Wind River Systems (WIND)

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Top Contributors Taishi Kushiro Related Articles Alcatel-Lucent (ALU) Boeing Company (BA) Honeywell International (HON) Open Source LM Ericsson Telephone Company (ERIC)

Embedded software is a permanent, integral component of devices ranging from MRI scanners to aircraft navigation systems. Wind River provides the foundation layer of embedded technology (operating systems) in addition to module add-on software capable of handling the security of a device, software updates, access to management interface tools, and connectivity between hardware and data.

The company has slowly morphed from selling only embedded operating systems to selling its suite under the rubric of “Device Software Optimization,” an umbrella designed to support its broader product line. Wind River has undertaken many partnerships and acquisitions in an attempt to standardize the embedded software industry under its array of products including the VxWorks operating system, the Linux product line, and numerous other development tools.

[edit] Company Overview

[edit] Business and Financial Metrics

Revenue Trend

Revenue Breakdown FY2008

For FY2008, 117.21 Million USD of revenue came from products, 122.89 Million USD from subscriptions, and 88.54 from services. Consequently, products represented 36% of all revenue, subscriptions 37%, and services 27%.

Revenue by Geography

Wind River's major customers by revenue for FY2008 were Alcatel, Boeing Company, LM Ericsson Telephone Company, Honeywell International Inc., Lockheed Martin Corporation, Motorola Inc., Nortel Networks Corporation, Raytheon Company, Siemens AG and Tokyo Electron Limited. No single customer accounted for more than 10% of Wind River's revenue in any of the years since 2006.^[4]

[edit] Business Segments

Device operating systems are embedded in electronic devices to control the operation of a device and to facilitate the processing of application software systems. As programming and software coding becomes more complex and demanding, costs escalate while quality deteriorates. Wind River Systems’ main focus is on Device Software Optimization(DSO), which acts as an umbrella for its broader product line and helps establish Wind River as the standard embedded operating system platform for device operating systems. Wind River's DSO products help customers streamline software development, decreasing cost, complexity, and increasing quality.^[5]

The following are products commercially sold by Wind River to facilitate embedded software development.

• Wind River Workbench

A development tool based on the Eclipse framework and open source GNU C++ tools, the standard for embedded system development for the past 20 years. Several versions of Wind River Workbench exist, depending on the desired stage at which the developer would like to start the embedded development process. Several add-on modules are available as well.

• VxWorks Products

A series of platform products based on the proprietary VxWorks real-time operating system (RTOS) is available. VxWorks platforms are complete development and run-time platforms that work out of the box and across any enterprise. Wind River’s VxWorks platforms are particularly well suited for embedded applications that require small memory footprints, real-time performance, safety or mission-critical reliability and high levels of security. Wind River’s latest VxWorks platforms introduce symmetric multiprocessing, which results in higher performance, lower power consumption, and faster time-to-market. In addition VxWorks provides advanced networking protocols, security, wireless, and mobility capabilities for markets such as wireless infrastructure, network infrastructure and consumer devices.

• Linux Products

The Linux operating system kernel support provides enhancements to the standard Linux kernel such that it works well in an embedded environment. ^[6]

• Professional Services

To complement the existing software products, Wind River offers design services, technical consulting, and educational services which accounted for 17% of revenue in FY2008. ^[7]

[edit] Trends and Forces

Market Projection for Embedded Software

[edit] Growth of Embedded Software Business

Market Projection for Embedded Hardware

[edit] Increasing Demand for DSO and Standardization

The complexity of maintaining a different operating system for each device, over several generations of a life cycle, when a different instruction set for each chip makes the operating system for one project unusable in another, long ago became untenable. Increasingly, manufacturers can’t afford to lose the R&D leverage from a standardized embedded operating system leveraging increasingly standardized chip design cores or commodity parts. This fact, aided by the continuing advances in technology and demand for complex products, has boosted sales for embedded software tools.

Device Software Optimization is a strategy that hopes to streamline and make the array of Wind River tools the industry standard. The positive side is that if Wind River gains enough market share, more and more businesses will be pressured to adopt such industry standard, locking Wind River for sustained, monopolistic gains. In an attempt to further its DSO strategy, Wind River Systems:

• Bought Integrated Systems, a competitor, in 1999. Integrated Systems created pSOS, a a system that overlaped with Wind River's VxWorks. After the buyout, Wind River discontinued pSOS and recommended the transition to VxWorks, effectively taking all pSOS market share.^[9]

• Discontinued its 2004 partnership with Red Hat. This allowed Wind River to produce its own Wind River Linux 2.0, which was optimized for embedded Linux development. This allowed Wind River to become a direct competitor to Red Hat and sell its own branded Linux product.

• Acquired FSMLabs' embedded division in 2007. FSMLab's RTLinux was rebranded Wind River Real-Time Core for Wind River Linux. ^[10]

On the contrary, such aggressive pattern can sometimes be met with consequences. Wind River partnered with Palm Inc to provide software for Palm's Foleo handheld to expand its handheld software market. However, Palm announced in September 2007 that the Foleo will be discontinued, causing a setback for Wind River.^[11]

Hostile attempts to take market share are risky and costly.

[edit] Diversification of Clients and Products

As mentioned earlier, no client provides more than 10% of revenue for Wind River. Thus, one client’s action cannot substantially harm Wind River. In regards to products, Real Time Operating System (RTOS) is a software that allows for the communicating between software and hardware. This system is implemented in numerous industries, ranging from the aircraft industry to the medical. Because of the nature of software embedded products, Wind River is able to protect itself from the slowdown of any single industry. T

[edit] Competitors

RTOS Market Share Breakdown

Linux operating systems and tools: Wind River competes with freely available products from open source communities. In addition, commercial Linux distributors such as MontaVista Software Inc., LynuxWorks Inc., and TimeSys Corporation are competitors.

Proprietary operating systems and tools: Microsoft Corporation, Mentor Graphics Corporation, ENEA OSE Systems AB, LynuxWorks Inc., Green Hills Software Inc. and QNX Software Systems Ltd. (acquired by Harman International), as well as a number of other vendors that address one or more segments of the device system design process are classified as competitors. Wind River faces structural challenges as large corporations such as Microsoft can afford to have in-house development and large financial resources (for marketing, R&D, sales, customer service, etc...).

Within the RTOS sector, Wind River’s share is 18%. Microsoft leads the market share with its Windows CE (28%) and Symbian is second at 22%.^[12]

[edit] References

1. ↑ Annual Report 2008 10-K
2. ↑ Annual Report 2008 10-K
3. ↑ Annual Report 2008 10-K
4. ↑ Wind River Systems Fiscal Year 2008 Annual Report 10-K
5. ↑ [Stanford Group Company, Institutional Equity Research]
6. ↑ [Benchmark, Equity Research]
7. ↑ [Benchmark, Equity Research]
8. ↑ [Benchmark, Equity Research]
9. ↑ [Capital IQ, M&A]
10. ↑ [Capital IQ, M&A]
11. ↑ Palm Discontinues Foleo
12. ↑ [Stanford Group Company, Institutional Equity Research]