This week, Wind River (NASDAQ:WIND) held its 2005 Worldwide User Conference. No doubt, the company has been busy, as it released a flurry of press releases. For example, it signed an alliance with Wipro (NYSE:WIT), the third-largest software company in India, and announced a variety of new products.

Perhaps the most important announcement was about Wind River's earnings. In the first quarter, revenues increased 17% to $61.8 million. Net income was $1.9 million, or $0.02 per share, which compares to a loss of $3.8 million, or $0.05 per share, in the same quarter in 2004. Moreover, Wind River reduced its outstanding debt by repurchasing $20 million of convertible debt ($55 million remains).

Wind River develops device software optimization (DSO). Think of it as the operating system for a device -- providing advanced networking, security, and graphics functionality. These services are not such a far cry from what an operating system (read: Microsoft, Linux) represents to a computer, but optimized for use within other devices whose increasing complexity warrants an integrated solution. It's not just for cell phones, but cameras, GPS trackers, and set-top boxes as well, among many others.

As these devices get more complex, there is a growing need to outsource operating systems functionality to third-party firms like Wind River. What's more, companies increasingly need to get their products to market faster, and Wind River is a big help.

These trends are propelling Wind River's growth. For the year, the company upped its earnings guidance to $0.28 to $0.30, with revenues ranging from $267 million to $270 million.

Technical excellence is critical for the DSO industry. While it is tempting for a company like Wind River to maximize profits in the short run, it recognizes that it needs to continue to innovate. It was encouraging to hear on the conference call that the company is boosting its research and development budget to maintain its technology leadership. It's a justified expense; as cell phones and other devices continue to progress into "smarter" versions, companies like Microsoft (NASDAQ:MSFT) and Sun Microsystems (NASDAQ:SUNW) will likely seek to capitalize on the demand for a "smart" operating system.

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