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

To: Mitchell Jones who wrote (2668)	1/14/1998 5:52:00 PM
From: Jason Cogan	Respond to of 10309

Mitchell: <<However it is handled,I am sure the tape will not read as you suggest. More likely it will say"Wind River beats analysts'estimates by 2 cents/share to continue 16 quarter record of exceeding expectations*">> I disagree, although I'll be happy if I'm wrong. I believe the tape will be forced to report WIND's net earnings, which will be negative this quarter after the one time accounting charge. As you suggest, I am sure that WIND will put the best spin on the announcement, emphasizing the underlying strength of this quarter as the 16th in a row of beating analysts estimates. But the net number that comes across the tape will be negative. This is precisely my concern. As for the accounting treatment, there are a number of ways that WIND could handle the charge. They could have amortized the charge over 4 quarters, to the tune of $2.5 million each quarter. They could have listed the acquisition on the asset side of the balance sheet, say as prepaid engineering or software development, and then depreciated this non-cash asset over time. I'm not sure why this wasn't considered. My feeling is that management wanted to make the acquisition as transparent as possible, so as not to confuse the Street or pressure future earnings. This is why they are going for the entire write-down at once. However, I am still concerned that institutions will misunderstand the impact, and are preemptively selling stock in advance of the earnings date. Unfortunately, the Street's reaction will be what it is. We can and should consider the short term implications of the announcement, but we should also focus on the acquisition itself. Questions for the thread: 1. How much future sales are likely to be generated due to WIND's new GUI capability? 2. Who are WIND's major customers likely to be, now that they have GUI functions? 3. Does this put them potentially in competition with NCI, since they can now sign their own deals with NC device makers, outside of NCI? 4. What is likely to be the relationship with NCI going forward, including the as yet undisclosed royalty arrangements for future versions of the NCOS? As always, any and all thoughts on these questions or the above statements are appreciated. Regards, Jason Cogan