Wind River Powers Up

For 2004, Wind River (Nasdaq: WIND  ) has done something it hasn't done for five years: post a profit.

Founded in 1981, Wind River is now a global leader in so-called device software optimization (DSO). That is, the company builds sophisticated solutions to allow devices -- cell phones, cameras, and so on -- to run faster, better, and cheaper.

Earlier this week, the company finally reported figures that gave investors something to cheer about. On the news, the stock surged 15%, to more than $15.50 a share, although it has since given back $0.50 of that gain.

For the fourth quarter, Wind River posted revenues of $63.6 million, up 14% from the same period a year ago. Net profit was $6.1 million, compared to $2.4 million in the same period in 2003.

For 2004 (technically, Wind's fiscal 2005, which ended in January of this year) in full, revenues were $235.8 million, a 16% increase from 2003. Earnings per share were $0.09, compared to a loss of $0.31 per share the previous year. The company also cleaned up its balance sheet, with the repurchase of $75 million of its $150 million outstanding convertible debt.

Wind River has primarily been a cottage industry. However, as devices get more complex, manufacturers are looking to outsource more functionality to third-party providers.

What's more, the company has been aggressively shifting its business model away from up-front licensing fees to subscriptions. It's something that has been a competitive advantage for customer service solution providers like Salesforce.com (NYSE: CRM  ) and RightNow (Nasdaq: RNOW  ) . Why shouldn't it work for a more traditional player like Wind River?

Well, the company is confident about the year ahead, expecting earnings of $0.25 to $0.28 per share on revenues of $265 million to $270 million.

Actually, the company's financial situation may be understated a bit these days, at least relative to its previous model. The transition to subscriptions means that Wind River must recognize revenues ratably over the life of a customer contract, as opposed to all at once. This may explain why the company's deferred revenues (monies received for which a good or service is still owed) surged 96% last year to $76.77 million, something that should give the company some added juice to continue its growth path into the year ahead.

Fool contributor Tom Taulli owns shares in Wind River. The Fool has a disclosure policy.