Santa Barbara, CA, August 23, 2001 -- Green Hills Software, Inc., a leading supplier of real-time operating systems and advanced development tools for embedded systems, today announced record sales and strong earnings growth for the second quarter of FY2001, again surpassing Wind River Systems, Inc., (NASDAQ:WIND) in earnings, operating margin, revenue growth and earnings growth. Green Hills Software now is the world's most profitable RTOS company, surpassing Wind River Systems who previously held that position. Green Hills' revenues in the second quarter of 2001 were $12.7 million, an increase of 31% from the second quarter of 2000. Operating income was $3.3 million, an increase of 38% from the second quarter of 2000. Operating margin for the quarter expanded to 26% from 25% in the second quarter of 2000. Net income was $.08 per share, an increase of 100% from the second quarter of 2000. For the first half of 2001, revenues were $24.9 million, an increase of 36% over the first half of 2000. Operating income was $6.6 million, an increase of 41% over the first half of 2000. Operating margin for the first half remained strong at 26%, and net income was $.16/share, an increase of 100% from the first half of 2000.

Revenue: Green Hills Grows While Wind River Declines
Green Hills Software continues to see a significant increase in customer spending, especially from new customers in the telecommunications industry. This increase has resulted in record revenues and strong earnings growth in the second quarter of 2001, representing a 31% increase over the second quarter of 2000, and the 9th consecutive quarter of sequential revenue growth. In contrast, Wind River Systems' Q2 revenues declined 27% from the previous quarter, representing the second consecutive quarter of sequential revenue decline. Wind River attributes its revenue decline to their customers' "… restructuring and laying themselves off," resulting in delayed and cancelled projects and customers buying "… minimum necessary products and services." Apparently, Wind River is used to their customers buying more product than they needed. Despite Wind River's lament of a "slowing of spending in the communications area," Green Hills Software's first half FY-2001 revenue from its Top 10 communications area customers grew by more than 61% from the first half of FY-2000. This strong growth indicates continued, increasing customer confidence in Green Hills, and a shift away from other suppliers such as Wind River Systems. "Once again, our more advanced technology and royalty-free business model have enabled us to grow as our competitors struggle," said Dan O'Dowd, Green Hills Software's founder and CEO. "We face the same economic challenges as our competitors, but, while they attempt to blame their revenue decline solely on economic factors, our revenue has increased. We believe that customers are selecting our more advanced INTEGRITY® real-time operating system and market-leading MULTI® embedded development tools, rather than continuing to purchase competitors' products."

Earnings: Green Hills Earnings Grow While Wind River Loses $6.5 Million
Green Hills Software's second quarter earnings per-share (EPS) doubled to $0.08/share from $0.04/share in 2000, while Wind River lost $6.5 million, or $0.08/share in the second quarter, and $0.02 for the first half of 2001. Since 1996, Green Hills Software's EPS has grown by 300%. By contrast, Wind River's analysts expect that Wind River's EPS for 2001 will be below its 1996 level. Profitability of a supplier is important to customers, because profitability is required for a company to sustain and expand its operations. A company that is losing money must downsize or it will go out of business. Profits fund the development of new products and enhancements to existing products. An unprofitable company must discontinue products that its customers depend on. Higher profits enable a company to spend more money providing the best customer support possible. Companies losing money may be forced to cut support staff and services, lowering the quality of their customer support.

Operating Margin: Green Hills is Consistently High While Wind River is Dangerously Low
Green Hills Software's operating margins continued strong at 26% for the second quarter. Wind River reported an operating loss of 14.9% for the second quarter, a 283% decline from Q2 of their last fiscal year. Wind River's operating losses are the result of their declining revenues failing to cover their high overhead. When Wind River experienced a revenue shortfall in the first quarter, they resorted to layoffs, plant shutdowns, and encouraged "Friday vacations" in an unsuccessful attempt to remain profitable. Now, with losses in Q2, Wind River has increased its layoffs to 20% of the workforce. "Wind River's recent announcement that their customers are buying less indicates that Wind River hasn't been able to adequately satisfy their existing customers even with their former staff working at full strength," said David Chandler, Green Hills Software's VP, Sales. "I don't see how they can possibly satisfy their existing customers, let alone new customers, with a staff reduced by layoffs and whose effectiveness is further reduced by forced shutdowns and 'encouraged' vacations every Friday." Green Hills is expanding its workforce in every department. Green Hills Software continues to expand its product line, and expects to increase its engineering department by 40% by the end of the summer. Wind River Systems, on the other hand, is laying off personnel and canceling projects, focusing on "core products." Green Hills Software's consistently high margins provide comfortable assurance to customers of continued support and long-term stability. Green Hills Software and its customers continue to succeed, as Wind River Systems and its customers struggle.

Business Model: Green Hills' Royalty-Free Business Model Is Displacing Wind River's Royalty-Based Model
Wind River announced that they have recently experienced a 33% drop in RTOS royalties, and they expect royalties in the next few quarters "to experience additional downward pressure and could move towards the bottom of our historical range of 15%-25% of revenue." John Carbone, Green Hills Vice President, Marketing comments, "This is exactly what we predicted would happen as customers move away from Wind River's royalty-bearing products towards royalty-free real-time operating systems, such as ThreadX® and INTEGRITY® from Green Hills Software. For example, Hewlett-Packard announced that they will begin shipments of their Model HP995C ink-jet printer, which incorporates Bluetooth technology. This printer is the first of a new family that was developed using Green Hills' MULTI development tools and which use the ThreadX real-time operating system. HP's earlier ink-jet printers used Wind River's royalty-bearing RTOS. The loss of key customers like HP indicates that Wind River's royalty-based business model continues to lose traction."

More On Green Hills Software

Founded in 1982, Green Hills Software, Inc., a privately held company, is a leading supplier of royalty-free real-time operating systems and software development tools for 32- and 64-bit embedded systems. Green Hills' solutions include the royalty-free INTEGRITY® and ThreadX® real-time operating systems. INTEGRITY is the most advanced real-time operating system for products that require the highest reliability. The ThreadX real-time operating system is ideal for high-volume products that require the lowest unit cost. These real-time operating systems, fully integrated with Green Hills' market leading compilers and MULTI® Integrated Development Environment, provide total development and run-time solutions that address both deeply embedded and high-reliability applications. Green Hills Software is headquartered in Santa Barbara, CA, with European headquarters in the United Kingdom. For more information on Green Hills Software products, please call 805-965-6044, email inquiries to sales@ghs.com, or visit http://www.ghs.com.

Note To Editors: Green Hills Software, the Green Hills logo and MULTI are registered trademarks and INTEGRITY is a trademark of Green Hills Software, Inc. ThreadX is a registered trademark of Express Logic, Inc. VxWorks is a registered trademark of Wind River Systems, Inc.
 
Except for the historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those contemplated herein. Factors that could cause or contribute to such differences include but are not limited to timely development, acceptance and pricing of new products, the impact of competitive products and pricing, and other risk factors. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.