What's Behind Intel's $884 Million Wind River AcquisitionWhat's Behind Intel's $884 Million Wind River Acquisition

On the face of it, Intel's announcement that it's going to buy embedded-software vendor Wind River Systems for $884 million is just another ho-hum corporate acquisition. But the back story is much more interesting: This Intel's umpteenth attempt to diversify beyond PC processors. This time they hope they've got it right, by acquiring a company with expertise in the software which powers emerging mobile devices like handheld Web browsers.Because its diversification ambitions have always lurked slightly below the radar screen, I'm actually surprised Intel made this fact crystal clear in its press release announcing the deal. Wind River, the release said, "will become part of Intel's strategy to grow its processor and software presence outside the traditional PC and server market segments into embedded systems and mobile handheld devices."

There are two questions here: Will Intel be successful, and is Wind River the right company to help it in this segment?

For those too anxious to read my lengthy reasoning below, here are the quick answers are: who knows, and probably.

When Paul Otellini ascended to the leadership of Intel in May, 2005 (he became president and chief operating officer then; now he's president and CEO), I speculated that a hallmark of his regime would be the formulation of a strategy to build up some of Intel's non-processor businesses.

Students of the company will note that communications chips is one area where Intel has repeatedly banged its head against the wall. Not that it's been a failure, per se. However, it hasn't cracked the crown jewel of the market -- becoming the main provider of smartphone chips.

That's one reason Intel has championed Mobile Internet Devices, or MIDs. (Rolls right off your tongue, doesn't it?) MIDs are neither fish nor fowl -- not small enough to be a smartphone nor as hefty as a full-blown laptop. That's why I'm doubtful that whether MIDs, which are effectively a third gadget (after said smartphone and laptop) will ever catch on. (Maybe they'll be big in Asia, though, which wouldn't be chopped liver.)

Paving a path to a new market was also Intel's impetus behind its fairly innovative Atom processor. Atom is targeted at Netbooks, and in fact has become the leading chip in that segment. (Btw, Atom is innovative not because of the usual performance metrics, but because it's so smartly targeted at a particular function, and is architected to make money at a low price point.) Intel vice president Stephen Smith told me that Atom sales have exceeded expectations. Also that Atom is not cannibalizing sales from the laptop segment, though you have to wonder about that.

Perhaps technically speaking Atom isn't stealing thunder from the laptop segment, but the very existence of Netbooks (and smartphone) undoubtedly is. Which brings home the point on which we came in -- that Intel has wisely searched for a way to diversify beyond the basic x86 processor.

Which brings us back to Wind River, and whether it's the right company to help Intel in its quest to make hay out of the mobile/portable device/MID space. I'd say it probably is, in no small measure because Wind River's culture is highly compatible with Intel's. I'm betting that, for the folks at Wind, Intel's offer of $884 million is a Godsend. The embedded space in which Wind plays has undergone paroxysms of change for the past decade. Embedded software vendors were put back on their heels even before the Dot.com bust, because open-source software undercut the pricing of traditional real-time operating systems (RTOSes.)

Still, for Intel's diversification efforts, the Wind River acquisition isn't the final step, but a bold and serious move. We'll see how this plays out.

P.S. In my Webaholically induced focus on MIDs above, I neglected to mention the very real, traditional embedded business Wind River supports. This is in things like industrial, automotive, and defense applications, where its VxWorks RTOS and development tools have a strong presence. Still, I suspect this business helped provide Intel with the ROI justification for the acquistion. It's the mobile/web sexy stuff about which I blogged above which was the real draw, and is the promise yet to play out.

Follow me on Twitter: (@awolfe58)

What's your take? Let me know, by leaving a comment below or e-mailing me directly at [email protected]. Like this blog? Subscribe to its RSS feed: (here)

 My videos on ( YouTube)  Facebook    LinkedIn Alex Wolfe is editor-in-chief of information.com.