tracking the solutions powering the next generation of embedded systems in q4 & beyond

VDC RESEARCH WEBCASTS

Embedded Software & ToolsA Market Update & Outlook

Embedded Software & Tools PracticeSteve Balacco, Director

Frequently Asked Questions

These slides are from a webcast presented on 11/10/2010.

A full audio recording is available at:

http://vdcresearch.com/Landing/2011webcast.aspx

1 – 2010 VDC Research Group, Inc.Embedded Software & Tools Practice

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VDC Research Group

Complimentary Insights and Marketing Data on the Embedded Software & Tools Market Available at:

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Today’s Speaker

• Steve Balacco, Director – Embedded Software & Tools Practice 10 plus years experience covering the embedded software and tools market.

Managing a team focused on major aspects of the embedded software and tools market.

Involved in all syndicated research and proprietary engagements.

Prior to joining VDC, Steve worked for over 30 years in the information technology sector developing software, in sales and sales management, and business development.

Eastern Nazarene College, BSBA.


Agenda

About VDC & Our Research

Market Definition & Segmentation

Embedded Market Context

Market Estimates & Forecasts

Market Trends

Future Market Outlook

2011 Service Year Overview

Question & Answer


VDC Research Group, Inc.Embedded Software & Tools Practice

• VDC Research was founded in 1971. Continuous, profitable operation since. Staff of about 30 located in Boston and Chicago Focus on a number of different technology areas including: Embedded Software & Tools, Embedded

Hardware & Systems, Mobile & Wireless, Industrial Automation, AutoID & Transaction Automation, Power Management, a number of niche IT markets.

• Over 15 Years covering the embedded software and tools market.

• Driven by Extensive & Constant primary research. Supply side – Operating system, software development tools, and multicore components

and tools suppliers telephone interviews annually. Demand side – OEMs & integrators web surveys and telephone interviews annually.

• Syndicated & Custom engagements with clients in the embedded software and tools market.

• Practice Team Members: Steve Balacco, Director Chris Rommel, Senior Analyst Jared Weiner, Analyst

• Practice Blog – On Target: Embedded Systems http://blog.vdcresearch.com/embedded_sw/ Follow the practice on Twitter @VDC_EmbeddedSW


http://blog.vdcresearch.com/embedded_sw/�

Technologies

Industry Segments

Geographic Regions

Embedded/ Real-time Operating Systems

Embedded Software Development Tools

Mobile Operating Systems

Multicore Components & Tools

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Scope of VDC’s Research

Market Definition & Segmentation


2010 Embedded Software & Tools Service

• Track 1: Embedded Software Engineering Market Technologies 4 Technology Volumes

• Volume 1: Embedded/ Real-time Operating Systems – published in May • Volume 2: Embedded Software Development Tools – published in May• Volume 3: Mobile Operating Systems – published in July• Volume 4: Multicore Components and Tools – published in October

• Track 2: Embedded System Engineering Survey Data 6 Engineer Survey Data Volumes – all published in the August to early September timeframe

• Volume 1: Operating Systems• Volume 2: Development Tools• Volume 3: Vertical Markets• Volume 4: Regional/ Country• Volume 5: Processor Architectures• Volume 6: Engineer System Engineer Type

• Track 3: Embedded Systems Market Statistics 8 Vertical Market Volumes – planned for publication in the November /December timeframe

• Automotive/ transportation, consumer electronics, industrial automation, medical devices, military / aerospace, mobile phones, retail automation, and telecom/ datacom.

Schedule status



• > 10 Billion processors ship annually 98% Embedded

• Created multi-billion dollar market for embedded software and tools

• Total Market for Embedded Software Engineering is already ~$40 billion

• By 2015, >10 Billion connected embedded devices

Proliferation of embedded computing presenting opportunity to solution vendors

Spend on Commercial Embedded

Software Solutions

Spend on Embedded Software Engineering Labor

Development Tools


Embedded Market ContextDevices in transition

Circa 1995 Today

Hardware Platform– 8/16 Bit

– Perhaps 32 Bit

– Single processor

– 8/16 Bit Still Used

– 32/64 Bit Advanced Devices

– Multiprocessoro Multicore emerging

Communications Capability – Limited – Networked/Smart

Software Platform– Operating System

– Tools

– Some Middleware

– Operating System

– IDEs

– Extensive Middleware

– Second OS

– Multimedia

Lines of Code – Thousands – Millions



Number of Lines of Software Code(Mean of Respondents)

2010

Commercial/ 3rd Party 205,008

Open Source/3rd Party 870,192

In-house Developed 196,267

Sources of In-house Developed Code(Mean of Respondents)

2010 2009

Hand coded for current project 65.3% 65.8%

Auto generated 5.9% 7.8%

Leveraged from other/previous in-house projects 28.9% 26.5%

Code bases growing and diversifying

• The average embedded project now has over one million lines of software code. More and more of this growth is being

generated from 3rd party code. Year-over-year decrease in % in-house

code that is auto generated.

