everyone today that NP is a must for networking devices from the center to the edge. A couple of years ago, Intel had all the buzz about NP. Now, IBM, Motorola, Broadcom, PMCS, Vitesse, and even some second tier companies are doing NPs. Not as well known is Cisco's Toaster 2 NP. It's been used for about a year now, for both lower end and high end products. From a shipment standpoint, Toaster 2 is the most successful NP, even though it's the least visible one. Besides Cisco, almost everyone is standardizing on TMS. And besides Cisco, almost everyone has a general purpose CPU core in side the NP to manage all of the little processing units. (For more information, read Microprocessor Report Dec/2000 and Jan/2001. There is also a Intel I/O processor story in there.) [My speculation] Having a management processor on-chip or not doesn't change the fact that Cisco is determined to promote its own platform, so I doubt that Cisco will work anything out with WRS, UNLESS, WRS is willing to do something like licensing its full source code to Cisco. In fact, this is one solution that both Cisco and WRS can be happy about. The other NP players may not like this, but they have neither the resources to modify, maintain and support TMS nor the marketshare to make this an attractive deal for WRS. Assuming that TMS never gets into Toaster and that Cisco continues to dominate, TMS will not have a big marketshare. But if NP-powered devices can eat into Cisco's dominance as Juniper has done, TMS will do extremely well. Subsequently, WRS will have a lot more negotiation power with Cisco. Also, doesn't TMS going into last mile boxes such as DSL and Cable Modem? This is a wide open market with no clear leader, perhaps Broadcom is the only one. I think TMS can do very well in this market, as well as home gateways that maybe combined into DSL boxes one day. Regards, Khan

To: bythepark who wrote (9289)	3/5/2001 9:08:42 AM
From: Allen Benn	Read Replies (3) \| Respond to of 10309

I just returned from a month in underdeveloped countries in Asia, and, surfacing from jet lag, I received your email with a timely question. Let me answer it on the thread and provide a little insight into the recent spectacular quarter. >I gather that your argument is that Management's strategy is quite different >during an "economic slowdown" as compared with an 'Asia Crisis" ... At the maco level, both forms of slowdown probably are very similar in the ways they affect WIND's business opportunities. But this time the company itself is very much different from the WIND that got blindsided by the Asian crisis. At its worst, the Asian crisis took WIND's quarterly revenue growth DOWN to 20% to 22% yoy. Had they realized what was going on and simply sucked it in, they could have maintained EPS growth at that level or greater. Since the crisis hit WIND with a significant lag, they were concerned something scary was happening to their business model. They made management changes and set out to right the ship by spending heavily on R&D and Sales, as well as taking out their nemesis, ISI. Much of the new spending was focused on vertical solutions, seeking to secure higher ASPs and market dominance in important spaces going forward. I was personally pleased by what were doing, first because I like the vertical solutions business models and second because investing as much AS THE STOCK MARKET WILL CONDONE always is wonderful for future positioning and revenues. In 1999 the stock market was very understanding about investing, so WIND easily could get away with sacrificing earnings for the future. The key to spotting a slowdown in WIND's business is a slowdown in product license revenues. This happened this quarter, but much less than what would have occurred with the "old" WIND because of the much improved market positioning and verticals. Nevertheless, this is the main line item to continue watching over the next few quarters, or until the economy picks back up. As with the beginning of the Asian crisis, run-times made the last quarter. This should continue happening for a few quarters, but product licenses must pick back up for it to continue indefinitely, or else there really must be a sea change in regards to one or more lily pond near-term effects. An important difference this time is that WIND has complete knowledge and confidence that it rules the roost, and therefore need not panic and invest excessively in fear of competition. Consequently, if revenues shrink somewhat, WIND can compensate by cutting costs (slowing development) without losing market share. This means that WIND should be able to maintain margins better than last time, as well as maintain revenues at a level considerably north of 20%, probably near the 30% guidance from management. It follows that WIND should be able to maintain EPS growth at least in the 30% range during the slowdown, while continuing to gain market share, against both in-house competition and smaller, marginalized competitors. When the crisis is over, WIND should emerge stronger than ever on both an absolute and relative basis. In other words, the downside risk is minimal -- especially relative to most other tech companies. On the upside, if one or two major lily ponds begin to mature, WIND could sail through the slowdown carried almost entirely by royalty revenues. This possibility was non-existent during the Asian crisis. Allen