Intel: From silicon company - to software company?

Thousands of its employees already work on software but Intel's agreement to acquire Wind River Systems means that the chipmaker is moving software from an indirect supporting role to a significant and direct revenue stream.

Intel's primary business is developing, manufacturing and selling microprocessors but software has steadily risen in prominence. Starting years ago from basic ingredients such as programming utilities, Intel has expanded its software work - for example by pushing the moblin mobile Linux project and bulking up its Software and Services Group via a spending spree for smaller companies such as videogame physics engine maker Havok.

But Intel's agreement to acquire embedded computing specialist Wind River for $884m in cash, announced on 4 June and expected to close this summer, is on an entirely different scale. Wind River offers operating systems and developer tools designed to be embedded in products such as cars, printers, networking equipment and phones. It has a solid list of customers including Sony, Verizon, Boeing and BMW. It employs more than 1,600 people and reported revenue of $360m for the fiscal year that ended in January.

The proposed acquisition stops short of making Intel a head-on competitor with one of its biggest allies, Microsoft, because Wind River's operating system - a version of open-source Linux and its proprietary VxWorks - aren't aimed at PCs. But just as the arrival of Linux helped to limit the growth of Windows on servers, so Intel's Wind River acquisition could hurt Microsoft's ambitions for products such as Windows Mobile and Windows Embedded. Wind River supports not just moblin but also Google's Linux-based Android operating system for mobile phones.

Microsoft isn't the only partner whose turf Intel would be edging onto with Wind River. Apple, which uses Intel chips in desktop and notebook computers, has its own iPhone business to promote.

Spending spree
Clearly, Intel hopes to benefit from software skills and products. Among its acquisitions in recent years are Neoptica for visual computing, OpenedHand for Linux user interface expertise, Swiftfoot Graphics for graphical rendering technology, Sarvega for XML processing, Elbrus/Unipro for Java and compiler tools, and Offset for visual computing. The general trend: Intel wants to supply its customers with more than just silicon.

Friedman Billings Ramsey Group (FBR) analysts Craig Berger and Robert Pikover wrote in a research note this week: "We think this acquisition of Wind River is, potentially, a first step in Intel diversifying its business model towards that of IBM, a company that sells hardware, chips, software and services worldwide.

"If Intel is beginning to diversify its business away from just semiconductors, we would expect a host of similar software or services-related acquisitions in coming years."

Wind River's brand will live on at Intel but the acquisition will mark the end of the independent history of an embedded computing player that has survived tough times and many market changes since its 1981 founding. Investors weren't sentimental, though: the company's stock jumped from about $8 per share to more than $11.50 in trading on 4 June.

A Wind River spokesman said: "We expect minimal changes to the business functions and organisational structure since we'll be a wholly owned subsidiary maintaining our current business model, brand and product portfolio." However, there will be some layoffs from redundancies, he added.

Intel's name could give Wind River more clout in its own business transformation towards Linux. After a period of resistance, the company has recently begun to embrace Linux, which currently accounts for about 20 per cent of the company's revenue compared to 80 per cent for the VxWorks 'legacy' business, according to Wind River. Intel has been a serious Linux supporter for years, and the combination of the companies would add weight to the work.

Atom power
It's not all about software, of course.

Intel is best known for selling CPUs under brand names such as Pentium, Xeon and Core, but it's also trying to get its newer Atom processor family to catch on in embedded computing. Today, that market is dominated...

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