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

To: Ramsey Su who wrote (2433)	11/21/1997 1:59:00 PM
From: Allen Benn	Read Replies (1) \| Respond to of 10309

>Back to WIND, this service revenue is certainly no surprise, given the >fact that INTS reported similar gains. WIND and INTS are not experiencing the same market forces, even though they both showed significant gains in services revenues in their recent earnings statements. WIND definitely is extending the breath of its offerings to encompass applications development consulting, both because of the growing availability of that business with attractive margins, and because of the reasons you gave for using consulting as an adjunct to sales. You might recall that a more formal expansion into this area has been expected on this thread for well over a year. Nevertheless, this quarter was unusual because services backlog was worked down during the quarter, causing services revenues to be larger than it would have been under more normal circumstances, even after accounting for planned expansion. Because services revenues bulged, product license revenue was contained deliberately - as surmised in my pre-conference-call post and spelled out explicitly during the conference call. Remember, the reason I gave for this is the ease of postponing product license revenues as distinct from services revenues. Consequently, product license "backlog" (an internal number) increased over the quarter, which balanced the reduction in services backlog. The net effect of these aberrations is the illusion of softer-than-expected product license revenues. Ron Abelmann repeatedly explained during the analyst conference call that product licenses continued expanding at the same growth rate enjoyed by other aspects of the business. If WIND had allowed the services bulge to pass through revenues and earnings without restricting EPS, then reported revenues would have increased by another million dollars, adding 2 cents in EPS. This means WIND's "normalized" revenues grew about 51% over last year, and "normalized" EPS grew 67%. Now, contrast this with INTS's last reported quarter in which services skyrocketed with much-reduced margins. Also, product revenues were actually down year-on-year due to market forces. Indeed, Michael Greene's excellent report of the AEA Technology Conference contained a warning by INTS to expect continued weakness in product sales for the next quarter or two. This is not what INTS stockholders probably want to here, especially in the quarter following the big rollout of pRISM+. > Have you been following the developments in Asia? I am certainly not an expert on the seriousness of the Asian crisis. As an investor, I assume it likely will be contained with minimal damage in the short term, unless Japan fails to contain its banking problems. As many economists have stated for some time now, the Japanese have only hurt themselves with their restrictive trade and industrial policies, even though most Americans erroneously feel they are getting the raw end of the trade stick. Japan needs to unwind its regulations and rejoin the party. Longer term I believe getting China producing and consuming at sustainable and growing rates represents a vastly greater challenge to global economic stability than the current Asian crisis, including Japan's weighty problems. I don't think the Asian Tigers will suffer excessively themselves or cause us long-lasting problems. The trade numbers just aren't there in the worst case, and surely these economies can be bolstered successfully by the IMF and developed countries. That being said, I would be circumspect about investing in high tech companies that depend on Southeast Asia for sales or compete with products from the area. This was a concern about QCOM, but Jacobs put that fear to rest during the last analyst conference call-at least for now. I sure everyone breathed easier when WIND management reinforced our prior beliefs that the company should be immune to the Asian Contagion. Allen