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

To: lkj who wrote (9516)	4/20/2001 10:33:14 AM
From: Allen Benn	Read Replies (1) \| Respond to of 10309

I understand that this is a public forum, and one needs to be responsible when accusing the management of wrong doing. I don't want to argue with anyone, and I respect everyone's opinion on this topic. I am far from 100% sure in saying that the management is building reserves. What I am sure is that this was an act that the old WRS management used to do. I don’t recall that WIND management ever referred to dipping into the “cookie jar.” So-called cookie jar accounting is frowned on by the SEC. It is a loose technical term that refers to manipulating the books to smooth out quarterly results. I feel certain WIND never, ever played any games with deferred revenues, royalty payments, or anything else typical of cookie jar accounting. Actually, I feel more than certain they never manipulated the books. For periods prior to Q4 FY99, WIND liked to build up what they called “discretionary backlog”. This was accomplished by stopping sales toward the end of each quarter, literally by not shipping product. The signal that they did this was in how they reported revenues, namely rounded to whole millions. Discretionary backlog developed in this fashion does not involve any cookie jar accounting tricks. You remember correctly that they were candid about the practice. As far as we know, discretionary backlog was discontinued starting in Q4 FY99 when they faced their first difficult quarter in years. The relative out-performance of royalties versus product license sales following the Asian crisis was not related to any manipulations of the books, like changing accrual strategies or dipping more heavily into deferred revenues. I think the shift in relative performance happened for the simple reason that the Asian crisis slowdown negatively affected product license sales, while royalties continued to flow from past projects rushing to market. The rush to market may well have been helped out by aggressive WIND salespeople, perhaps finding it more productive to mine old haunts than to develop new ones in tough times. The increase in last quarter's royalties did not come at the expense of product license sales, which we think also grew handily. (Recall my initial jet-lagged assessment on this score was incorrect.) In fact, the increase was entirely consistent with expectations I laid out a year earlier, in which I forecasted accelerating revenues, particularly from royalties. The shift by one quarter in I2O revenue recognition occurred at the point when WIND became convinced Intel would responsibly produce a shipment report following their calendar quarter and in time for WIND to report its quarter. At the time of the shift, Intel had demonstrated a consistency in reporting that obviated concerns of possible future delays. Therefore, accounting procedures dictated that WIND up the accrual by one quarter. I have followed this company for about 5 years, and it's always been Fiddler calling the shots, whether the CEO is Ron or Dennis. Fiddler is not a trust-worthy person. Smaller investors got burned big time two I don’t like to talk about personalities in WIND, but I have to say that my view of Jerry Fiddler is not at all the same as yours – and I know him well. First, Jerry understands that the CEO commands the day-to-day operations of the company. The reason is simple. If he intervened in daily decisions, like anything to do with accounting, 2,000+ employees would Ma and Pa him and TSD. It is safe for you to assume he knows this profoundly, and behaves accordingly. I could be totally wrong in lightening up WIND at this time, but I am following the lead of Elmore. In general, Bill Elmore’s investment decisions would be great to emulate, but it would be difficult. Bill is a VC with a long-time association with WIND dating back to WIND’s initial VC rounds. And you should know, Bill definitely shares my view of Jerry Fiddler. However, as a VC in (what was) a crashing tech market, I find it difficult to draw useful conclusions about why Bill sold WIND stock. Allen