Wind River Systems, Inc. Business Information, Profile, and History

Company Perspectives:

Wind River's embedded real-time operating system, VxWorks, introduced in 1987, has become an industry standard for performance and sound operation. The success of VxWorks, now part of the company's revolutionary Tornado environment for embedded development, has made Wind River a premier supplier in this market. Factors that contribute to the company's future growth include market growth, technology leadership, customer support and partnerships.

History of Wind River Systems, Inc.

Wind River Systems, Inc. is a leading provider of embedded software and services for 'smart' devices. The company's technology is found in products--such as laser printers, automotive braking systems, robots, cellular phones, and traffic signals--that have computer-enhanced capabilities. Organized into five distinct business units (Platform Engineering, Consumer, Networks, Services, and Transportation/Defense/Industrial), Wind River creates the operating systems and development tools for the computer chips (comprising more than 90 percent of all microprocessors sold) that enable such devices to operate intelligently. A key to Wind River's success is its relationships with technology leaders. The company's clients include Cisco Systems, Inc., Hewlett-Packard Co., Intel Corp., International Business Machines Corp. (IBM), and Sun Microsystems, Inc. In fact, more than 30,000 developers across the high-technology industry incorporate Wind River technology in some 30 million devices. In recent years, Wind River has concentrated on developing the software and infrastructure required to connect products and appliances to the Internet. The company also made two significant acquisitions in 2000 when it purchased Embedded Support Tools Corporation and Integrated Systems Inc.

Company Origins

Wind River Systems cofounder Jerry Fiddler did not set out to enter the computer industry. Rather, after graduating with a degree in music from the University of Illinois, he hoped to pursue a musical career, applying for a position as the resident composer at the University of Illinois' dance department. He discovered, however, that an advanced degree was required for the post so he re-enrolled at the University. Instead of studying music, he pursued a master's degree in computer science because he was interested in the field of computer-generated music. But after obtaining his master's, Fiddler had difficulty finding meaningful work in Illinois. So he headed for California in 1977.

With his computer background, Fiddler was hired by the University of California's Lawrence Berkeley Laboratory. There he wrote software that enabled computers to control large systems, such as linear accelerators. In addition to formulating systems that operated in real-time (as opposed to the interrupt-response times that are common to most personal computers), he learned to write programs using coding conventions (techniques that allow programmers to re-use chunks of code). He would later apply these lessons to Wind River.

In 1981 Fiddler quit his job at the lab to pursue his interest in computer-generated music. But to pay the bills, he launched a consultancy business focused on real-time. (His early clients included the National Football League and film director Francis Ford Coppola--for whom he designed a unique film editing system.) Also in 1981 Fiddler took an extended vacation and asked David Wilner, a former colleague at Berkeley, to oversee his business. Wilner was enchanted with Fiddler's work and, upon Fiddler's return, they formed a partnership called Wind River Systems (named after Wyoming's Wind River mountain range where Fiddler had vacationed). They officially incorporated their consultancy in 1983, with each partner contributing $3,000 and a desk to the business. They flipped a coin to determine who would serve as CEO; Fiddler won.

Manufacturing Software Beginning in 1987

For the next four years, Wind River continued to specialize in consulting about real-time software for complex applications. In 1987, though, the company shifted gears dramatically and began to manufacture its own software. VxWorks was the company's first offering. A real-time operating system designed for embedded microprocessors, VxWorks was part of what was then a fledgling and esoteric field. But, as the Red Herring put it, Wind River recognized that 'future computing would take place not on a desktop PC, but inside the myriad appliances of everyday life.'

Embedded microprocessors 'hidden' in a variety of products make everyday appliances and systems 'smart' by giving them computing ability. Just like a microchip inside a personal computer, an embedded microprocessor requires an operating system to direct its operations. Unlike a PC's microprocessor, however, embedded computer chips typically perform only one task (such as activating a car's anti-lock brakes when certain conditions are met or regulating the temperature of a refrigerator). Timing is the most important factor in embedded technology. If an operating system needs to initiate the anti-lock breaks in a car, for example, that operating system must be able to manage and choreograph myriad activities in microseconds. In other words, it must work in 'real time' with no delays or lag times. Wind River's VxWorks held the distinction of being the first real-time operating system that worked for different (and unrelated) products. The result was that product manufacturers no longer had to devise a unique embedded operating system for each specific application.

