I read up JW’s write-up on Silverlake and here are my views on it before going deep:

Software Development and Maintenance is High in Margins

When you are selling knowledge products such as software and pharmaceuticals, you embed a lot of value add into it. As such the company normally quotes high margins for it.

Cost is really low because the main cost is manpower cost which is seriously loopsided because being in the industry, using indians and chinese developers and engineers but quoting european engineers cost as part of maintenance and development quotations allow the company to have a large margin of safety.

Silverlake’s recent high receivables and cash position

I note that in its recent Jun 2010 Annual figures that receivables was very high. In the software industry you do experience a fair bit of problems and the need to act as “Ah Long” once in a while.

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