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Wintegra – Good Company, High Valuation

WintegraGet ready to party like it’s 1999Wintegra, Inc. (WNTG), a network processor company, is going public. Prospectus here. Financial summary here.

Wait – the mob cries “This Time It’s Different” – Wintegra doesn’t make those ridiculously large 10G and 2.5G NPU’s that tech messiah George Gilder preached were the salvation of the coming optical revolution. (He still does, BTW – what is EZ-Chip paying this guy?). No, Wintegra’s NPUs are for the access network, Fiber to the home, DSL, i.e. the current pump-and-dump sector for Telecom.

Wintegra couldn’t have picked a better time to go public. Investors are frothy about the build-out of broadband in the last mile and their story plays squarely into this.

Disclaimer: I haven’t read the prospectus in detail. Wintegra will have 22 Million shares outstanding following the IPO. At a target price of $15 that yields a market cap of $330M. When Passave was acquired by PMC-Sierra (PMCS) for $300M it had twice the revenue (14M vs. 7M Q106) and similar gross margins. More importantly, Passave had a massive structural advantage in the fact they basically had locked up the supply of chipsets to NTT, who is the biggest consumer of FTTH access equipment by far.

Wintegra, on the other hand, faces a structural disadvantage in the fact that large OEMs HATE locking themselves into a single vendors NPU architecture. Cisco is the best example of this – they do ASICs themselves, and you’ll note that in the prospectus they went from being a 27% customer in 2003, to a 17% customer in 2004, to less than 10% in 2005.

In my simpleton view of the world, companies fall into one of four categories. Tech is no exception.

  1. Good Company, Low Valuation
  2. Good Company, High Valuation
  3. Bad Company, Low Valuation
  4. Bad Company, High Valuation

Some companies don’t clearly fall into one of these buckets. That’s OK, time usually solves that.

A quick glance at the numbers and my knowledge of Wintegra indicates it falls into category #2. They have some neat products and Wintegra was all about ‘access’ when ‘access’ wasn’t cool. Now, every other NPU vendor in the world is trying to sell lobotomized versions of their monster NPU’s as ‘Access’ NPU’s. Way to go against the grain, Wintegra.

I’m happy for them that they will be able to capitalize on the current euphoria, they deserve success, but I’m going to watch this from the sidelines. One of my favorite quotes is from Warren Buffet:

The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!'”

I’m not swinging.


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  1. I don’t really understand your Cisco example:
    according to your example Cisco doubled its purchasing from Wintegra in 3 years (2003-2005): 27% of $4.5M in 2003 to 10% of $19.5M in 2005… can you explain this again (why doubling sales to Cisco is a problem)?

    Posted by watcher | May 5, 2006, 3:20 PM
  2. Good question. The answer deserves a post of it’s own.

    Posted by Andrew Schmitt | May 8, 2006, 9:57 AM
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