• Anticipated software growth out pacing growth in human engineering resources.

• Gradual shift away from standalone products as a critical step to addressing increasingly complex project requirements.

Percent Increase (or Decrease) in the Total Lines of Software Code for the Next Project

(Average of Respondents)

Value

Mean 33.5%

Weighted (by number of lines of code) Annualized (by project length) Mean 23.6%

Median 17.5%

11– 2010 VDC Research Group, Inc.Embedded Software & Tools Practice


• Software development now generates over 50% of development costs.

• The vast majority of these costs, however, remain aligned with OEM labor spend.

• Today <40% of FTEs on embedded projects are software engineers.

• With a number of OEMs having reduced their internal development resources, this labor spend represents a substantial opportunity to market participants.

Percentage of Total Development Cost Related to Software Development

for Current Project (Mean of Respondents)

Year Value

2010 50.7%

2008 49.6%

2002 33.5%

Software now accounts for majority of development costs



4.7%

5.7%

6.1%

21.8%

23.9%

26.3%

32.2%

35.2%

42.4%

42.8%

46.0%

52.1%

54.2%

0% 20% 40% 60%

Other

IC/SoC design/verification

Mechanical engineering

Board level engineering/test

Operating system development/test

Prototype development

System integration /test/verification

Algorithm engineering

Project management/planning

Firmware development/test

Requirements management /specification

System architecture engineering

Software application/middleware development/test

Project Tasks in Which Respondents are Personally Involved on

Primary Current Project(Percent of Respondents)

0.8%

1.8%

4.0%

4.7%

5.5%

5.5%

6.0%

9.2%

12.4%

14.7%

15.5%

19.9%

0% 10% 20% 30%

Mechanical engineering

IC/Soc design/verification

Prototype development

Board level engineering/test

Algorithm engineering

Operating system development/test

System integration/test/verification

Requirements management/specification

System architect engineering

Project management/planning

Firmware development/test

Software application/middleware development/test

Percent of Time Spent on Various Engineering Tasks

(Mean of Respondents)

Note: Percentages sum to over 100% due to multiple responses.

Project roles blurring – engineers forced to develop skill sets beyond primary discipline


Embedded Market ContextEngineers perception on the health on the state of the engineering job market

Engineer Perception on the Health of the Current Engineering Job Market

2010(Percent of Respondents, N = 366)

4.6%

13.4%

31.7%35.5%

9.6%5.2%

0%

20%

40%

Much worse than last

year

Worse than last year

About the same as last year

Better than last year

Much better than last

year

Don't know

Engineer Perception on the Health of the Current Engineering Job Market

2009(Percent of Respondents, N = 393)

14.5%

39.4%

21.6%

11.2%

5.9% 7.4%

0%

20%

40%

Much worse than last

year

Worse than last year

About the same as last

year

Better than last year

Much better than last

year

Don't know


Market Estimates & Forecasts

Revised 2008

2009 2010 2011 2012

(Mill

ions

of D

olla

rs)

Embedded/ RTOS / Mobile and Software Development Tools

2009 - 2012 CAGR: ~ 6%

• VDC estimates the market for embedded/ real-time operating systems was slightly greater than $1.6 billion in 2009, a decrease of some 10% from 2008. Slightly higher decrease than VDC had originally

forecasted.

• Major market drivers in 2009 negatively affecting the market include: Recession and industry consolidation.

• Future forecast and outlook Market is expected to grow at a compound

annual rate of >6% per year through 2012. Device sophistication driving increasing software

content and the need for more formal OSs.

Embedded/ real-time/ mobile operating systems and software development tools


Recession & Industry Consolidation

• The global recession was the predominant issue affecting the embedded landscape in 2009 and into 2010.

• Increased OEM focus on ROI for product investments and methodologies as project budgets decreased

• Resulted in a negative financial impact to many software solution suppliers.

• What consolidation?

• As wholly owned subsidiaries of semiconductor suppliers, both Wind River and MontaVista messaging have focused around silicon neutrality.

• VDC expects that the Intel acquisition of Wind River Systems and ensuing uncertainty contributed to the decrease in market growth and changes in the competitive landscape.

• As a result, many competitors are looking to take advantage of this market consolidation to increase market share.

