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iceberg principle. What "device software optimization" does is it shines a light under the water.
And the finances are looking up?
Klein: We had our first profitable year in five years. We had the highest cash flow from operations in five years.
What are your ambitions?
Klein: I see no reason why Wind River can't get to the next stage, which is a $500 million (annual revenue) company with 20 percent operating margins. That's goal No 1: to get from a $250 million company to a half-billion-dollar company on a subscription-based business model.
What's the revenue split between Linux and VxWorks?
Klein: Linux is still less than 10 percent. We're still in the really early days. The Linux revenue is dampened because it's sold as subscription. There's no product license fee or royalty. It'll roll in slowly over time.
How fast is the cutover to Linux happening?
Klein: We see Linux bordering on becoming half the business probably in three to five years.
What are the complexities of Linux in the embedded market?
Klein: It's very fragmented. In servers, one processor architecture matters. In the embedded market, there are about 60 that matter. That complexity is what I call the matrix of pain.
Are there intellectual-property issues with Linux? Your predecessors briefly tried to promote the open-source BSD version of Unix, arguing that its advantage over Linux was that customers could make it proprietary.
Klein: It's always on your radar. We have a lot of expertise on the issue of GPL (the General Public License that governs Linux and prevents it from being made proprietary and prohibits it from being tightly intermingled with proprietary software). What we've done is taken a developer suite and wrapped that around an optimized distribution with middleware that's been selected and tuned to address specific vertical markets. There's a clear demarcation in where the operating system stops and the developer environment begins.
Is the GPL a problem sometimes?
Klein: Where Linux is a fit, customers really have been embracing it. There is a certain set of customers in Asia concerned about GPL leakage. For them we have VxWorks.
By "leakage," do you mean the so-called viral issue around the GPL (which requires software that's tightly integrated GPL also be released under the GPL)?
Klein: Yes. They're afraid their proprietary middleware will seep back and be governed by GPL.
Is that a risk?
Klein: I think that's a perceived risk. Depending on how deep they are into the Linux kernel (the part governed by the GPL), it could be an actual risk. Most customers aren't operating at the kernel level. There are some borderline cases.
Do you use your own version of Linux, or is it Red Hat-based?
We start with the kernel at kernel.org. This is a parallel strategy to what we're doing with Red Hat. When the market requires a sealed, branded (Linux) distribution, then we're recommending Red Hat. But in the device software space, we expect these platforms will be modified by our customers.
Is it fair to say you initially planned to use a Red Hat foundation, but now expect to use that version only for some sealed systems whose operating system can't be customized?
Klein: That's one way you could frame it. As these markets mature, as we may see in (the) ATCA (Advanced Telecom Computing Architecture) space, we're going to be working with Red Hat. We reserve the right to change our minds at Wind River based on customer feedback.
Who are your primary competitors?
Klein: The biggest is roll-your-own. There are lots of midgets and one dwarf. Fortunately, we're the dwarf. But now, you can't get there from here building it all from scratch.
MontaVista Software is the only pure-play Linux vendor. They've been the unfortunate red-eyed mouse here and have made a lot of mistakes in terms of their business model. Fundamentally, it's because they're not adding proprietary value around Linux. They're trying to sell free software. It's just not a model that has legs.
Another competitor is Green Hills, which is primarily in aerospace and defense. They have been the stalwart for staying very niche, very proprietary. At the end of the day, customers want the ability to go open source or proprietary or both. Enter Wind River with a $250 million (revenue) run rate, a $1 billion market cap and 1,100 employees, we're extremely well positioned to serve this marketplace.
Microsoft has better than a $250 million run rate.
Klein: Sure. But a big part of this market is going to Linux. That's a barrier to entry to Microsoft. And our customers have an aversion to putting Microsoft in their devices. Third, this market is about reliability. You can't do control-alt-delete on a pacemaker. And it's a very fragmented marketplace. You can't just do it on one processor. Microsoft's business doesn't support that.
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