IBM May Buy Wind River

IBM Corp. could establish a strong presence in the market for embedded operating systems with the acquisition of financially ailing Wind River Systems Inc., a deal that is reportedly in the works.

After the Silicon Valley Watcher site reported earlier this week that IBM was considering the deal, industry insiders -- including Wind River competitors -- agreed that an acquisition would make sense.

Wind River, a 1,300-person company in Alameda, California, develops operating systems for embedded applications primarily in the aerospace, defense and automotive industries, using both a version of Linux and its proprietary VxWorks OS.

In February, the company added another product to its stable when it acquired the rights to the real-time operating system RT Linux from Finite State Machine Labs Inc. (FSMLabs). Wind River also does business with network infrastructure and consumer electronics companies. For example, Palm Inc. announced last week that it would use Wind River's Linux OS in future versions of its Foleo ultramobile PC.

However, the company has struggled to generate profits, posting a loss of US$4.6 million for the quarter ending May 31, an even worse result than its loss of $2.1 million for the same period last year. Company executives told investors they expect to lose a similar amount in the second quarter as well, but pointed out they had increased revenue to $78 million for its fiscal first quarter, an increase from its mark of $65 million in the same period last year.

Wind River did not return calls for comment. IBM withheld any comment on the possible deal. "It is IBM's position not to comment on rumors and speculation," said company spokesman Fred McNeese.

IBM has recently acquired several other software companies, including an agreement announced in July to buy the data integration software firm DataMirror Corp. for about $162 million, and a deal announced in June to buy Telelogic AB, a developer of software development tools, for about $745 million.

Now, IBM would be wise to acquire an embedded Linux vendor such as Wind River, because it would allow IBM to expand beyond its core markets, one industry watcher said.

"IBM sells in other markets than just servers," said Joe Clabby, president of Clabby Analytics. "For instance, IBM sells millions of POWER chips to makers of video game consoles. IBM has probably identified several market opportunities for little, intelligent, Linux-based embedded systems."

The move would also complement IBM's own embedded systems group, Clabby said.

Indeed, the two companies have done business together in the past. Wind River is a member of Power.org, IBM's industry forum for promoting the use of its Power processor architecture. Wind River is also an IBM customer, using products like Rational ClearCase as a communications tool for geographically scattered development teams. IBM also certifies that its PowerPC chips will work with Wind River's VxWorks Developer's Toolkit.

Enea AB, a rival of Wind River, issued a statement on Thursday applauding the potential deal. Acquiring Wind River would allow IBM to expand its share of the embedded software market and find new customers for the consulting services it has traditionally provided only to enterprise customers, Enea CEO Johan Wall said.

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