A couple of weeks ago, there was much chatter that IBM (NYSE:IBM) was about to buy out Wind River Systems (NASDAQ:WIND). It would likely be a good fit, and Big Blue likes to do deals. However, in Wind River's fiscal-second-quarter conference call late last week, management did not comment on the rumors but did say there are no plans to sell the company -- at least not now.
Wind River develops software to manage devices such as cell phones, set-top boxes, and even the Mars Exploration Rovers. Customers include Cisco (NASDAQ:CSCO), Sony (NYSE:SNE), and Motorola (NYSE:MOT).
Q2 revenue increased 15% to $84.6 million as Wind River continues to benefit from investments in its Linux offerings (a popular open-source operating system). Wind River thinks the technology will gain lots of traction from auto infotainment systems, networking equipment, and mobile handsets. In fact, in Q2, the run-rate for Linux bookings was about $50 million.
Net income came to $4.3 million, or $0.05 per share, which is up from $3.1 million, or $0.04 per share, a year ago. Excluding non-cash charges, the net income would have been $10.5 million, or $0.12 per share.
With about $117 million in cash, cash equivalents, and short-term investments (not to mention another $106 million in longer-term investments), Wind River has the wherewithal for some deal-making. For example, there was the recent $1.4 million acquisition of Comsys, a professional services firm. A key advantage of Wind River is its services unit, which often leads to stronger customer relationships and further business opportunities. Wind River has worked closely with Comsys for several years. And because it's in Romania, Comsys has a low-wage advantage and can be a springboard for more business in Europe.
For much of the year, Wind River's stock price has been choppy. In fact, that has been a hallmark of the stock for the past several years. After all, the sales cycles are long and the products are fairly complex. So while the company is showing progress, I still think it's going to take even more time to achieve sustainable growth, and as a result, there is no rush to get into this stock.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is ranked 4,172 out of more than 60,000 investors in Motley Fool CAPS.
