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

To: James Connolly who wrote (3654)	10/14/1998 7:59:00 PM
From: J. Kerner	Read Replies (1) \| Respond to of 10309

From the Wind River Web Site: ---------------------------------------------- Analyst Report from Dain Rauscher Incorporated Shares Drop Sharply On Unsubstantiated Rumors, Outlook Solid, Strong Buying Opportunity False Rumors Fuel Sell-off: Wind River shares fell sharply on Wednesday, October 7, as several false and unsubstantiated rumors circulated in the market during the day. There is no change in the fundamentals at the company and we remain extremely comfortable with our estimates of $33 million in revenues and EPS of $0.24 for Wind River's fiscal third quarter ending October 30, 1998. The company has met or exceeded expectations for eighteen straight quarters. The company has experienced robust revenue growth for the past several quarters, in excess of 40%. Business is strong across the major vertical market segments and geographies. The company's exposure to Japan is limited (roughly 10% to 12%) and a majority of those products are designed for sale in Europe and North America. Tracking Down the Rumors: We believe several false rumors contributed to the sharp sell-off in Wind Rivers shares, which were down almost 23% late in the session (although shares closed higher, down roughly 13%). First, we believe rumors that an independent entity is close to publishing a report on accounting irregularities at Wind River are unsubstantiated. We were unable to track down any such reports. We believe accounting practices at Wind River are and have been very conservative. Second, there appears to be some confusion regarding several 424B3 filings with SEC. Wind River has made roughly 15 such 424B3 filings with the SEC in the past year. These are related to the convertible debentures issued by the company in 1997 (which raised roughly $140 million). Because the original issue was unregistered, Wind River is required to file with the SEC any change in ownership of these convertible securities. Clearly, these are routine filings and should be viewed as such. A third area of concern appears to be insider-selling activity in recent weeks. While it is certainly true that several senior level executives and founders have sold shares in recent weeks, these sales account for only a small portion of each the individual holdings in Wind River. Additionally, there has been little selling by these individuals for more than 6 months. All the individuals involved in the sales have sold small amounts of stock on a regular basis. We do not view this as abnormal. These sales in fact took place prior to the most recent run-up in Wind River shares. Also, Wind River management is currently visiting major institutional investors and has been upbeat about the current tone of business and the outlook for the company going forward. Volume I2O Shipments Ahead: The introduction of several new products based on the I2O standard is imminent. We expect some of these new products to be showcased at the coming Comdex show this fall. The company expects I2O to add low to mid-single digit millions of dollars to the revenue stream in fiscal 1999. Design win activity, a leading indicator of potential shipments, is strong with more than 60 design wins for IxWorks (Wind's operating system software that implements the I2O standard) already registered. Recently, Wind River announced Version 1.1 of Tornado for I2O and support for two new versions of Intel's i960 I/O processor. Stock Opinion: We believe the sell-off in Wind River shares, based on false and unsubstantiated rumors, creates an excellent buying opportunity for investors. The fundamentals are solid and business momentum in the embedded software segment continues to be strong as the number of devices that require sophisticated embedded operating systems and applications continues to explode. While Wind River is by no means immune to a global macroeconomic slowdown, the company has enjoyed robust growth even during periods of relatively weaker growth in its end-markets. Wind River sales are driven to a great extent by next generation design activity, which tends to be less volatile than end-user shipments. We maintain our Strong Buy - Aggressive rating on WIND and recommend current purchase. Our price target is $58 based on a 50 multiple (a premium to the projected 3-year EPS growth rate of 45%) based on our fiscal 2000 estimate of $1.16 (which does not include upside potential from I2O royalties). Dain Rauscher Incorporated makes a market in WIND and may act as principal with regard to sales or purchases of this security. In addition, Dain Rauscher managed or comanaged a public offering of the securities of WIND within the past three years. ADDITIONAL INFORMATION ON THE SECURITIES MENTIONED IS AVAILABLE ON REQUEST. This does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. The opinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. DRI, its officers, directors, affiliates, and/or employees (including the authors of this report) may from time to time have a long or short position in publicly or privately issued securities of companies mentioned or derivatives thereof and may sell or buy such securities for their own or related accounts. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Copyright 1998 Dain Rauscher Incorporated Contacts SEMICONDUCTOR TECHNOLOGY Raj Gollamudi rgollamudi@dainrauscher.com (612) 313-1204 Katherine Egbert kegbert@dainrauscher.com (612) 313-1310