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.

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

To: Mike Buckley who wrote (43767)	6/21/2001 7:52:15 PM
From: hueyone	Read Replies (3) \| Respond to of 54805

Where I think the author of the article should have been a little more benevolent is in pointing out that the line items relative to employee stock options do traditionally appear in the cash flow statements. Again Mike, I do not believe there is any attempt anywhere in either the cash flow statements or the income statement to expense stock option compensation or to show a liability for future stock option compensation. For example, SEBL starts out the operating cash flow statement with pro forma net income----which excludes the expense of stock option compensation. Some companies do not exclude this expense; Boeing for instance. How can this compensation be free? And to quote JAPG's article earlier today, Relying on the whims of the market to get "cash" from options-related tax deductions is just no substitute for a healthy, growing business that throws off cash. Message 15974615 Let's take my previous analysis, which focused on net cash flow from operating activities, one step further and look at the options effect on the entire cash flow statement for SEBL for year 2000. As you noted, the entire cash flow for year 2000 totaled 265 million. But proceeds from selling stock totaled 189.2 million and the tax credit for exercise of stock options totaled 185.6 M. Add these two items together and you get 375 million of positive cash flow for SEBL simply from employees exercising stock options. What if the bull market and the exercise of employee stock options stops? Subtract the 375 million from the 265 million and you get negative 110 million cash flow for the year. That doesn't sound very impressive. I thought my company was making cash from its fundamental business, but it turns out it wasn't. More potential bad stuff (generic example): Now in addition, suppose most of our company's employees are energetic, brilliant Silicon Valley employees whom all over time figure out that their options-heavy compensation package simply isn't cutting it. One by one they decide they need more cash or they will look for opportunities elsewhere. After all, you can't pay down a mortgage in Palo Alto and make your car payments on the BMW with unexercised stock options. Woops, suddenly the employee stock options expense that companies conveniently excluded from earnings is transformed in to an expense that not even the most biased pro forma earnings accountant can hide. Employee compensation is magically transformed from cash flow positive to cash flow neutral to cash flow negative simply because employee's compensation gradually changed from stock option compensation to cash payment compensation. Then its.... Gee, my company is winning more deals, revenues are increasing, but margins and cash flow are shrinking. And so it goes. Mike, I may well be making errors in my analysis of this topic. I am simply trying to go at it from a common sense perspective, which in my case works well on some days and not on other days. But that is the way I see it. Best, Huey

To: Mike Buckley who wrote (43767)	6/21/2001 8:17:53 PM
From: Gary L. Kepler	Read Replies (2) \| Respond to of 54805

Mike, re: RMBS Recently bought a starter position to encourage my due diligence. A price under $12 and market cap of around $1.0 B seemed reasonable. Intel is only now ramping up the P4 and Sony's Playstation II seemed to be doing well until recent news of weakness. The prospect for RDRAM initially seems bright and sales may tornado, if Intel continues to provide strong support. The fraud trial (which only concerns SDRAM and DDR) still troubles me because the judge would not allow the Doctrine of Equivalents to be used which apparently was the planned defense prior to the adverse Marksman ruling just before the trial. It is unclear whether Rambus will be successful on appeal. I am encouraged by the court's expert witnesses in Italy who seem to imply that RMBS does have a strong case there. In any event, I am disregarding any benefit of royalties on SDRAM or DDR. (As an aside, it seems that the legal system is not strongly standing behind patents and that IP protection is eroding. I am glad to hear that the Supreme Court will hear a case that perhaps can restore historical reliance on the Doctrine of Equivalents for the protection of QCOM, ARMHY and others.) The RMBS thread here is tedious. The takeaway is that the RDRAM ramp has been so slow and difficult, the window of opportunity may be closing. RDRAM may never realize it's potential. Other technology (perhaps DDR or 2 other types) may be faster and have a lower cost. In summary, rather than add to my position at these cheap(er) levels, I am inclined to stand back and perhaps walk away sometime in the next six months or so. Sorry for being so verbose. Were you able to make any progress on your due diligence or did you just decide to stand aside? Your thoughts are most appreciated, as has been the discussion by others on this thread.