Intel to buy software maker Wind River for $884M

SANTA CLARA, Calif. -- Intel said Thursday it will buy software maker Wind River Systems Inc. for $884 million in an all-cash deal that will help the world's largest computer chipmaker expand beyond the PC market.

Intel said the purchase will benefit its processor and software offerings for embedded systems and mobile devices, which run the gamut from smart phones to networking equipment.

Though the recession has hurt demand for PCs in general, there has been growing demand for products containing the company's lower-powered Atom processor, which is used in small electronics like the stripped-down laptops known as netbooks. The acquisition may be a way for Intel to beef up Atom-related offerings.

In a client note, FBR Capital Markets & Co. analyst Craig Berger said the deal could be Intel's first step in diversifying its business model the way computer maker IBM now sells hardware, chips, software and services.

"If Intel is beginning to diversify its business away from just semiconductors, we would expect a host of similar software or services related acquisitions in coming years," said Berger, who rates Intel shares "Market Perform."

Intel had already been working on expanding its software offerings, launching a Linux-based operating system called "Moblin" in 2007 for small electronics that use the Atom processors.

Santa Clara, Calif.-based Intel said it agreed to acquire all outstanding Wind River common shares for $11.50 each, a premium of 44% over Wind River's Wednesday closing price of $8. The deal is expected to close this summer.

Wind River shares skyrocketed after the announcement, jumping $3.50, or 44%, to $11.50 in midday trading. Intel shares rose 14 cents to $16.08.

Alameda, Calif.-based Wind River's software helps companies develop and test software for devices like rear-seat entertainment systems in cars and avionics in defense aircraft. The company, whose technology is used by NASA and by companies like Apple and Hewlett-Packard, was founded in 1981 and has over 1,600 employees.