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Intel ventures on embedded apps with Wind River deal

Posted: 08 Jun 2009 ?? ?Print Version ?Bookmark and Share

Keywords:Intel Wind River deal? embedded application? semiconductor?

Intel Corp. was treading lightly on its June 4 conference call after announcing its acquisition of Wind River Systems Inc. Still, there will undoubtedly be fallout from the semiconductor industry juggernaut's move in markets well beyond its traditional PC and server segments.

While the $844 million purchase of Wind River made barely a dent on Intel's $10.6 billion cash hoardas of the end of the March quarterthe implications are enormous, not just for Intel but also for its customers.

The Wind River transaction, if it plays out as Intel hopes, will affect Intel's current and potential chip rivals as well as software vendors and OEMs in fields far removed from the computing sector, including aerospace and defense, automotive, consumer electronics, industrial, medical and mobile communications.

Although the company is folding Wind River into its software and services unit, Intel's goal is really to expand its current offerings into an even larger area of economic activity by offering the processor and embedded applications that drive the operation of nearly all electronic and high-tech equipment.

"We have very ambitious plans to grow in the embedded area as a key part of our strategy to turn every electronic product into a computing equipment," a spokesman for Intel said in an interview. "We are looking at multibillion opportunities in the embedded area and while our software and services sales are nominal, the [Intel software] group is more strategic for the company's future."

Plainly, Intel is aiming to vastly expand its total available market with a strategy that foresees high-tech equipment manufacturers transforming their products by embedding into them computing power currently reserved for PCs and servers.

Eyeing new markets
The Wind River acquisition is not about cementing Intel's current market position but, instead, is focused on opening up new opportunities for the chipmaker in areas where it has struggled for years to gain traction, including the communications field.

In order to understand the significance of Intel's acquisition, one would have to examine the markets Wind River operates in and the partnerships it has forged over the years. While Wind River's annual sales of $360 million is a pittance compared with Intel's $38 billion, Intel plays in a much narrower market segment than Wind River.

For example, Wind River serves customers in aviation, automotive, consumer electronics, communications, industrial, medical and defense. Among its customers are the biggest OEMs in these markets, including Alcatel-Lucent, Boeing, LM Ericsson, Lockheed Martin, Motorola, Northrop Grumman and Raytheon.

Intel is not only one of Wind River's strategic alliance partners but is also one of the Wind River's largest customers. "The fastest-growing part of Wind River's business before this acquisition was with Intel," according to the Intel spokesman.

Intel said it expects synergies in existing growth areas, but is seeking "a newer, deeper embedded opportunity" where it can leverage its advantageous cost structure, huge sales and marketing resources as well as managerial experience to quickly expand sales for Wind River, the spokesman added.

The risks
The acquisition is not without risk for both companies. Many of Wind River's current customers compete with Intel, and may find it difficult to continue existing relationships.

Moreover, Wind River has "strategic relationships with many semiconductor and system manufacturers," many of whom will justifiably feel threatened by Intel's presence in their markets.

Among companies that will likely lose out in a clash with Intel will be ARM Holdings Plc. Other companies with "strategic relationships" with Wind River, according to a Securities and Exchange Commission filing, are Broadcom, Cavium Networks, Emerson, Freescale, IBM, MIPS, NEC, NXP, Qualcomm, RadiSys, RMI, Renesas, Sun Microsystems (acquired by Oracle Systems), Texas Instruments, Toshiba and Xilinx.

It's not yet clear how Wind River and its new owner will deal with any complications that might arise from existing alliances, but Intel is already trying to downplay any legal challenges it might face to the transaction. Wind River, it said, will be operated as an independent entity within Intel and will maintain its independence.

Both companies declined to make executives available for interviews after announcing the deal, claiming they are in a "quiet" period ahead of the release of quarterly results.

Behind the scenes, however, executives at both companies were making calls to customers, suppliers and other interested parties in a bid to calm the markets and assure as many as possible that the transaction would be beneficial to all concerned parties.

"There will be a firewall between Wind River and Intel's businesses," the company spokesman said. "We are very serious about running Wind River as an independent company."

- Bolaji Ojo
EE Times

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