Wind River (NASDAQ:WIND) posted a great third quarter. But Wall Street does not care about the past. So, when the company indicated softness in its outlook, Wall Street exacted its punishment, whacking the stock 14% to $12.12.
Last quarter, the company posted revenues of $60 million, a 21% increase from the same period a year ago. During this period, net profits increased from a loss of $6.9 million to a profit of $2.3 million.
Wind River is a leading software developer for devices, allowing them to run faster, better, and more cost effectively. The company's technology spans many industries, like automotive, digital consumer, defense, and aerospace.
Like many other tech companies, Wind River suffered greatly during the tech depression. But since the company hired Ken Klein as CEO, there has been significant restructuring. And it is bearing fruit, as the company has posted two quarters of profitability and struck key alliances, such as with the Linux leader, RedHat (NASDAQ:RHAT).
But Klein is taking a conservative stance with Wall Street. The company's guidance for the fourth quarter is $0.03 cents to $0.05 cents; Wall Street pegged $0.05 cents. It also indicated that it will have earnings 5% to 7% lower than expectations for the following quarter.
Moreover, the company is in the necessary process of transitioning from a licensing-fee model to a subscription model, similar to that of Salesforce.com (NYSE:CRM). In fact, subscription revenues surged from $6 million a year ago to $12.4 million in the prior quarter.
But, the long-term fundamentals of the device industry are quite positive for Wind River. Increasingly, device makers are outsourcing the underlying software layer. Look at PortalPlayer (NASDAQ:PLAY) for example, which builds the guts for Apple's (NASDAQ:AAPL) iPod. With the success of this model, it will be no surprise to see other players do the same -- which should be a benefit to Wind River.
Fool contributor Tom Taulli owns shares in Wind River.