Recession – predominant issue facing the market


Market Trends

13.5%

11.6%

14.8%

27.7%

27.7%

17.0%

12.1%

12.9%

15.9%

23.5%

27.9%

30.0%

3.0%

9.6%

20.2%

20.5%

22.1%

40.1%

0% 10% 20% 30% 40% 50%

Commercially licensed/consortia/industry group obtained open source OS (e.g.,

OHA Android, LiMo, etc.)

Chip/board vendor supplied (or obtained from tools vendor at no

cost) OS

In-house developed operating system

Publically obtained open source OS (i.e. Debian Linux, etc)

Commercially licensed operating system (not open source-based)

No formal operating system

Previous Project, N = 312 Current Project, N = 340 Next Project, N = 318

• OEMs have many choices in deciding what target operating system to integrate.

• Device/ system functionality is driving complexity and increased software content. More sophisticated system interfaces Complex graphical elements Wired and wireless capabilities, and others

• As a result, the types of operating systems used in target devices have continued to shift from no formal and in-house developed (RYO) to a variety of other commercial and open source offerings.

• While the use of commercially licensed (not open source) operating systems is expected to remain fairly stable, almost 50% of the surveyed engineers report that their target OS is selected on a project-by-project basis.

• Use of Android in current development projects while still limited grew significantly. Not just smartphones, but automotive, industrial,

medical, retail, and others.

Complexity of embedded devices accelerating adoption of more formal operating systems

Note: Percentages sum to over 100% due to multiple responses.


Type of Operating System(s) Used on Target Embedded System on Previous Project, Current Project & Expected to be Used on Next Project

(Percent of Responses)

1.9%2.9%3.2%3.5%4.1%4.1%

6.7%7.0%8.0%9.2%

15.9%16.6%17.8%18.2%

23.2%29.6%29.9%

32.8%38.9%

0% 10% 20% 30% 40% 50%

Support for multiprocessing architectures

Virtualization capabilities

Support for multi-core architectures

Reputation of vendor

Security

Independence from semiconductors

Size of developer community

Variety of microprocessors supported

Bundled software components

Small footprint vs. memory prices/availability

Technical support from vendor

Customer requirements

Run-time royalty cost

Familiar programming interface

Technical capabilities

Availability of development tools

Reliability/stability

Real-time capabilities/performance

Overall cost

Most Important Characteristics for SelectingEmbedded Operating System

(Percent of Respondents, N = 314)

Most Important Selection CriteriaEmbedded/RTOS/Mobile operating systems and IDEs


Note: Sums to more than 100% due to multiple responses.

3.4%

9.9%

14.9%

18.3%

21.4%

22.1%

24.4%

30.5%

31.7%

34.4%

45.4%

0% 10% 20% 30% 40% 50%

Multiprocessing support

Reputation of vendor

Support for open/industry standards

Variety of microprocessors supported

Technical support from vendor

Availability of other tools, OS(s), and other run-time software from vendor

Compatibility/interoperability

Technical capabilities/performance

Ease of use

Familiarity with tools/past experience with vendor

Price/cost

Most Important Characteristics When Selecting Current Project IDE

(Percent of Respondents, N = 262)

Market Trends Multicore expectations continuing to expand

5.8%

18.5%

13.6%

32.1%

30.0%

1.8%

8.6%

6.5%

21.9%

61.2%

0% 20% 40% 60% 80%

Don't know or N/A

Multicore and multiprocessor

Multicore

Multiprocessor

Single processor

Current & Expected Characterization of the Processor Design

(Percent of Respondents)

Current Project, N = 278Expected in Two Years, N = 243

8.5%

19.4%

21.4%

20.6%

30.1%

2.5%

5.2%

9.4%

20.8%

61.8%

0% 20% 40% 60% 80%

Don't know or N/A

Multicore and multiprocessor

Multicore

Multiprocessor

Single processor

Current & Expected Characterization of the Processor Design



2009 Embedded Engineering Survey 2010 Embedded Engineering Survey


Market TrendsOperating system virtualization use limited – but future use expected to increase

8.9%

2.8%

0% 3% 6% 9% 12% 15%

Hypervisor /Virtualization Layer /Microkernel Use in Current

Projects & Expected Use in Two Years(Percent of Respondents)



Market Trends

2.0%

2.0%

31.8%

0.9%

11.5%

28.7%

23.2%

1.3%

2.3%

4.2%

5.5%

11.2%

21.4%

54.2%

0% 10% 20% 30% 40% 50% 60% 70%

Mac OS

Unix

Windows 7

Windows Vista

Linux commercially supplied

Linux publically obtained

Windows XP

Current Development Project, N = 384Expected in Two Years, N = 349

Primary Host Development Environment –Current Project / Expected Two Years


Note: Sums to more than 100% due to multiple responses.


