Closing The Book on Embedded: Intel Buys Wind River

This one strikes a personal chord.  Back in fall of 2000, my partners and I sold Rapid Logic, a device management platform and tools company that we had built from first heartbeat to a $10M business, 150+ customers and 225+ design wins (I was co-founder/CEO throughout) to Wind River for $67M.  Today, the news dropped that Intel is buying Wind River for $884 million dollars.

While some will spin it as Intel getting serious about software, or moving up the solutions stack, my guess is that the net out is a 1+1= <2 outcome (something that Intel factored into the price that they paid for the company). 

If anything, Wind River's inability to breakout, despite a once Microsoft-like position of dominance, is a by-product of their failure to meaningfully go "up the stack" and away from their historical focus on the silicon layer as a primary differentiation point. 

In other words, if Wind River had enabled the next generation of Cisco and Apple killers by providing more differentiated OEM-in-a-Box offerings, ala what Google is now trying to do with Android, they would not be staring at a $900M market cap and relatively flat revenues, margins and stock price.

In fairness to them, it's not like anyone else stands out as knocking the ball out of the park in the embedded domain, so this is perhaps just the last chapter (for now) in a book that began when Wind River and Integrated Systems merged back in 1999 (read: commoditization/consolidation).

The counter to that, though, is that the failure of the embedded gorilla (i.e., WIND) to innovate its way to greater heights made them susceptible/blind to disruptive threats like Linux, mainly because they never grokked the essential point that a loosely coupled combination of OS, silicon abstraction and protocol soup were no longer enough to build a multi-billion dollar company.

In other words, when a market's 800-pound gorilla shows as little vision as Wind River has, doesn't really try to set any meaningful standards that others can build upon in some sort of synchronized fashion, but yet manages to stomp out nascent companies, that has to feed back into the market as well.

Specific to Intel and their aims via this deal, let’s be clear; there is very little software systems DNA within Intel, despite the fact that there are many thousands of software engineers within the company.  A paradox, I know, but hard truth based on 13+ years of working with them.

Hence, barring a pretty serious religious conversion, software will always be the conduit to sell more silicon, which gates the likelihood of truly innovative solutions coming out of the combined entity.

Here’s some data on Wind River’s performance since the acquisition of Rapid Logic became “liquid,” with a chart on their performance relative to NASDAQ (courtesy of Kedron Wolcott, one of Rapid Logic’s co-founders with James Blaisdell, Lee Cheng and myself).

Wind River Stock Price since (12/8/2000)
Number of days above $40: 4
Number of days above $30: 47
Number of days above $20: 130
Number of days above $10: 1190
Number of days below $10: 932
Number of days below $5:  212

Wind River Stock Performance (relative to NASDAQ)

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Comments

[Embedded Guy]

I agree with your point of view and found it spot on.

Ken Klein and crew came in around five years ago and tried to change the embedded software industry by pushing Device Software Optimization (DSO). In my opinion, this was really a new marketing spin targetted to sell soup-to-nuts to customers' executve management, but with essentially the same business model. While VxWorks was loosing it's lustre, Wind River did successfully move the company into Linux - though it seems from the outside mostly as a professional services company. The problem that they never really surmounted, as you state, was moving up the software stack into higher value added applications and services - though they attempted this with someone lackluster acquistions (i.e. Mizi, Tilcon). They still essentially remain a tools and services company.

I will be interested to see how other semiconductor companies, several that are customers or partners (though all struggling right now), react to this news.

Thanks for the insightful analysis.

[Mark Sigal]

Thanks for the note. The whole DSO thing bugged me for the same reason you flag. I never got a sense that it was anything more than marketing speak.

The company never seemed to articulate a product vision or road map (I recognize that this is technically untrue, but qualitatively speaking it was true).

Moreover, when Ken came on, he defined some really clear metrics to judge their progress, which was great but then within a couple of quarters those metrics seemed to go away, which was telling.

As to M&A, the less said there the better, other than that my experience was that the company did a PHENOMENAL job on pre-close integration but it was as if the hand-off never happened post-close, and all of the care and feeding on the front end was just optics, although given the high touch I experienced on front end (a good thing, to be clear), it clearly wasn't.

Suggested to me that the M&A team was not sync'd up with the product team/BU.

Best,

Mark

[Greg]

What's the over/under on years until Intel spins out the former Wind to "focus on core competencies"? It was just three years ago that Intel spun out Xscale, at least nominally to get out of the embedded business.

[Mark Sigal]

Great point, Greg. Three years is probably a reasonable bet, as it will probably take at least that long for Intel to bake WR functionality into OEM in a box offerings, maybe a little longer to realize that they can't innovate as a software biz.

[Juniper]

I worked at Wind River when the whole DSO positioning was developed. It was used to position the company and "out market" Green Hills, Monta Vista and others, but not to radically change the product or offer developers a better way of producing innovative products faster.

It seemed that the end game of the folks from Mercury (Klein, Bruggeman and others) was to raise the marketing bar (eg, the million-dollar www.dso.com site is a good example), make procovative industry statements and influence analysts, all in a bid to get attention from a potential buyer like IBM, Freescale, Intel and Palm...

Mission accomplished. But at a sorry price that undervalues what Wind River COULD HAVE been to the OS market.

[Mark Sigal]

@Juniper, I am all for creative marketing and using category re-definition to set context.

What irks is that at a point in time, Wind River was the disciplined assassin that outflanked the competition, ISI, by positioning them as Dis-Integrated Systems.

For whatever reason (most notably regime changes and re-orgs) all of that pattern recognition seemed to just disappear into the ether.

Like you said, what could have been. By contrast, Apple faced down the hard truths about PCs, Windows and the homogeneous nature of the platform to re-invent themselves without throwing the baby out.

Wind could have done same in face of emergence of Linux but, alas, they stuck to their silicon centered view of the universe, and were valued by Intel accordingly.

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