The next company in my ongoing series of the top 25 stocks for the NEXT 25 years is Wind River Systems (NASDAQ: WIND). Wind river is headquartered in Alameda, California, and has a market capitalization of $925 million. Wind River Systems is a technology company that virtually touches our daily lives, and yet 99% of us have no clue what Wind River does or how it affects us!
Wind River offers a suite of technical products, primarily software based, that allow software developers and electrical engineers to laser-beam focus the functionality of a semi-conductor chip. Wind's tools are employed to optimize the functionality and the speed of a device. So, in English what does all this mean? Well, for example,the air-bags in an automobile serve a singular, powerful function -- deploying in the event of an accident. Wind River Systems product suite for the automotive industry facilitates the semi-conductor chip that governs the air-bag's "brain center." Does the force or the angle of the impact merit deployment of the air-bag? The decision by the embedded chip is figured out in miliseconds. Wind River's software developed for the chip enables that specific functionality in an instant. It's a single purpose, real-time operating system designed specifically for that application. There, easy right?
Wind River sells its suite of products to the avionics industry, automotive, digital imaging manufacturers, internet router makers, medical device companies, mobile and handset makers. Wind River has established strategic relationships and partnerships with IBM, Intel, Texas Instruments, Motorola, Toshiba MIPS, and many more. Wind's suite of software development, debugging, and testing products are the industry standard for reliability and accuracy. Wind River sells its products worldwide, employing a direct sales and technical force. The complexity of customer projects requires Wind River to be available for training and complex technical support.
Wind River sells the software and maintenance agreements to its customers, but will frequently participate in a royalty arrangement based on the ultimate units sold of a particular product. This arrangement suits Wind River's business model better with consumer-driven products like set-top boxes, camcorders, and personal computers. The royalty scheme allows for better revenue and earnings visibility.
Wind River operates on a January 31 fiscal year. For January 31, 2008, I estimate Wind River will have revenues of $320 million and earnings per share of 33 cents. For fiscal year January 31, 2009, Wind should generate revenues of $365 million and earnings per share of 52 to 54 cents. The company is sitting on a cash hoard of over $200 million. The enterprise value (market cap less cash on hand) is $725 million, or about two-times sales, inexpensive versus other software companies. Wind River has the opportunity to become a huge company over the next couple of decades.
The next time you slam on your brakes, just remember and be grateful that the anti-lock function is controlled by a Wind River operating system.
Georges Yared is the CIO of Yared Investment Research. For growth stock ideas in addition to the top 25 for the NEXT 25 years, visit his website.
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