Software developer Wind River Systems (Nasdaq: WIND) has been getting some traction lately, as evidenced by the strength of its second-quarter results. On the news, the stock price rose 6% to $10.83. But the big issue is whether the company can sustain this growth.
In the second quarter, revenues increased 10% to $73.5 million; unfortunately, like many tech companies, Wind River is in the midst of a voluntary audit of its stock options program and, as a result, provided only preliminary information on its bottom line. The good news is that the company expects to resolve matters soon and meet the deadline for the filing of its 10-Q form.
Founded in 1981, Wind River is a leader in the device software optimization (DSO) space. Think of DSO as an operating system for a cell phone, a car's infotainment system, or even NASA's Mars Rover. More than 300 million devices use Wind River's software, and customers include biggies like Apple (Nasdaq: AAPL), Hewlett-Packard (NYSE: HPQ), and Motorola (NYSE: MOT).
While Wind River is the leader in the DSO market, the problem has been that many device makers develop their own systems. After all, it's important to have quality control and there is also the advantage of customization.
But there are signs that device makers are considering moving toward an outsourcing strategy. This allows them to spend more time on building premium features, such as video on a cell phone. For example, on the conference call, Wind River's management indicated that it had signed a "major" contract with a handset maker. In fact, the company's Linux products are proving to be quite popular and the estimate is that more than half of all handsets worldwide will use Linux.
Wind River's guidance on revenues for the full year is $292 million to $298 million, better than most on the Street were expecting. The company will provide earnings guidance when its options review is complete.
True, Wind River is showing progress. Yet the options review is still a risk factor and, more importantly, the company has had a history of erratic results over the years. So, for investors, a hands-off approach is probably the best for now.
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Fool contributor Tom Taulli does not own shares of companies mentioned in this article. The Fool has a disclosure policy.
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