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

To: James Connolly who wrote (3714)	11/15/1998 12:35:00 PM
From: Peter Church	Read Replies (1) \| Respond to of 10309

>>>A quarter of a million units (((or 290,000)))does not seem unrealistic at this point so perhaps we will see I2O start to kick in and give us a pleasant surprise.>>> Thanks for the calculation JC. Here are some quotes from the thread, from analysts' reports and from Ron Abelmann pertaining to I2O revenues. I believe this COULD be the quarter that I2O revenues surprise us with a big bonus. I don't think the analysts' estimates are factoring in the ramp up, which should be well underway now. I am also intrigued by Ron's comment that the $1.25 to $1.50 estimate for I20 revenue per chip is "on the conservative side." Is there some upside here too? If you take the straight line ramp-up to get a total of 10 million units in 3 years. The first year will need to have produced 1.1 million units. Taking half of those in the 3rd quarter would mean a revenue of 2 cents this quarter (using 290,000 units per $0.01). Further... I am surprised that analysts are only predicting a 38% rise in earnings over last year when the previous quarters earnings were up 50%. I expect earnings at $0.29, including I20. But, I must admit there's a considerable margin for error. From Ron Abelmann's 2Q conference call last August: Openning comments regarding I2O: "Intel is looking for a significant ramp up of i960 sales over the next 2 quarters. Last month finally saw the production release of MSFT's OSM for Windows NT. The resulting activity in the SIG is very high. In the first half we sold 61 Tornado for Ix Works design seats." I2O related question: "I2O is 6-9 months later than projections made 3 years ago. There was a 2 to 2.5 year development cycle which was quite reasonable. The general figures which I get out of Intel is that they expect to sell something in the range of 10 million over the next 2 to 3 year period.... We now appear to have turned the corner---Intel. Not having seen a significant ramp up at this point (I wouldn't have expected it until MSFT's OSM takes hold) but, I expect the ramp up to start over the coming quarter and perhaps the next couple of quarters and then I can start projecting. Analysts don't have I2O cranked up into their numbers yet. I expect I2O related revenues to be in the low to mid single digit millions this year and then expect a ramp up. Analysts are estimating revenues per chip to be $1.25 to $1.50. These are on the conservative side. ...I am very comfortable with these numbers." Ron Abelmann However, being the staunch conservative that I am, for now I am staying with my current, lower estimates. These are 1.9 million units in FY 1998, 9 million units in FY 1999, 22 million units in FY 2000, and 53 million units in FY 2001. A.B. Post #1716 "Due to continued uncertainty as to when I2O will begin to contribute in a meaningful way, we are lowering our fourth quarter revenue and earnings estimates." (by $0.01) H&Q 5/21/98 "I2O should contribute meaningfully in the second half of the year (not included in our current estimates)." Dain Rauscher Wessels 5/22/98 (estimated $0.23 then) "For FY99, we expect Wind to achieve $2-$4MM revenue, which we've not yet fully incorporated into the model....The Intel I2O initiative provides potential revenue upside." Deutsche Bank 6/24/98 (estimated $0.23 then) Now we know. Each quarter, the analyst estimates will be met with two cents to spare. No reason for the market to fixate on the earnings report, since the result will be known well in advance. A.B. Post #1800 However, I suggest that, before you begin to think of WIND as a mere 33% earnings grower, you should recall that I2O royalties still are not included in next year's estimates. (Please understand that calling 33% earnings growth "mere" is done strictly tongue-in-cheek.) How much might I2O add to earnings in FY 1999? A ballpark guess is 10 million units at $1.50 average, less 40% taxes, or about 30 cents net after-tax addition per share. This means earnings growth in FY 1999 should return to the 75% plus category from a multi-year low this fiscal year of about 50%. Earnings growth should continue at about the 75% rate at least through FY 2001. A.B. Post #1837 Many traders have observed that WIND share price trades up prior to earnings announcements, then sells off on the "yet another great quarter" news. I suspect some traders have gotten so smitten with this pattern, that they not only sell on the news, but they short the stock as well. What could be more fun, and certain? Well, anytime a trading pattern becomes obvious, look out. I can imagine traders pushing up WIND's share price prior to the announcement, and then selling massively on the "great quarter" announcement -- just as it becomes clear that I2O will now be counted at significant levels. Rather than falling per usual, the stock might well gap up in recognition and excitement of economic realities. Of course this would squeeze the shorts, causing mass covering, propelling the stock higher yet. AB Post #2378