Wind River banks on smart
systems
By Chris Kraeuter, CBS MarketWatch
Last Update: 12:38 PM ET May 6, 2000
NewsWatch
ALAMEDA, Calif. (CBS.MW) -- Wind River Systems
Inc. is making your appliances smarter, but you might
never know it.
The embedded software developer (WIND: news,
msgs) doesn't sell to consumers, but its products are put
into everything from NASA planetary rovers to DVD
players to Internet photo frames.
Wind River is banking on the public's awakening desire
for so-called smart gadgets to propel its financial
growth and reputation on Wall Street.
Clients use Wind River's operating systems and
software as the building blocks for their own products.
"What we really do is provide platforms that people can
build products on top of," said CEO and President Tom
St. Dennis.
See Tom St. Dennis interview
Indeed, Chandra Venkatraman, president of Arula
Systems, a spinoff from Hewlett-Packard (HWP: news,
msgs), said that's exactly what his company uses Wind
River's operating system for.
"The operating system provides us with a Lego set, and
we take the Legos we really want to use. On top of the
fundamental thing we are getting, including a cheat
sheet, we have designed our own Lego pieces and the
end user is seeing the completed product," Venkatraman
said.
Wind River can boast of a 30
percent market share in
embedded technology, more
than twice its next closest
competitor, and that market is
only going to grow as
progress is made in the arenas
of bandwidth, connectivity
and processing speeds.
"It's going to be interesting to
see what growth will be like
in this area," said Jennifer Smith, managing director
with Dain Rauscher Wessels. She said the demand for
faster, more complicated microprocessors has only one
place to go from here -- that's up.
"I personally believe the industry is at an inflection
point," said Curt Schacker, Wind River's vice president
of marketing and corporate development.
He added, "Everyone wants to connect everything, and
the Internet is the key to that. What that says to us is that
we need to move real fast and make sure we can supply
customers with products that allow them to build what
they want to build."
Making that happen for customers, including Cisco
Systems (CSCO: news, msgs), General Motors (GM:
news, msgs) and Dolby Laboratories, has translated into
a slew of acquisitions in the past year.
Wind River bought five companies during the past year,
including a $930 million purchase of competitor
Integrated Systems Inc. that instantly doubled Wind
River's size.
Wind River now has more than 1,500 employees and 15
research and development operations worldwide.
"You have to have a lot of technology, and there are
only two ways to get it: build it or go out and acquire
it," said Schacker. "The Internet is exploding, and we
felt time was of the essence."
Investors might
be saying the
same thing.
Until March, the
company's share
price climbed
steadily to an
all-time high of
66. Then Wind
River, working to absorb its recent acquisition,
reported earnings resulting in a 19-cent-per-share profit
that missed analyst estimates by two cents.
This knocked the share price immediately down 15
percent, and then the entire stock market turned bearish,
ultimately chopping the share price down to levels
below 30. Shares of Wind River closed Friday up 2
percent to 40.
Wind River's revenue has steadily
climbed from $44 million in 1996 to
$171.1 million for 2000. Earnings
have bounced around, but following
digestion of recent acquisitions,
analysts estimates show Wind River on
a more steady climb. The company is
expected to earn 51 cents a share in
2001 and 82 cents a share in 2002,
according to First Call.
Following the Integrated Systems
purchase, Wind River bumped up its
expected revenue growth rate from 30 percent to 35
percent.
Dain Rauscher Wessel's Smith has a $55 price target on
Wind River and said as people begin to realize the
potential and demand for embedded technology, the
company will attract more interest.
"Originally, the market was seen as kind of a niche
market," Smith said. "Now that people are addressing
the post-PC era, they have gotten more investor
attention."
Even St. Dennis confirmed that getting acknowledged by
end users is tough when the company's name never
appears on the products it helps produce.
No worries, though. The winds of change are a blowing.
People are beginning to understand that a computer
doesn't have to look like a computer to have just as
much functionality.
"There's a whole evolution of products coming
forward," St. Dennis said. "Our company is focused on
providing the operating systems, software and
applications they can use to accomplish those smart
tasks."
Neil |
