Deal boosts Linux's prospects outside PCs

Software developers Wind River Systems Inc. and Red Hat Inc. said Monday that they would team up in an effort to push the Linux operating system beyond personal computers into a range of industrial and commercial devices.

Shares of Wind River, which sells software for gadgets such as networking equipment, industrial robots and consumer electronics, also reported better-than-expected earnings results that pushed its shares higher by as much as 20 percent. Red Hat’s share price fell 2.5 percent.

The moves comes as Linux, the freely available operating systems that has become a popular choice for networked computer servers, becomes popular in the device software market, where software is built in-house or purchased from companies such as Wind River and Microsoft Corp.

Under the partnership deal, Wind River will develop software with Red Hat for Linux-based devices such as cell phones and set-top boxes.

Wind River has traditionally provided operating system software for mission-critical devices such as the Mars exploration rovers and jet fighter control panels. But as its clients become more interested in cheaper software for high-volume, low-margin business, the company said it started exploring Linux, a software which is free to use, copy, and distribute.

“Wind River brings their tools and platform to the table, Red Hat brings its services and Linux expertise to the table,” said Richard Williams, an analyst with Summit Analytic Partners. “When you put these two together, it is a lot faster to provide Linux to the market.”

Alameda, Calif.-based Wind River said clients such as Nortel Networks Corp. and Lucent Technologies Inc. have asked for Linux. But its more expensive flagship VxWorks software, which is designed to be faster and more reliable, will continue to be used in areas where higher security is needed.

Extra benefits seen
“As the market has grown, there is opportunity for Linux, which doesn’t necessarily have the same speed and reliability as VxWorks,” said Chief Executive Ken Klein. Klein, who joined the company in November, has championed Wind River’s transition to Linux.

Klein said the deal would also expose Wind River to more customers and may ultimately help boost adoption of its VxWorks software.

“This actually benefits our core business as well,” Klein said.

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Williams said he likes the partnership but “it is risky to be too optimistic” because it is unclear how Wind River is going to make money through it. Wind River did not disclose details of the deal.

Separately, Wind River posted a quarterly profit, following a year-earlier loss, but said loss for the current quarter will be wider than what analysts had expected.

Fourth-quarter net income was $1.44 million, or 2 cents per share, compared with a loss of $37.5 million, or 47 cents per share, a year earlier. This year’s results were better than its earlier estimates of a net loss of 4 cents to 8 cents a share.

Revenue rose 12 percent to $55.6 million as it moved to a subscription model.

For its fiscal first quarter, Wind River expects a net loss of 5 cents to 7 cents a share, a loss before items of 3 cents to 5 cents a share, and revenue of $49 million to $51 million. That compares with analysts’ anticipation of a loss of 2 cents a share on revenue of $51 million.

Shares of Wind River rose as high as $10.38, their strongest level in almost two years, but gave back earlier gains to end trade at $9.51, up 10.3 percent, on Nasdaq.
Red Hat shares closed down 43 cents at $17.10, also on Nasdaq.