Care to elaborate on WIND's progress towards this goal [becoming the de facto standard]? The recent stock price certainly does not reflect WIND's potential dominance.
Indications of dominance are:
1. Revenue growth much higher than competition, greater than sector growth.
2. Absolute revenue growth being steady and recession or Asign Flu resistant.
3. High gross profit margins, steadily increasing or at least not decreasing.
4. Operating margins high and slowly but steadily increasing.
5. Important, solid endorsements, e.g. strategic, meaningful partnerships or joint activities such as WIND's user's conference jointly sponsored by Intel and Motorola. The Mars Pathfinder was a huge endorsement, as is being included in a monitoring role in Intel's super-computer.
6. Indications of niche dominance in a variety of vertical markets, e.g. clear dominance in cable modems, the leader in telecomm/datacomm, dominance in military, I2O, digital imagery, JetSend, etc. (These need to be compared to niches in which WIND is not the obvious dominant leader. Also, note what is happening in those niches. For example, first MWAR then INTS claimed lots of set-top box design wins, of which most did not reach the market., but it looks like WIND may penetrate the space through the NCI relationship, or Spyglass or OpenTV, among others.)
7. Frequent mention in the trade press, sometimes with accolades, as when one auther recently referred to WIND as the "Big Kahuna of Embedded Systems".
Oh, and one last thing, recognition by the financial market, with an ample stock price. On every count but recent stock price, WIND is succeeding beyond expectation. The stock price seems snared in a lasting consolidation, I think brought on by impatience about the rate of I2O ramping up and the Microsoft threat. There may even be a twinge of pRISM+ concern left over from H&Q's misstatements concerning CORBA.
In regard to the latter, it is interesting that the H&Q presentation Tuesday was packed, standing room only. The follow-on 30-minute breakout session lasted an unheard of 60 minutes. But they never asked if WIND is going to make its numbers in the current quarter. Questions centered on the Microsoft threat. How does one defend against phantom competition? "Windows CE is no threat!" "Yeh, but Microsoft has unlimited resources, and has displayed a talent for changing direction in an instant, or persistence to keep trying until at last they succeed. What will you do if they do something right?"
This is a very difficult argument to win, but I think it is possible. As a matter of fact, I think the counter-argument I presented in the two-part post recently does the job. Too bad the argument is hard to understand (or poorly presented), as witnessed by John Williams questions in post #3098.
Since the tone of your question suggests you put a great deal of importance on the stock price, let me focus directly on that for a bit. When the price of any stock acts poorly technically, indeed the market is telling you something, and you should listen. As a general rule, the market is a better judge of current value than the individual. I think the market is consolidating for the reasons mentioned above, of which the Microsoft threat has taken front and center ever since the ESC in Chicago. The price action of the stock reads like a book, first showing a consolidation over I2O concerns, then Asian bumps, and then recovery seemed imminent - only to be aborted by the Microsoft threat. As a consequence of the latter, the stock's technical pattern remains unattractive.
Re-read my recent posts. If you believe my arguments are wrong, or you suspect they will turn out wrong because Microsoft has the power to control events, then you should believe the market, divest yourself from WIND and re-invest your holdings in Microsoft.
If you understand the arguments and believe them, then you should view the current slump in the stock price as a buying opportunity, since you know the market is wrong momentarily. You also realize that serious money in the market is only made when the investor goes contrary to the market, confidently taking advantage of so-called market inefficiencies.
To give you a little moral courage, did you know that all great companies go through extended consolidations even when their performance never skips a beat? Even the evil empire, Microsoft, has suffered this fate on numerous occasions. After the first quarter in 1987, MSFT stock corrected, then moved to a new high just as the market collapsed in October. The stock recouped its loses better than most, but then traded sideways for another year and one-half before resuming the upward climb. Total time of consolidation: over two years.
From the start of 1992 MSFT was sliding slightly downward in a trading range similar to what WIND experienced from July 1997 through the end of the year. When it looked like MSFT was recovering after about seven months, it traded flat for another six months, then sold off and again based for six months. Afterward it resumed its upward climb. Total time of consolidation: over two years.
When people talk about MSFT returning a huge multiple on investors capital over the last ten years, that performance includes two, two-year periods in which investors' capital was dead money. And don't forget, MSFT has never missed a beat in performance. Speaking of MSFT performance, let's compare it to WIND's. Starting in 1987 when MSFT had $345 million in revenues, the company grew revenues 42.4% per year on average. The best year was 1998 when revenues grew 70.8%, and the worst was 1995 with a measly 27.7% growth rate. This moderate-sounding growth compounded revenues to over $11 billion in FY 1997.
Over the last couple of years, WIND has sustained a revenue growth rate averaging 45%, with almost no variance.
MSFT has always enjoyed an extraordinary operating margin, averaging 39.8% over ten years, with the last two years peaking at 44% and 50.1%, respectively. Likewise, WIND has been enjoying a remarkable margin improvement as it begins to cross the $100 million revenue mark. Last year ended with quarterly operating margin over 32%, suggesting that the yearly average this year should be around 33%. By the turn of the century, WIND's operating margin should approximate 37% and still be improving.
MSFT's monopoly shows with its average net profit rate of 24.6% over ten years. Last year WIND registered a net profit of almost 20%, and it should increase to 24% by this century's end.
MSFT averaged EPS growth of 42.6% over the last ten years, scoring best in 1990 at 62.5%, and worst in 1995 at a lowly 16%. WIND has been consistently beating MSFT's average over the last few years, which arguably is due to its relatively small size compared to MSFT. However, despite analysts' projections calling for 35% to 40% mid-term EPS growth, I believe WIND will continue growing EPS at a 50+ clip for the foreseeable future, surpassing MSFT's formidable record. Of the performance measures discussed, EPS growth by far is the most important.
Allen |