VxWorks quickly became an industry standard. Wind River's sales grew rapidly--rising from $8.02 million in 1991 to $17.09 million in 1992&mdash demand for its software boomed. In the early 1990s Wind River also developed business relationships with companies that would drive the future course of technology development. In 1993, for example, Wind River designed software for Motorola, Inc.'s high-performance microprocessor unit, which would play a key role in the burgeoning field of wireless communications. Despite such initial successes, though, Wind River needed additional funding to expand its product offerings. To this end, Fiddler and Wilner took their company public in April of 1993, generating $15 million to fuel Wind River's expansion. That same year Wind River introduced WindView, a productivity tool for embedded software that permits developers to watch the dynamic behavior of their applications.

New Leadership and Growth in the Mid-1990s

Although it had obtained its desired investment capital, Wind River slumped in 1994. Hampered by its nonhierarchical management style, Wind River was adrift, especially after David St. Charles (who had served as Fiddler's top adviser) abruptly left the company in 1993 to lead Wind River's top competitor, Integrated Systems Inc. In 1994 Wind River's stock hit an all-time low, its profits sank to nearly zero, and sales for the year flattened to $27.3 million. Fiddler recognized that his company would need the leadership of a business veteran to recover. In March of 1994 he stepped down as chief executive officer and turned the day-to-day operations over to Ronald Abelmann, who had served as CEO of Vantage Analysis Systems prior to joining Wind River.

Investor's Business Daily credited Abelmann with 'engineering a dramatic turnaround' in his first year at Wind River. He quickly restructured the company's business model, cut personnel by ten percent, and bolstered the company's reach by launching operations in Europe and Japan. With Abelmann running the business side of Wind River, Fiddler could concentrate on what he did best: designing new software for embedded systems. Under Fiddler's guidance, Wind River introduced the Tornado development tools package in 1995. Tornado included an updated version of VxWorks as well as a complete set of tools that ran in both Microsoft and Unix environments. But Tornado's greatest strength was its flexibility. It could be integrated with either home-grown or third-party tools, and it had applications across a number of different industries. Tornado won Electronic Design News' 'Embedded Development Software Innovation of the Year' award in 1995. Wind River also debuted its TakeFive SniFF+ 2.0 that year.

After reporting its strongest year to date in 1995 (revenues rose to $32.1 million), Wind River made a secondary stock offering in 1996. The $50 million raised by this sale was used to fund future acquisitions as well as ongoing research and development. Wind River also began to invest its money in technology start-ups. The company hoped that these nascent firms, who were creating products incorporating embedded microprocessors, would develop into long-term customers and partners relying on Wind River's software. The company's products also received a great deal of attention in 1997, when VxWorks was chosen as the operating system for NASA's Pathfinder mission. Boosted in part by this distinction, Wind River's sales for the year hit a new high of $64 million, $11.3 million of which was net income.

By 1998 it was obvious that Wind River's market niche was booming--nine out of ten microprocessors sold in 1998 were destined for embedded applications. As the San Francisco Chronicle noted, 'The market for embedded systems [was] growing much more rapidly than the PC market, and many [saw] it as the next great frontier for software companies.' Fiddler described the significance of this shift to the San Jose Mercury News: 'Microprocessors are all around us. The world is becoming embedded. They're hidden in the walls and they're in cars. The microprocessors aren't just in computers; they're controlling our infrastructure, they control our transportation, our communications, our energy systems, our medical systems.' Industry analysts at International Data Corp. confirmed Fiddler's observations and predicted that between 1998 and 2003, the embedded systems market would increase 76 percent (compounded annually) to reach $7.9 billion in 2003. Technology watchers predicted a not-too-distant 'post-PC' era, in which consumers would no longer purchase cumbersome, expensive, but all-purpose PCs. Instead they would acquire an array of specific tools for particular tasks, such as 'smart' cellular phones that could surf the web or kitchen refrigerators that could inventory their contents and order more food when supplies ran low.

Two factors were driving the rapid growth of the embedded systems market. First, computer chips were constantly becoming more powerful and less expensive and, therefore, could be included feasibly in countless products. Second, the blossoming of the Internet led to a vast array of new opportunities. 'Until now, we have only scratched the surface of products and appliances that will be connected to the Internet for a wide variety of yet-untold reasons,' Fiddler declared in a column in the July 5, 1999 Electronic Engineering Times. Digital cameras and recorders, set-top boxes, and Internet-based communications became increasingly popular (and virtually essential) to consumers. For Fiddler, the changes wrought by the Internet were profound. 'We are moving into a ... world where the Internet will no longer connect just computers but will connect people and things in all different ways ... not only on a desktop but in our kitchens and living rooms and cars and bedrooms and through telephones and everywhere else,' he said on the CNBC news show, 'Power Lunch.'

