Intel Wind River Buy Loosens Ties to Microsoft, Apple

(MoneyWatch)  Intel has been almost synonymous with PCs for decades. However, the acquisition of embedded systems vendor Wind River marks an historic shift for Intel, just as thoroughly as when the company originally exited the memory chip business. By acquiring top embedded systems software vendor Wind River, it not only turns its attention to the world beyond the personal computer, but goes into competition with major business partners Microsoft and Apple.

Overstating the economic and strategic importance of this acquisition is difficult. No matter how large the volume of the PC microprocessor market is, embedded systems -- the chips that appear in everything from automobiles to greeting cards -- is titanic in comparison. "What they're really trying to do is broaden the whole ecosystem of reach at a very feasible [expense]," says Frank Bernhard, managing principal and advisory economist at technology economist consulting firm OMNI Consulting Group.

"Intel has been increasingly focusing its attention on the embedded space for some time now," says Charles King, a tech industry analyst who has done some consulting in the embedded space in the past. "As [things] move toward increasingly wired systems and wireless technology that exploits embedded systems offerings, it's definitely grabbed Intel's attention."

What's critical is that, as King notes, Wind River has for years been a gorilla of the market. It has strength in a few critical areas:

• operating systems (including a variation of Linux) that run the embedded devices
• middleware to connect the embedded devices to other systems
• software tools to develop the software to run on the devices

When PC sales have been in the pits and you see that low-cost netbooks are cannibalizing a fifth of laptop sales, you want to know there's someplace to expand the business.

There's even a possible strategic regulatory aspect to all this. "If you check Wind River and look at its microprocessor partners, it's a veritable who's who of the microprocessor industry, including many companies Intel competes with directly," King says. This could be an opportunity for Intel to prove that it works well with other companies and partly diffuse the interest government antitrust regulators have expressed in the company.

That not to say Wind River is a lone power. For example, Microsoft is a big player in embedded systems, both in a special version of Windows as well as tools. And that's where the conflicts start. The acquisition puts Intel squarely on a competitive path with its business partner. Microsoft wants to sell Windows to embedded developers, and now Intel will want to push two different operating systems that Wind River has. It also gives Intel an OS that could run a netbook and perhaps make up some of the margin that the company surely isn't getting on its Atom processors. And that means even bigger conflicts, not only with Microsoft, but with Apple at a time the latter has brought on some big names in chip design. Or perhaps the issue runs the other way: Apple develops the ability to move onto its own semiconductors and Intel wants to protect that end of the business, one way or the other.

It was also a time that Intel could pick Wind River, due to the general economic climate, for much less than usual. "Wind River would probably have gone for $2.1 or $2.2 billion," Bernhard says. And that might have been just compelling enough to keep the company away from other competitors.

"Think mobile devices," Bernhard says. "I'm surprised that Qualcomm didn't go into the bidding."