Tracking the Solutions Powering the Next Generation of Embedded Systems in Q4 & Beyond

VDC RESEARCH WEBCASTS
Embedded Software & Tools
A Market Update & Outlook
Embedded Software & Tools Practice
Steve 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.

VDC Research Group
Complimentary Insights and Marketing Data on the
Embedded Software & Tools Market Available at:
www.vdcresearch.com
To receive the practice monthly bulletin
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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.
• 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

Technologies
Industry
Segments
Geographic Regions
Embedded/Real-time Operating Systems
Embedded Software Development Tools
Mobile Operating Systems
Multicore Components & Tools
Telecom/Datacom
ConsumerElectronics
IndustrialAutomation
Automotive
Medical
Military/Aerospace
RetailAutomation
Others
Business/OfficeAutomation
Mobilephones
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

Devices 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
– Multiprocessor
o 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
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.

• 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
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
Note: Percentages sum to over 100% due to multiple responses.
Project roles blurring – engineers forced to develop skill sets beyond primary discipline

Engineers 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
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
(MillionsofDollars)
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 Selecting
Embedded Operating System
Most Important Selection Criteria
Embedded/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

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
Current Project, N = 278
Expected 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 Trends
Operating 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

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 = 384
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

Q&A Session
Thank You for Attending this VDC Webcast
To 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 Balacco
Director, Embedded Software & Tools Practice
sbalacco@vdcresearch.com | 508.653.9000 x124
Cyril Bernard
Account Executive
cbernard@vdcresearch.com | 508.653.9000 x142
Chris Rezendes
Executive Vice President
cjr@vdcresearch.com | 508.653.9000 x120

Tracking the Solutions Powering the Next Generation of Embedded Systems in Q4 & Beyond

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