One of the wisest men I know in this business [who requested anonymity] is fond of saying, "it's far better to be lucky than good." Inevitably if you try to make your living investing in technology equities, you have to be resigned to the fact that you're going to suffer some blowups, there's no way around it if you plan on being in the business for more than a few weeks.
But accepting the blowups makes them no less painful, and as a result, AVOIDING a blowup can be strangely gratifying. My partners and I had spent time looking at Wind River Systems (WIND) and yet, for a variety of reasons, never came to a consensus on the company nor had the conviction to initiate a position.
Then, on March 8th, the company reported disappointing Q4 results; that saw the stock trade down more than 20% intraday. At the heart of the shortfall was de minimous bookings growth, a trend that's now extended for more than a year (Note: CIBC Analyst Brad Reback downgraded WIND on this news).
To be clear, this is in no way an admonition of Wind River as a business or an investment. In fact, one could logically argue that if the long-term prospects were attractive a month ago, they're even more attractive today. Wind River's CEO, Ken Klein, is a talented head man; I had the privilege of dealing with him when Ken was running sales at Mercury Interactive (MERQ). But I can tell you that it's a LOT easier to look at WIND at current levels with expectations now being "re-set" than to have maintained conviction and enthusiasm for the stock had it sold off 20% mere days after initiating a position.
At the heart of whether Wind River turns things around is whether they can successfully navigate the dual-pronged approach toward embedded operating systems. Wind River's VxWorks has long been the best-in-class OS for embedded systems, although the market has been fragmented. But many developers are embracing linux/open source in the embedded market. Wind River initially was cool on the idea of linux, perhaps fearing cannibalization of its high margin proprietary OS. But recently Wind River has done a 180 and embraced linux, while also maintaining strong support for VxWorks. The results have been tangible, with linux customers doubling QoQ to 200. Interestingly, privately-held MontaVista appears to be struggling (they've lost several key executives and laid off 20% of the work force this year), lending further evidence to Wind River's growing presence in the linux market.
Time will tell whether Wind River pulls itself out of the doldrums, but should the company execute its dual-pronged approach and deliver a re-acceleration of bookings, the decks have largely been cleared at current levels. I'll happily stay on the sidelines remembering that sometimes it truly is better to be "lucky than good."
Note: At the time of this writing I, and/or funds I maintain discretionary control over, did not maintain a position [long or short] in WIND.