Where do those Embedded Forecasts come from – and why this question should make you nervous – Part I
The market, like the Lord, helps those that help themselves. But unlike the Lord, the market does not forgive those who know not what they do – Warren Buffett
The embedded marketplace is facing a financial tsunami that will have severe consequences for the largest consumers of embedded technology – the Tier 1 contractors. This in turn will significantly impact the lower tiers and cause a major upheaval for Tier 3 vendors – the embedded suppliers.
Steve Roemerman, CEO of Lone Star Aerospace a highly respected technology consultant to military and government agencies has written “The Aerospace and Defense Industries of the United States are poised to undergo one of the most significant changes since the end of the Cold War, perhaps the most significant since World War II. We believe observers who expect small changes are mistaken, fostering a false and dangerous sense of security across much of the industry and government”.
This forecast and view is also strongly held by Ken Krieg, former deputy undersecretary for defense acquisition, and in publications from Booze Allen.
So you might be asking “Why haven’t we heard of this, Jerry and why are other analysts forecasting a very good year for 2010?” Being long in the tooth and having been here before when CompactPCI was being touted as the VME slayer and industry hopefuls along with participating analysts were forecasting a $2 billion merchant computer board marketplace (which EMF called a $zero billion market). Why were we correct and others in error? Because markets behave in predictable manners – even when disruptive technologies disturb the playing field. 96% of CompactPCI offerings were controlled by 3 companies – this represented a classic commodity market and there was little room for growth. It took 24 VME vendors to account for 75% of the VME market, by comparison – which made it a dynamic and growing market. VME is still around and holding market share. CompactPCI is now a custom product (not a COTS product) and is being abandoned by PICMG for PCIExpress.
The outcome was predictable. Today the Board marketplace is dominated by Kontron, GE, Curtis Wright and RadiSys. Gone are Motorola Computer Group, Force Computers and a litany of others.
The embedded world is characterized by a growing and vital marketplace that is forcing certain segments into commoditization while creating huge opportunities for those that take the time and invest the effort into understanding their market dynamics.
I love the following story – because for me it holds more than a kernel of truth.
Its late fall and the Indians on a remote reservation in South Dakota asked their new chief if the coming winter was going to be cold or mild. Since he was a chief in a modern society, he had never been taught the old secrets. When he looked at the sky, he couldn’t tell what the winter was going to be like. Nevertheless, to be on the safe side, he told his tribe that the winter was indeed going to be cold and that the members of the village should collect firewood to be prepared.
But, being a practical leader, after several days, he got an idea. He went to the phone booth, called the National Weather Service and asked,’ Is the coming winter going to be cold?’ ‘It looks like this winter is going to be quite cold,’ the meteorologist at the weather service responded. So the chief went back to his people and told them to collect even more firewood in order to be prepared.
A week later, he called the National Weather Service again. ‘Does it still look like it is going to be a very cold winter?’ When told it would be severe he sent his people to pick even more firewood.
Two weeks later, the chief called the National Weather Service again. ‘Are you absolutely sure that the winter is going to be very cold?’ ‘Absolutely, ‘ the man replied. ‘It’s looking more and more like it is going to be one of the coldest winters we’ve ever seen..’ ‘How can you be so sure?’ the chief asked.
The weatherman replied…
‘The Indians are collecting firewood like crazy’
So how much does our industry influence itself? Is the embedded industry too small to understand its dependencies?
Continued in Part II