Windows-based development environments currently preferred – but Linux use expected to increase


• The decision to develop and support in-house RTOS solutions has been increasingly scrutinized, as issues around stability, support, cost-effectiveness and time-to-market pressures have become principal themes in project planning. OEMs have been increasingly concentrating on their own core competencies and shifting internal

resources away from in-house operating system design, support, and maintenance.• The use of Linux and other open source OS solutions in embedded systems has continued

to intensify

Key drivers of these solutions continues to be the low cost/no cost availability of Linux distributions, as well as the extensiveness of available developer resources and the maturing ecosystem of applications.

The emergence of the Google and OHA’s Android platform has the potential to have a major role in the direction of the embedded industry, as companies look to adapt and complement the platform to support device classes beyond the traditional mobile phone environment.

• While the use of multicore and operating system virtualization technologies is currently limited to a small percentage of projects under development, an increasing percentage of embedded engineers are expecting to incorporate these technologies in future projects.

As such suppliers of these technologies are ramping their messaging and product support

VDC expects that both of these technologies will continue to be a significant focus of many suppliers over the next several years and offer increased opportunities for revenue growth.

On technologies



• Engineer perceptions on the health of the job market has improved year over year

• VDC continues to engage in discussions with a broad spectrum of companies to understand market conditions and how companies are responding and here’s what we’re hearing:

Sales cycles are still extended

Product investments being made “however” low cost options are now less frequently viewed as cheap

• VDC is forecasting market growth of ~3% between 2009 to 2010. We expect the overall market to rebound slowly and reach 2008 levels in 2011 Growth will be uneven between the different product categories (Embedded/RTOS market expected to grow

the fastest) Asia-Pacific region forecasted to grow the fastest Vertical markets

• In 2009 automotive was impacted the most by the economic slowdown having a decline of greater than 10% from 2008, however, VDC estimates that automotive will rebound and have the highest growth rate over the forecast period (2012).

• Consumer electronic devices was also down greater than 10% in 2009 due to the economic impact on overall consumer spending, however, this segment is expected to rebound more slowly over the forecast period.

• VDC estimates that the medical industry was the only segment to show growth year-over-year and is expected to grow at a rate greater than the overall market CAGR through 2012.

• Other markets expected to grow faster than the overall market CAGR during the forecast period include industrial automation, military/aerospace, telecom/datacom, and retail automation.

Estimates and Forecasts


How VDC’s Coverage Will Help Clients Stay on top of the Market in 2011

The 2011 Embedded Software & Tools Market Intelligence Service• Track 1: Embedded Software Engineering Market Technologies & Statistics

Vol. 1: Embedded/ Real-time Operating Systems Vol. 2: Android & Linux in the Embedded Systems Market Vol. 3: Mobile Operating Systems Vol. 4: Virtualization for Mobile & Embedded Systems Vol. 5: Multicore Components & Tools Vol. 6: Safety & Security Vol. 7: Vertical Markets & Applications Vol. 8: Embedded Systems Market Statistics

• Track 2: Embedded System Engineering Survey Data Vol. 1: Operating Systems Vol. 2: Development Tools Vol. 3: Vertical Markets Vol. 4: Regional Vol. 5: Processor Architectures


Research in the Works

• Software & System Lifecycle Management (SSLM) Tools Multi-volume proposal Cover both the Embedded and greater Enterprise IT market segments Topics to include:

• Software & System Modeling Tools – planned publication November 2010• Automated Test & Verification Tools – planned publication December 2010• Requirements Management Tools – planned publication January 2011• Source/ Change/ Configuration Management (SCCM) Tools – planned publication March 2011• Engineering Design Methodologies, Processes & Standards – planned publication April 2011

• Interested in learning more about this service? VDC conducted a webinar in September 2010 Visit the practice blog to view the webinar at: http://blog.vdcresearch.com/embedded_sw/

Software and system lifecycle product offering


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Q&A Session

Thank You for Attending this VDC WebcastTo receive the practice monthly bulletin and other news please opt-in at: www.vdcresearch.com/signup/

For more information about VDC Research coverage of the global markets for the Embedded Software & Tools practice – please contact:

Steve BalaccoDirector, Embedded Software & Tools [email protected] | 508.653.9000 x124

Cyril BernardAccount [email protected] | 508.653.9000 x142

Chris RezendesExecutive Vice [email protected] | 508.653.9000 x120


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