Four companies have invested a combined $7M in the latest round of financing for embedded Linux company MontaVista Software. Siemens Venture Capital, Samsung Ventures America, Infineon Ventures, and China Development Industrial Bank represent new investors for the privately held company, which has raised over $72M since forming in 1999.

Previous MontaVista investors include IBM Microelectronics, Intel Capital, Panasonic (Matsushita), Sony, Toshiba America, Ericsson, and Yamaha Corporation, as well as venture capital firms Alloy Ventures, RRE Ventures, US Venture Partners, and WR Hambrecht.

Jim Ready, CEO, said that MontaVista purposely sought to include only new investors in its latest financing round. “One of the biggest challenges was not having returning investors. If not carefully managed, the problem we would have faced would have been way too much money coming in. I had to convince everyone of the widsom of allowing in a modest round. It took the best persuasion skills I have.”

Ready says the investments are not associated with specific products or projects. “The investments are coupled with the strategic interests of the companies that have made them, but they are unencumbered.”

Ready notes that MontaVista revenues increased 77 percent in 2003, while the company gained some 500 new design wins. While not profitable yet, the company became cash-flow positive during the final quarter of 2003, a milepost reported by competitor LynuxWorks two years previously. In addition to embedded Linux tools and services, LynuxWorks also sells proprietary, run-time licensed RTOSes.

Asked when MontaVista expects to turn a profit, Ready stated, “In a subscription model, you turn cash-flow positive before you hit the P&L (profit and loss) positive mark. We turned cash-flow positive during the final quarter of 2003, and we will be cash-flow positive on a sustaining basis in the subsequent quarter. P&L profitability follows almost mathematically thereafter, probably in a quarter or two.”

Asked if MontaVista plans a public offering or will seek to be acquired, Ready stated, “We're always looking for liquidity. There are many options, including going public or being acquired. We have no bias for any of those, other than doing well for our investors. We're in a strong position to consider all the usual options in terms of how you take a company forward. We're in a great position, to have the flexibility to decide.”

A recent LinuxDevices.com reader survey suggested that MontaVista is the most popular commercial source of embedded Linux, and is used in about 9 percent of all embedded Linux projects. Motorola subsidiary Metrowerks was second among commercial providers, with usage in about 4 percent of embedded Linux projects, survey data suggest.

Analyst perspectives and investor quotes

Gartner listed MontaVista among the top embedded OS companies in a study that put the global embedded tools market at $1 billion dollars (“2002 Worldwide Embedded Software Tools Market Share,” August 14, 2003, Nancy Wu and Daya Nadamuni).

Last year, Venture Development Corporation placed MontaVista Software first among commercial embedded Linux companies worldwide, based on market share.

The Fuji-Keizai Group reported last year that MontaVista Linux garnered almost half (46.3%) of embedded Linux projects in Japan, and almost two-thirds (63.4%) of the revenues.

"Because of its flexibility and ease of use, Linux is becoming essential for many embedded applications," said Bjoern Christensen, president and CEO of Siemens Venture Capital.

"We believe MontaVista will play a dominant role in the embedded software industry as the transition to Linux accelerates,” said Jay Eum, managing director of Samsung Ventures America.

"Many of our customers are moving to Linux because it removes the risk and cost associated with developing in-house software," said Mahesh Balakrishnan, managing director of Infineon Ventures North America.

"We expect the demand for embedded Linux will continue to increase at a rapid rate, and believe MontaVista Software has a management team that can successfully execute on this opportunity,” said Irene Shih of China Development Industrial Bank.

 
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