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

To: mac who wrote (2564)	12/22/1997 11:51:00 AM
From: Allen Benn	Read Replies (1) \| Respond to of 10309

>Can anyone make sense of H&Qs logic for me? mac, your assessment is correct in every respect. There are others that have made the same observations to me privately by email. I don't have a satisfactory explanation, except to say that my frustration with analysts' opinions was what motivated me to start this thread. By any measure, this thread has been far more accurate than analysts in predicting future performance and consequent price action, not just of WIND, but all public companies in the embedded RTOS space. I think H&Q embedded systems analysts are ignoring a fundamental theme the financial market has been pounding into technology investors over the last couple of years. Non-commodity technology markets, which are precious few, gravitate to a single, dominant leader -- a winner-take-all paradigm. Secondary players will meet occasionally with success, but mainly will struggle, particularly in hard times. When it became clear early in 1997 that WIND was the dominant embedded RTOS company, the other RTOS companies became risky investments. In good times, they can bounce high off of deep lows, but they cannot be expected to sustain consistent high growth in WIND's shaddow. Mainstream-based technology markets will not allow another RTOS company seriously to challenge WIND - as long as WIND continues to execute adequately (not even perfectly). Contrast this kind of market with so-called commodity markets in which competition occurs on price alone. Most, but not all, technology sectors mature into commodity markets, like networking did in 1997, which usually can support a number of providers competing relentlessly on price. Only the largest, cheapest, best managed commodity companies win, and even they might not win big for investors. The investors job is to find a few market leaders in protected, growing markets, and then invest big. In my mind, these are the least risky of all investments, while having the high probability of high returns. Interestingly, such companies cannot be spotted easily on the basis of past performance alone. Neither can they be spotted by analyst estimates. For example, H&Q estimates 3 to 5 year revenue growth for WIND, MWAR and INTS at 30%, 30% and 25%, respectively. These numbers fail to convey the relative strength of WIND compared to competition, nor do they conform with the new realities of winner-take-all. I believe this winner-take-all theme for non-commodity markets, coupled with the erosion of some technology into commodity markets, have influenced technology stocks much more than the Asian crisis, for example. I think it is too much to ask that analysts properly classify companies they represent into the winners and losers demanded by the product market, and ultimately reflected in the financial market. Being unconstrained, although hardly unbiased, that is the purpose of this thread. Allen