By Stephen Shankland; Staff Writer, CNET News.com . . .

The hype that spawned several Linux start-ups has vanished, but a pioneer in operating systems for computing devices other than PCs still has faith that Linux is the foundation for success.

MontaVista Software has raised $28 million from earlier investors and from new… partners including IBM Microelectronics and Sony, said Jim Ready, founder and chief executive.

“This carries us to profitability and greater heights,” Ready said.

Twenty years ago, Ready created VRTX, the first commercial operating system for “embedded” computing systems, a category that now includes everything from antilock-brake controllers to VCRs to mobile phones to automatic teller machines. VRTX, still sold by Ready's former employer, Mentor Graphics, runs the Hubble Space Telescope.

The privately owned Sunnyvale, Calif., company won't disclose revenue specifics, but Ready said MontaVista has garnered “millions and millions of dollars” and that revenue grew more than 250 percent from fiscal 2000 to 2001. MontaVista cut expenses last year with a 20 percent layoff.

The embedded-OS market is rife with competition. The top dog is Wind River Systems with its VxWorks and pSOS products, but it has been weakened by reduced design spending on the part of its telecommunications customers and has had to cut staff. And a Wind River dalliance with an open-source cousin to Linux called FreeBSD lasted only a few months.

Other traditional embedded operating-system companies include QNX Software Systems and Green Hills Software.

But newer software is arriving–Windows, Linux and Java–and different companies hope to unseat the incumbents by spreading those programs from their area of strength into the embedded market.

Microsoft, naturally, is pushing various versions of Windows for use in devices such as gambling machines and set-top boxes. The company has a powerful ally in its vast developer community, but most of those programmers work on desktops and servers, not embedded systems.

Sun Microsystems and partners such as Motorola and Nokia, meanwhile, are pushing Sun's Java software into embedded devices such as set-top boxes, car computers and assembly-line robots. Java lets software developers write programs that run on a host of different devices–for example several different companies' cell phones–without having to worry about underlying details such as what chip a given device uses.

Betting on Linux

MontaVista is among several companies betting that money can be extracted from the embedded OS market using Linux, a clone of Unix used chiefly in servers. Linux, unlike proprietary Windows and Unix, may be freely changed or distributed by anyone and is developed in the open by volunteers and several companies.

The best-known Linux company — and the first to go public–is Red Hat, which launched its embedded push through its acquisition of Cygnus Solutions in 1999. Cygnus sold services and programming tools key to cracking the embedded market and enjoyed relationships with several chipmakers. Red Hat's priority is chiefly on Linux for servers, though, especially as chip company spending cuts have hurt its embedded effort.

Lineo, though, was the first to try to enter the embedded Linux market. Its early aggressive growth, with several acquisitions, has been followed by a withdrawn initial public offering and layoffs.

Other embedded Linux contenders include LynuxWorks, Coollogic, Finite State Machine Labs, TimeSys and Applied Data Systems. But MontaVista, with 155 employees at six locations worldwide, has established a solid presence.

“We're becoming one of the larger embedded operating-system companies at this point,” Ready said. “The big kahuna is Wind River. Most of our focus is how we blast away at Wind River.”

The company has two main markets: consumer electronics, especially set-top boxes, and telecommunications networking gear. It's shying away from handheld computers, a market where Microsoft has some influence.

“The closer you get to Microsoft, the more dangerous things get,” Ready said.

About a year ago, MontaVista projected it would need $20 million in third-round funding to carry it to an initial public offering. The company actually raised $28 million, bringing its total funding to $60 million, most of which hasn't yet been spent, Ready said.

The company's software was used in more than 250 new designs in 2001, said Sheila Baker, MontaVista's vice president of marketing. The deals earned the company from $10,000 to more than $1 million each.

Customers include Ericsson, Sony, IBM Microelectronics and Nokia. IBM hired the company to bring Linux to its PowerPC chips and their cousins for network equipment. Nokia is using MontaVista software on networking equipment for carrying both voice and data traffic using the Internet's communication standard.

MontaVista once called its flagship product Hard Hat Linux, but decided to drop the Red Hat-like name in an effort to simplify branding. The name change will begin with version 2.1, which is expected the week of Feb. 28, Baker said.

MontaVista Linux and its accompanying packages work on six major chip designs–those from MIPS and ARM Holdings, which are licensed widely to other companies; Hitachi's SuperHitachi; Intel's x86 and StrongArm/XScale; and IBM and Motorola's PowerPC.

The company makes its money by selling development tools and several accompanying software products that often bring in royalties. MontaVista also offers professional services and training.

Some people have speculated that the heart of Linux, called the kernel, will split into two versions, one for servers and one for embedded systems. Ready, though, doesn't see any reason for such a move.

“We have not seen any particular reason whatsoever to not be hand in hand with kernel.org (where the Linux kernel is available for download) and the core Linux developers,” Ready said. And efforts to make Linux work better on big multiprocessor servers turns out to benefit MontaVista's needs for quick-response embedded systems.

Copyright © 2002, CNET Networks Inc. All rights reserved. Used with permission.

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