On June 9, I wrote a story about
Cobalt: Appliance Servers for the Rest of Us.
At that time, the stock was trading at $38. Of course, yesterday Sun
Microsystems purchased Cobalt for $2 billion. At the close of trading,
Cobalt was at $57-3/16.
The question is: Who’s next? Well, Cobalt is a developer of cheap Internet
appliances based on the Linux operating system. In light of this, I could
targets, especially since the Linux sector has be struggling.
But I think there is another interesting play:
the company is not a youngster. It was founded in the heyday of the
PC revolution: 1983 (it was not until ten years later that the company had
its IPO). But the company has been adept at changing with the times. Now,
Wind River has a tremendous portfolio of technologies.
In fact, Wind River develops so-called “hidden” or embedded software. In
other words, the technology is perfect for devices (yes, even Internet
appliances). Wind River technologies power such things as pacemakers, MRIs,
anti-lock brakes and even the Mars Pathfinder.
Basically, Wind River has the technology tools to make devices smart. There
is also high-reliability, since many of Wind River’s technologies are used
in mission critical applications (you definitely want to make sure your
heart monitor is working).
While the company has grown organically, there has also been a variety of
savvy acquisitions. Examples include Zinc Software, Integrated Systems (a
$1 billion deal), RouterWare and Xact Corporation.
The purchase of Cobalt shows that the devices market is tricky. After all,
look at Microsoft. Despite several attempts, the company has fallen short.
Then again, the requirements for PCs vs devices are quite different. A PC
mentality will simply not work.
But for Wind River, its business looks like the proverbial “tip of the
iceberg.” No question, information technology is shifting away from the PC
model and towards networked devices. According to IDC, the market for
embedded systems is expected to grow at a 76% compounded rate, reaching $7.9
billion by 2003. And already, Wind River is the dominant player. In the
past quarter, Wind River had revenues of $101.3 million, which was a 39%
increase from the same period a year ago. And the company was profitable,
with net income of $7.7 million.