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| Intel agrees to acquire Wind River for $884 mn |
| Bloomberg / Jun 05, 2009, 01:05 IST |
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Intel Corp, the world’s largest maker of semiconductors, agreed to buy software company Wind River Systems for about $884 million, a bid to get its chips into more consumer electronics and wireless devices.
The price is $11.50 a share in cash, Santa Clara, California-based Intel said today in a statement, offering a 44 per cent premium over Wind River’s closing price yesterday. Wind River makes operating systems for everything from cars to mobile phones, serving customers such as Sony Corp. and Boeing Co.
Intel, whose processors run about 80 per cent of the world’s personal computers, is expanding into new markets, including chips for televisions and mobile devices. Wind River’s software and customer list will pave the way for Intel to win more chip contracts, said Cody Acree, an analyst at Stifel Nicolaus & Co.
“If you have a chip you want to put in a lot of things other than a PC, you need code,” said the Dallas-based analyst, who recommends Intel stock and doesn’t own it. “Wind River brings that, and it brings customers.”
Wind River, based in Alameda, California, jumped $3.50 to $11.50 at 11:33 a.m. New York time in Nasdaq Stock Market trading. The shares had fallen 11 per cent this year before today. Intel, up 8.7 per cent this year, climbed 14 cents to $16.08 today.
The purchase marks Intel’s first major acquisition since CEO Paul Otellini took over in 2005. Credit Suisse Group advised Intel on the deal, while Goldman Sachs Group worked with Wind River. Intel expects to close the deal in the next few months.
Intel expects chips for so-called embedded systems, such as the electronics in car-navigation systems, to generate billions of dollars in annual sales, said Bill Kircos, a company spokesman. Intel already supplies chips to Bayerische Motoren Werke for car stereos that use Wind River software.
“It’s trying to get our chips into new systems in your car, into new meters that let you monitor how you use electricity,” Kircos said. “It’s about getting into new consumer electronics, smart phones and health care.”
This is the second large technology acquisition announcement this week. Data Domain Inc., which makes a product that reduces the amount of disk space needed to store data, accepted a $1.9 billion offer from NetApp Inc. yesterday. EMC Corp. also bid for Data Domain earlier this week.
Intel, whose revenue fell 26 per cent last quarter amid a global slump in chip sales, has been looking for acquisitions to boost growth and fill in gaps in intellectual property, CFO Stacy Smith said last week.
To pursue faster-growing markets for devices and embedded-system chips, Intel needed a source of software such as Wind River, said Ashok Kumar, an analyst who follows Intel for Collins Stewart LLC in San Francisco.
Wind River also distributes versions of the Linux operating system, competing with products from Microsoft Corp., Intel’s main software partner on PCs. The company is adapting that software for mobile Internet devices -- the successors to today’s smart phones -- a market that Intel is trying to crack with its Atom chip.
“It’s both an offensive and a defensive move,” said Kumar, who recommends Intel shares and doesn’t own any. “Intel can’t rely on Microsoft any more. Microsoft is yesterday’s story.”
Intel needed to buy Wind River, rather than just working with the company, to keep it from being snapped up by a rival such as Qualcomm Inc., Kumar said.
Wind River can add up to $100 million a year to Intel’s profit before interest, taxes and noncash expenses, said Nabil Elsheshai, a San Francisco-based analyst for Pacific Crest Securities Inc. He recommends Wind River shares, which he doesn’t own. Intel earned $14.3 billion on that basis last year.
Wind River gets a quarter of its sales from the defense and aviation industries, half from industrial customers and network-equipment makers such as Nortel Networks Inc., and 20 per cent from consumer device companies, Elsheshai said.
“The growth is in digital consumer,” he said. “Their strength is in real-time, no-failure operating systems. They’re kind of a mini-Microsoft for that world.”
Otellini also pumped $1 billion into Clearwire Corp. last year. That company is building a high-speed wireless network, a project that could also help fuel demand for Intel chips.
Otellini has said he expects the second half of the year to be stronger than the first after seeing signs that the computer industry bottomed out in the first quarter.
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