I'm back and relaxed from my travels, or should I say “stock market travails. Some major happenings during August and September were noticed by the market and the thread, but not to the extent deserved. For example, last quarter's earnings were remarkable, particularly in comparison to the competition. The conference call was the best in memory, with management firmly in control and more upbeat than ever.
In the year since H&Q upgraded INTS back to a buy on the basis of pRISM+ being a premier development platform (driving the stock price to $27), INTS has succumbed to pervasive stodginess, and is now trying to climb out of yet another bottomless pit. Please recall the “Let the games begin” declaration made on this thread about a year ago when INTS was attempting to challenge the leader, WIND. Although strangely anticlimactic, those games clearly were over with INTS' inability to increase services, much less product, revenues, and not to mention the obvious discord in the company surrounding St. Charles' separation.
The thread has yet to appreciate the full importance of the Flashpoint/Digita partnership, which brings VxWorks to major digital camera manufactures. The digital camera (DC) is no longer just a cute alternative to film; the modern DC is fully functional computer that does lots of complex, custom image and graphics processing, and communicates with all sorts of other smart devices, including PC's, printers and other DC's using an interactive color GUI. Anyone owning 100 shares or more of WIND should purchase a Kodak DC 260 today for about $800. Do it because it is fun, but mainly do it to learn first hand what high-end embedded consumer products are capable of, and why you should be so excited about your company. One thing that will pop out at you when you put the DC 260 through its paces is that when similar image processing is done on the PC and the DC (for example when camera images are uploaded to an image processing program running on the PC for post-production editing), the DC is at least an order of magnitude faster than what is obtainable on a Pentium II PC. In other words, if you could take my Pentium II 233 laptop, compress it, and stick it in the DC, the product would be flawed – even if it could magically operate reliably. The PC is no match for the DC, and the reason is that Windows is no match for VxWorks where functionality and speed are required. An order of magnitude handicap in image processing speed cannot be overcome by naïve belief in Microsoft's market strength.
WIND's recent announcement of four graphics topologies was picked by the tread, but not enthusiastically. In particular, the importance of eNavigator is now more understandable than before, and bodes well for the company. eNavigator obviously cements the partnership between WIND and NCI, and it is now very clear that NCI will be forthcoming with numerous high-end embedded software products – along the lines of Digita running on top of VxWorks. Recall that NCI's Enhanced TV already is a Digita-type product that runs agnostically on top of an RTOS. Enhanced TV probably was developed using VxWorks, so one would expect it to be the easiest and quickest path to market for a set-top box maker incorporating NCI's Enhanced TV, but other choices are possible. Now it appears that NCI sees the light, and most future products rolling out of NCI will be tied specifically, or regliously, to VxWorks via eNavigator.
I2O continues inexorably on its path to greatness, although without the clamor usually associated with breakthrough technologies. Intel is grappling with how to push I2O after mistakenly hyping the concept on the basis of expected improvement in I/O processing speed. The problem Intel overlooked was that proprietary intelligent I/O processing has been around Unix and PC servers for years, and not just on mainframes, so I/O throughput gains on these servers would be nearly impossible to achieve for a general-purpose I/O processor. The importance of I2O has always been in the standardized abstractions, which enable peer-to-peer, non-conflicted, maintainable I/O, not speed alone, and Intel had to learn this the hard way. In this regard it is illustrative to read what Cyclone Microsystems says about I2O:
Intelligent I/O (I2O) plays an important role in Cyclone's product structure. All new Cyclone products are optimized for the I2O architecture. Cyclone's I2O hardware and software solutions allow designers to integrate and produce complex real-time systems with standard building blocks. With this architecture, you can change and simplify methods of integrating complex embedded and real-time systems. Cyclone is active in the development and implementation of this emerging technology and acts as chair of the I2O WAN working group.
Cyclone's message is succinct but informative. First notice that “All new Cyclone products” are slated for I2O compatibility. Second, that I2O permits building-block assembly of real-time systems (that's because I2O is real-time and avoids conflicts). But mainly notice that nothing is said about speed per se.
Peer-to-peer capability and maintainability will cause I2O to spread to more than servers and high-end network controllers (routers, switches, etc.). As I2O is used to implement security, compression, multi-media I/O and communication protocols in I2O software, infrastructure compatibility will dictate ubiquity.
Meanwhile, WIND continues to be treated like most other software companies by the stock market. The excessive volatility in the stock is unforgivable given the track record and outlook for this unique company. Regrettably, the stock market has a mind of its own and insists on gut-wrenching volatility. It is understandable if buy-and-hold investors loose faith, and seek to protect profits by trading in these choppy times. Do whatever makes you comfortable, but I would advise anyone to try to come out of the bear market with your position in WIND substantially intact.
Today the stock market's main worry is the expectation of a recession in the U.S. and Europe. Recall from posts a year or two ago that it was argued that WIND is resistant to recession, and so far this year that claim has at least withstood the Asian Crisis. As just one example of WIND's breath of business, today's Washington Post business section reported that "Wind River Systems of Washington received a $50,940 contract from NASA for general purpose equipment." For numerous reasons, WIND is one of a few companies that may be expected to sustain high growth in less hospitable economic circumstances. Once the market figures this out, WIND's stock price should accelerate, particularly in a low interest rate environment.
Investors should try to not be dismayed by WIND's elongated period of consolidation. When it finally breaks out for good, the stock will double or triple seemingly overnight. I have no idea how high or how fast the stock can run up, because the stock potentially is undervalued by at least a factor of ten. It seems to me inevitable that WIND will be a leader in the high-tech market's soon-to-start recovery. (Small high-tech stocks have been in a bear market for two to three years - precursors of the Asian Crisis. The survivors that can continue or start performing should begin to be rewarded handsomely by the market. The others will fade away.)
A final point. I started this thread two and a half years ago mainly because I was frustrated by analyst's limited view of the company's potential. Over and over, I and others articulated why we liked WIND's business model and outlook. I now notice that analysts' consensus projection is for a 46.6% 3 to 5 year EPS growth rate, and First Call indicates that 5 out of 5 analysts rank the stock a strong buy. For valuation purposes I project EPS at 40% (even though my models project EPS growing somewhat higher), which is lower than the first call consensus. Consequently, my frustrations with analysts have abated.
I think everything of substance I claimed about WIND generally has come true – although admittedly my timing lacks precision. My goal was never to hype WIND's stock valuation, nor is it today. For all these reasons, I feel I have accomplished what I set out to do on this thread, and probably henceforth I will post less frequently, and travel more. On the other hand, there is so much more that can be said about so many things ---
Allen. |
