Cavium Networks Signs Definitive Agreement to Acquire MontaVista Software

Linux at the Core (or Multicore) of another Acquisition

 

What Happened?

Cavium Networks (NASDAQ: CAVM) announced that it has signed a definitive agreement to acquire MontaVista Software for $50 million. The acquisition is expected to close in December 2009 and is comprised of approximately $16 million in cash and approximately $34 million in Cavium Networks common stock.

After this acquisition is completed MontaVista Software will run as a separate operating unit and retain the MontaVista brand name.


VDC’s Analysis

This announcement is similar to the Intel/Wind River Systems announcement in June of this year as another semiconductor company acquires a software company and in particular an embedded Linux solution provider. Like Intel/Wind River this acquisition also signifies a strategic extension of the partnership that Cavium Networks and MontaVista Software have had in place since 2003 with a number of joint design wins.

Sound familiar?

At the close of the transaction MontaVista Software will retain its name, brand identity, and silicon neutrality. That is, MontaVista will continue to support other architectures “such as x86, ARM, PowerPC, MIPS and others.”  MontaVista will also continue to operate independently with their own sales, marketing, and engineering staff.

VDC’s View

Linux has been at the core of a number of acquisitions during 2009 including Mentor Graphic’s acquisition of Embedded Ally. The importance and criticality of software in embedded device/system development has grown significantly over the last several years. Not just in volume (lines of code) but also as a means to differentiate products in enabling new functionality and user experiences.

VDC has covered Linux in the embedded market since 2001 and at that time the sweet spot for Linux in device development could be found in telecom/datacom applications and emerging in consumer electronics type applications. Over the year’s MontaVista Software enjoyed a market leadership position as a commercial supplier of embedded Linux software solutions. However, they have been rivaled by Wind River’s entry into the embedded Linux market and Wind River’s subsequent penetration and success into key MontaVista Software accounts.

Over the last several years VDC estimates that MontaVista’s revenues have been relatively flat while Wind Rivers embedded Linux revenues have increased significantly. We expect the Intel announcement was seen by MontaVista as an opening to seize market opportunities based on questions around Intel’s position to support Wind River’s silicon neutrality.

Now MontaVista will most likely be faced with similar questions by their non-Cavium semiconductor partners on the one hand while Cavium looks to address the concerns of their existing embedded/real-time OS partners on the other. What mechanisms and assurances will Cavium/MontaVista provide to protect proprietary semiconductor roadmaps? And from operating system partners, will we continue to receive the same access and level of support to new semiconductor technology as MontaVista Software?

To be clear, the adoption curve of multi-core architectures is bending up as OEMs expect to leverage this technology in future designs. The good news for Cavium is that the adoption of embedded Linux within net new projects is also increasing.

Click here to view Part 2 of our analysis.