Hi Jason.
I know that Allen Benn's has already posted some thoughts on this topic, but Im going to answer you first and then see how my perceptions compare to Allen's ;-))
First impression - WIND investors (like me) will need seat belts for this wild ride! The announcements by HP and MSFT of the last few days mark an extraordinary turning point in WIND's future, IMO.
HP fired the first salvo by publicizing their JavaX strategy with VxWorks as a key component to their strategy. Paraphrasing the March 23rd front page article of the EE Times ... HP is pitting Wind River directly against Microsoft's CE.
That was the first hint. Both HP and MSFT have been repositioning themselves to take advantage of the Internet Tornado (as in J. Moore, not WIND) for a while now. Now, it is starting to hit home. The timing of this MSFT announcement was very calculated, you can bet on that!
Without a doubt, Billy-Boy from MSFT got burned by Netscape. Billy is keenly aware that projected growth in the embedded systems/networking arena will determine who is king of the OS mountain in the next 5 years. He surely won't get burned this time around.
By partnering with Integrated Systems, he can use MSFT's enormous financial muscle to catapult a MSFT, or the MSFT/INTS duopoly as a viable alternative to the WIND/HP duopoly.
Just to put this into perspective, imagine, MSFT capitalization is higher than the combined capitalization of all the companies listed on the AMEX. WIND was definitely a fly on the wall to MSFT. Now that WIND is suddenly in the big leagues, aligment with HP takes on a whole new meaning for their future. WIND knows that they cant do it alone. Now, they are forced to compete big time and they *need* HP to succeed.
Amazing, WIND finds itself almost juxtaposed as the early frontrunner against the likes of MSFT in the RTOS market. Without HP's announcement, WIND was not even on the radar screen for most MSFT investors 2 weeks ago!
On the positive side, this puts WIND on the map. On the negative side, I believe it can cause an enormous downdraft for the stock in the shortterm. Remember CTXS last year? Went from 40 down to 12 in just a few days when MSFT hinted that they would start to do in-house what CTXS was doing? On the positive side, CTXS made out pretty well. MSFT determined that it was a better business option for them to partner with CTXS afterall and wrote them a 150 million dollar check to prove it. Now look at CTXS. I could easily imagine a similar scenario for WIND - especially if the DOJ got interested if MSFT made too bold of a move, like trying to buy INTS.
How successful will WIND be? I believe that depends on how they manage their key relationship with HP. HP represents a small part, I believe no more than 3% currently, of WIND's business. But, now they have to play with big-boy Billy. That means that the dynamics have suddenly changed drastically.
Furthermore, HP now holds all the Aces. WIND will have to show much more flexibility in terms of remaining in compliance with HP's strategy. Jerry Fiddler may be at the top of a billion dollar company, but this puts him about at the level of a run-of-the-mill billion dollar division within HP. At the most, perhaps, as a division general manager who is still about 2 steps away from a vice-presidency inside HP. If WIND pisses HP off, cracks will form. HP will have no trouble migrating systems to pSOS. HP has already partnered with INTS in the past. INTS would be delighted. So would Billy-boy. That is why managing the HP relationship is now make-or-break for Jerry F. and WIND IMO.
MSFT will soon be able to offer an RTOS and IDE. They could easily undercut WIND's exorbitant fees and royalties. MSFT could even operate at a loss for years until they squish the WIND fly-on-the-wall. This means that Jerry Fiddler better be playing a whole different tune vis-a-vis their current customer base. I regard this as a negative for WIND. Margins are definitely going to narrow with this move for WIND to remain a contender. WIND may quickly find itself playing second fiddle if they mismanage this one.
On the plus side, more investor-attention will be spent understanding and evaluating the RTOS market and WIND. As investors peel the layers of the onion, they will notice that WIND management and products has been doing an extraordinary job jockying for the strongest position. The rationale behind WIND's recent acquisitions and refocusing on customer-service will suddenly become apparent. WIND has lots of coals in the fire - IxWorks for I20, WxMP, VxWorks, Tornado, etc. This is good. Management has been doing an excellent job controlling growth and expenses. This will show.
On the WIND customer front - WIND has been enjoying a leadership position where they have been extracting more and more lucrative agreements from their customers. With MSFT muscling in, the tune suddenly changes. Many customers who have been shying away from pSOS w/ prism, will now be in a much stronger negotiating position with WIND when it comes time to evaluate OS requirements. INTS offering with MSFT backing entails much less risk for potential customers than just INTS alone. This will inevitably narrow margins IMO.
This is important to note. Loyalty in the embedded market is quite feeble compared to what MSFT can demand in the PC arena. The users tend to be folks that have formally written their own RTOS's in the past. If not, atleast they tend to be sophisticated engineers who have, and could, easily unplug an OS and replace it with another if push came to shuv. Unlike the PC world, end-users don't care 2-hoots what RTOS is running their toaster in this market. This is the fundamental difference. This is why partnering with INTS is critical for MSFT and why HP is now so critical to WIND.
As far as the stock is concerned, this following is pure speculation. I tend to predict the exact opposite of how the market actually reacts in such situations. Well, I got my seatbelt on. If I was a fund manager with a position in WIND, just based on the expected volatility shortterm, I would lock in profits now and bail out. On the surface, this looks like it will cause WIND to plummet. If I was a fund manager that did some more scratching below the surface, I would then probably determine that picking WIND up cheap after the rout is worth it.
Anyway, I generally lurk and rarely post. I guess I stuck my neck out somewhat and expect some flames.
Cheers,
Ronald |
