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Technology Stocks : Trimble Navigation -- Ignore unavailable to you. Want to Upgrade?

To: Raven McCloud who wrote (2443)	4/17/1998 2:38:00 PM
From: David	Read Replies (1) \| Respond to of 3506

I think you are seeing the effects of the Trimble quarterly report and conference call with analysts. The call left the impression that the company's profits shortfall reflected only a minor inability to schedule production efficiently in the face of strongly increasing demand. I hadn't tried to recalculate 1998 earnings, but I suspect I'll agree with Schroder's downgrade. If TRMB is running above capacity at the moment, that has to limit earnings potential for the year. On the other hand, the trend of strong revenues provide a lot of assurance that there won't be any earnings collapse this year, and is cause for optimism in the midterm that GPS is coming into the mainstream. Is Rubble coming back on board?

To: Raven McCloud who wrote (2443)	4/17/1998 3:02:00 PM
From: SKIP PAUL	Respond to of 3506

I am just speculating but it could be because something was said at the Caterpillar earnings conference today.

To: Raven McCloud who wrote (2443)	4/17/1998 4:42:00 PM
From: Yin Shih	Read Replies (2) \| Respond to of 3506

I see it as a "sigh of relief". TRMB has a history of disappointing Wall St after a run of good news despite mostly continuous revenue growth (excepting seasonal variations and the major blip due to the Gulf War) and the recent month's decline may have been in anticipation of a "yet another" bad report. In fact the conference call said that their sales were booming, order rates were good, all sectors excepting software (one of their smallest) were up in the range of 20-40%, Japan was up despite the "Asian flu", the lower-margin & problematic CUGR has been shipped, etc, etc. The only problem was that they were so busy they had to pay too much money for overtime and outsourcing, hurting their margins - but not too badly. Fundamentally, the sales growth is present so I have no problems with slightly lower earnings if the money is being spent on shipping product to keep market share and designing new products to expand market share. Having steady sustainable earnings is important to show that the business is basically sound and TRMB can't take their eye off the ball on this, but trying to maximize earnings right now, when the GPS market is still expanding, is not the right strategy. To put it in perspective, in 1997 TRMB spent $40.6M on R&D on revenues of $272M. That is 14.9% of sales. Smaller companies tend to spend more on R&D as a percentage of sales and bigger companies proportionately less, for example HP spent 7-8% on R&D in 1997. But at TRMB's size no one would be likely to criticize them if they spent 12% instead of 14.9% as the effect of such differences in R&D spending on future performance is very hard to quantify, since it is difficult to estimate the marginal effect of an additional $1 spent on R&D. On the other hand the effect of a difference of 2.9% on current performance would have meant another $0.35 a share last year on top of the $0.42 actually reported - almost doubling earnings. But if you believe the GPS market is going to grow to many times its current size, maximizing current R&D spending/investment (with the qualification that it must be wisely spent) at the cost of deferring current earnings sounds like the right strategy. Ant versus grasshopper theory of productive labor.