Wind River was not the only company to notice the potential embedded systems offered. In 1998 the European firms Nokia Corp., Psion PLC, and Telefonaktiebolaget Ericsson LM launched Symbian, a joint venture that produced an operating system called EPOC, which enhanced the functionality of cellular phones and other wireless devices. Wind River's closest domestic rival was Integrated Systems Inc., whose pSOS embedded operating system had a cadre of loyal followers among product developers. Microsoft Corp. also sought to leverage its dominance in the PC operating systems realm into strength in the embedded systems market. In April of 1998, the Redmond, Washington-based technology giant announced that it was revamping its embedded operating system, Windows CE, to include real-time features. Microsoft particularly touted Windows CE's compatibility with its standard Windows System (which enabled consumers to transfer data easily between an embedded product and a PC). Although analysts paid a great deal of attention to Microsoft's entry into the market, Fiddler remained sanguine. After all, the embedded systems market was extremely fragmented, and Wind River controlled a 35 percent share of the market. 'Let's be realistic, one should never ignore Microsoft,' Fiddler told the Red Herring, 'but Microsoft doesn't want to control elevators and cars.'

Challenges in the Late 1990s and Promising Prospects for the 21st Century

To bolster its market position, Wind River made a couple of strategic acquisitions in 1998, purchasing Internet connectivity technology from Network Computer Inc. (later renamed Liberate Technologies) as well as Zinc Software. The pace of Wind River's activities escalated in 1999, as the company made further inroads into the market for Internet-based embedded devices. After purchasing switching technology from Xact Corporation, Wind River acquired RouterWare, Inc., a leading supplier of portable source code. RouterWare expanded Wind River's 'offering of high-value, integrated software solutions for data communication and telecommunication equipment manufacturers,' noted EDGE. Wind River also shipped its next generation development platform--Tornado II--that year.

But 1999 was not without its challenges, as CEO Abelmann resigned unexpectedly in April. Analysts speculated that he had wanted to make Wind Rivers an acquisition target, a course that Fiddler opposed. In any event, Fiddler took charge as interim CEO after Abelmann's departure. Fiddler set an ambitious $1 billion revenue target for the company to meet by 2004 and reorganized Wind River's structure into five business units--Platform Engineering, Consumer, Networks, Services, and Transportation/Defense/Industrial. In September of 1999, Wind River hired Tom St. Dennis, a former executive for semiconductor manufacturing equipment specialist Applied Materials, to be its new CEO.

Wind River made its most significant acquisition to date in 2000 when it closed a deal to buy Integrated Systems and its subsidiaries (which included Doctor Design, DIAB-SDS, and TakeFive). With 1999 sales exceeding $143 million, Integrated Systems was the second largest real-time software producer in the industry. After finalizing the purchase, Wind River reshuffled its executive roster. Fiddler continued to serve as chairman, while Integrated Systems' founder Narend Gupta was named Wind River's vice-chairman. Wind River, however, earned the ire of some equipment manufacturers when it announced that it would phase out Integrated Systems' popular pSOS System in favor of its own VxWorks. 'At the end of the day, you've got to have one platform, otherwise you're not running your company properly,' Fiddler explained to Electronic Engineering Times on March 6, 2000. Later in the year, Wind River purchased Embedded Support Tools Corporation, which provided hardware and software tools for the programming, testing, and debugging of embedded systems.

Wind River's prospects for the new century were quite promising. Wind River's clients included some of the brightest stars in American industry: Agilent Technologies, Inc., Lockheed-Martin Corp., Motorola, and Sony Corp. While serving its existing customer base, Wind River also continued to develop future clients. To this end, the company established Wind River Ventures, a $25 million venture capital fund in June of 2000. 'Wind River intends to jump-start the early-stage innovators and entrepreneurs behind these products and technologies, acting as an active catalyst of industry growth,' Fiddler declared in a company press release.

Principal Subsidiaries: Embedded Support Tools Corporation.

Principal Competitors: Applied Microsystems Corporation; Be Incorporate; Microsoft Corporation; Microware Systems Corporation; Sun Microsystems, Inc.; Symbian Ltd.

Chronology

• Key Dates:

• 1981: Jerry Fiddler and David Wilner found Wind River Systems.
• 1983: Company is formally incorporated.
• 1987: Wind River introduces VxWorks.
• 1993: Wind River becomes a publicly traded company.
• 1995: Tornado development tools package is launched.
• 1997: Company's VxWorks is chosen as the computer operating system for the Mars Pathfinder space mission.
• 2000: Wind River acquires Embedded Support Tools Corporation and Integrated Systems Inc.