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

To: J. Kerner who wrote (2660)	1/13/1998 2:37:00 AM
From: Allen Benn	Read Replies (3) \| Respond to of 10309

>I was wondering what some of the market opportunities might be for >Wind River due to their technology buyout from NCI/Navio. It was no secret that WIND needed to strengthen its web browser/graphics capability. It established XWindows hooks, but still it wanted more to make it more competitive in the growing user interactive/EID marketplace. This is high-end, not-so-deeply embedded system segment. WIND could have purchased any of a number of off-the-shelf graphics companies, along the lines of INTS' recent arrangement with Tacit Software, or they could have tried to R&D their own unique browser/graphics. Instead, WIND chose to buy the technology rights from NCI. So, the question is, "What's special about NCI's browser/graphics?" The answer is that NCI acquired/merged with Navio to get it, obviously with the objective of making Navio's browser/graphics the centerpiece of the 2nd generation NC/OS, replacing their own home-grown version. Remember that Navio was founded by principals of Netscape, so think of Navio as having an embedded Netscape browser. This means that WIND now is armed with the source code and essentially the brand name of Netscape enabling it to attack EID markets confidentially at all levels. They now have all the pieces of the puzzle. Moreover, it will not hurt that WIND's browser will be compatible with NCI's and rooted in the Netscape mystique. Further, the deal shows that WIND and NCI are enthusiastic partners, and resurrects the expectation that WIND will profit on some kind of percentage/royality basis from 2nd generation NC/OS business-despite earlier pessimistic postings on this subject. >I must admit I am quite baffled by this market. Wind announces that business >remains robust this quarter, yet the stock drops 3 points over the last couple days. Life is too short to worry much about the goings-on of traders in this market. I question whether or not traders picked up on Ron Abelmann's assertion that the quarter was made three weeks before the quarter's end. That remark was all the more remarkable in light of the Asian turmoil, where technology companies are disappointing right and left. Short sellers may have jumped on the 13G filing by the Pilgram group, a virtual repeat of a similar filing by the same outfit late last winter (which correlated with a major sell-off when short sellers attacked aggressive funds trying to force them sell to meet redemptions, and thereby aggravating an already bad situation). Short sellers may have jumped on the MWAR Nortel press release. Or they might have been encouraged by all the Microsoft/Sun set top box silliness that transpired through the weekend. On the other hand, it may have been more Asian contagion. Every embedded systems stock I watch occasionally took a hit Monday. The indexes did OK once again because large, safer stocks mainly benefited from bargain hunting. Once again, it all doesn't matter. If WIND can keep generating earnings per share growth in the 40% to 50% range, the stock price has to appreciate by a factor of 32 within ten years. The reason is that this "middling" earnings growth corresponds to EPS doubling every two years, or five doublings in ten years. Were this to happen, WIND's P/E ratio at the end of ten years would be at least what it is today, 60. If so, the stock price would have to multiply by 32. (If this seems excessive to you, note that WIND has increased by a factor of 15 in four years already, and WIND's position and outlook in the market today is far brighter than it was early in 1994.) The downside to this scenario is limited because WIND is the market leader and has a franchise, which means it has pricing power. Conceivably a recession could slow it down some (although I think the company essentially is recession proof), but that would just mean its stock price would multiply by 10 or 15 rather than 32. The upside to this scenario is unlimited. Any of hundreds of deals could explode unpredictably to the upside, taking WIND's stock price along with it. Or the company could be a takeover candidate, instantly doubling the price of the stock. I find it fascinating that short sellers and traders are willing to ignore these risks. A short squeeze can bankrupt a novice investor overnight, making the Asian crisis seem like the mildest blip in comparison. The trader waiting for WIND to bottom might find himself (certainly a woman would never fall into this trap) looking at WIND gapping up and out of sight on any given day, never to owned by him again. Big bucks can be lost being out of a stock that blasts off. Allen