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

To: Pirah Naman who wrote (3438)	7/21/1998 10:42:00 AM
From: Mitchell Jones	Read Replies (3) \| Respond to of 10309

>>As you have written, WIND's resources are its people. What is the cost of those resources? What will be the future cost of those resources? Profits are a function of (among other things) costs.<< A CNBC correspondent reported this morning that England is losing computer talent at an alarming rate-- to Russia. He indicated that Russia is paying the equivalent of $100,000 tax free with travel, housing, and medical care thrown in. Reports such as this merely confirm that programming talent is in a sellers market and the price keeps going up! The new facilities that WIND is building, as well as the stock options, are part and parcel of the effort WIND is making to secure the talent required to maintain the leadership in a very competitive field. To imply that the price is too high is to infer that we know better that Bill Gates or Jerry Fiddler( or any of the other industry exectives caught up in this competitive market), how to cope with this talent squeeze. I find the current discussion interesting;however, unless someone has useful advise for the company, I suggest we treat it as a friendly academic exercise and accept the facts as they are. Mitch

To: Pirah Naman who wrote (3438)	7/21/1998 12:51:00 PM
From: Allen Benn	Read Replies (2) \| Respond to of 10309

The good news I think we can converge to a discussion of the economic aspects of employee stock options, assuming we do not lose sight of why they are deemed necessary and the benefits they are thought to bestoe. Nevertheless, I find the discussion objectionable when demeaning swipes are made at management's motives, intentionally or not. For example, in a previous post you said: This is no KO or SGP with excess free cash flow (and constantly reducing share count), it is just an attempt to slow the rate of dilution (which looks to have been roughly 10% per year over the past couple of fiscal years). I think everything about this statement is misleading. Whether or not you did it intentionally, statements like this need to be corrected, not by a While Knight, but by an objective analyst. KO has a pattern of constantly reducing share count, which may have made economic sense in the past, but is dead wrong now - unless dictated by a consistency requirement e.g. the APB Opinion 16. One of the reasons I blurted out a negative remark about Buffett, is that I'm beginning to be deeply suspicious he has become an apologist for KO. So the first part of your statement implies that buybacks are OK if they are done for "legitimate" purposes by an icon like KO, strikes me as innocent. The second part of your statement, "it is just an attempt to slow the rate of dilution", is your assumption that I don't think it is valid. I believe WIND is buying back shares because they have oodles of money and the shares are highly undervalued - exactly as Ron says. (Incidentally, I noticed that one analyst finally is willing to state that the emperior has no clothes, and put a Strong Sell on KO - not a Hold, but a Strong Sell.) I don't see my postings on options as a White Knight defense for WIND - although it may appear that way. Let me be very clear. FAS 123 makes no economic sense! Buybacks should be viewed strictly on the underlying economics, not as an attempt by management to diminish dilution - ever. Politicizing a discussion of the costs of business, turning it into an emotionally charged subject, dilutes (pun intended) the discussion. I agree. I agree. I agree. And I agree that people inadvertently make statements that to others may seem more emotionally charged than intended, such as (I hope) my interpretation of your earlier statement. When egregiously emotional statements are made, however, especially ones that appear sensible on the surface but are wrong, then it is appropriate to call them into question. I think you can agree that after APB Opinion 16 is extremely relevant to why your statement may lack validity. Citing examples of incompleteness in a discussion does not point to "cavalier" behavior on the part of the participants If you are correct about incompleteness not pointing to cavalier behavior, it is only because I chose to use a euphemism for what I was thinking. If the central factors that underlie a complex issue are ignored or unknown, then the ensuing discussion cannot be meaningful. I agree 100% with what I think you are saying. I would have said that the intrinsic value of the company is a function of future free cash flow growth with expected dilution. I agree 100% with your correction. I often refer to EPS for software companies when I really mean free cash flow. Now since we both agree about this, I suggest we put FAS 123 aside, and focus on projections of EPS (or free cash flow if you want to bother with the adjustment). Please notice, everybody, that FAS 123 does NOT enter into the economic analysis of the impact of stock options. Neither current cash flow nor projections of future cash flow entail valuing employee stock options at the date granted. This will be clearer when we actually do it. I think it may be premature to label the decreasing share count as a trend. Of course you are correct, and I didn't mean to imply share count will not grow in the future due to options. What recent trends show is that the company really has been buying back. It has been happening coincident with the major consolidation it has been suffering through, which is my point: by their actions WIND management really does believe the stock is undervalued. In further support of this position, you may have noticed that Jerry's Fiddler's stake in the company has been steadily rising over the last year or so. He now owns over 11% of the company. If this isn't a tip-off that WIND is undervalued, I don't know what is. Allen PS - Just to reiterate. I am fascinated that you and I see your KO/WIND statement in exactly opposite ways. Is that statement a microcosm of this whole discussion? After rethinking the statement, do you still feel it has merit? In particular, what is the justification for KO buying back shares when the stock is enormously overpriced? Even Buffett confesses to liking the buyback better when the shares were cheap. Is that his subtle why of acknowledging the buybacks are wrong? Obviously these questions shouldn't be answered on this thread, but I would be interested privately if you disagree strongly with me about KO.