The giggles keep coming – Atego has purchased another company (albeit a competent one – notwithstanding a questionable fit). This time it was Hi Rely, a service company that actually knows what its doing – although at a premium price.

I guess that in Jay Gambrel’s “Alice in Wonderland” dreams he believes that he’s going to match IBM’s 35,000 person service capabilities. Jay once told me that he’s a banker and that he doesn’t have to understand how the embedded world works.

I’ve known Vance Hildebrand for a long time – and I have previously recommended him and his organization. At least Hi Rely offers a useful service and has good people – good offerings and good people, however, do not necessarily create a positive and revenue producing combination. Time will tell.

Knowing Vance as a friend and colleague, I asked him why he sold to Atego – going in my mind from Upper East Side to downtown Newark. I asked if  a) he’s in trouble with his bookie, or, b) grandma needed implants to get her job back at Hooters. For the record, Vance loved my email to him and told me that he passed wine through his nose while laughing so hard. He offered to explain his willingness to be bought out by Atego after the May ESC conference. Vance has not responded to my emails since the wine-nose incident and we are on the lookout for a much too happy guy. Vance was paid in dollars (or Euros) and not in Atego stock – I told you that he is competent.

So Jay, please tell us who these more than generous VC folks are so that companies with good prospects and poor financial positions can gain access.

Jay, as a gesture of good will from this side of the puddle – and hoping that I can throw a bone to your financial backers, I’d like to introduce you to Gregg Miller of Oak Grove, Missouri.

So let me posit the following question: What differentiates the Atego acquisition strategy from Mr. Miller’s business? The answer is that neither seem to make sense – BUT Mr. Miller has made $20 million with his product he calls “Neuticles”.

Mr. Miller felt strongly that post-neutered dogs were too ashamed to show their face (or southern exposure) to other dogs, so he created fake testicles (Neuticles) that he sells for $100 a pair (not including surgery). To date he has sold over 250,000 Neuticles. Truth be told, I have a distant cousin who had Pekinese-sized Neuticles implanted in her Great Dane (we suspect nothing sinister) . The dog probably had emotional problem to begin with.

I guess that Neuticles is an easier sell than realtime Java

So Jay, don’t give up – if Mr. Miller can find gold with his “not of this planet” inspiration, so can you. Rumor has it that there is an embedded Unix company for sale.

An archeologist was searching along the Amazon River when he stumbled onto a tribe of warriors. They were both shocked and surprised to see each other. The archeologist cried out “Lord, please save me for I am totally screwed”. A black cloud appeared and a loud voice cried out “you are not screwed – pick up the rock in front of you and kill the chief”. He picked up the rock and threw it hitting the chief in the head killing him instantly. The archeologist looked up to see 40 tribesmen coming at him with their spears aimed at him. He looked to the cloud and a loud voice said …

“OK – NOW you’re screwed”

Sometimes market advice seems to work that way.

A decade ago the merchant computer board industry was abuzz with CompactPCI (cPCI) forecast to replace the VME Bus. Market analysts were calling cPCI the two-billion dollar marketplace. Given that cPCI was controlled by three vendors (by definition a commodity marketplace), we called it the “zero-billion dollar marketplace”. Advocates told me that I was looking at the tip of the iceberg. I said that we were looking at the tip of the ice-cube!

The outcome was a no-brainer. commodity markets don’t grow as strong and as large as polyopoly markets (those that support a broad range of vendors). In addition, virtually every cPCI design was custom – not off the shelf. So who won? Not us – we were correct in our analysis, but no one bought our research. Other market research firms made a lot of money selling what vendors wanted to hear – but those vendors (Force Computer and Motorola Computer Group, among others) are long gone.

We never regretted our strategy – although we didn’t make any money in having the correct analysis. Ten years later, we are still here and doing fine.

The EMF Approach to Comprehensive and Reliable Market Intelligence

EMF’s Market Intelligence Program involves three steps

• A comprehensive and statistically accurate survey statistically derived to insure randomness
• An initial series of cross-tabs to provide an overview of the survey results
• And an interactive Dashboard that enables you to explore the data set to  determine relationships in the data that can be essential to one’s efforts

No survey is adequate unless the data can be interrogated from a multitude of perspectives to establish relationships and correlations. EMF does this using a unique tool we call the Executive Dashboard.

A well constructed survey and the use of the Dashboard can provide the following:

• Determine comparisons between your competitor’s products and yours

• Determine developer metrics: number of developers per project; number of lines of written code as well as total lines of code; cancellations; designs completed ahead of or behind schedule – and how many months behind schedule; and, comparisons between pre-design expectations and final design results – and be able to do this for any vertical market, any chip architecture used, etc.

• One can look at developers’ most pressing concerns, what design processes are used and what developers believe are best practice

• Look at product line deficiencies and needs

• Look at what developers are planning to use and do

• Degree of satisfaction of customers with products and tools

• Find market messages that resonate with potential customers, and keep products aligned with these benefits

We have put together a series of videos to illustrate how our surveys are constructed and how the dashboard is used. We encourage you the reader and embedded professional to think about how you evaluate information that is critical to your success.

You don’t want that black cloud telling you that “now you’re screwed”. The only thing worse would be if you had paid for that information.

Comparing EMF Blog Reader’s Responses with Those of the Embedded Industry

There is an old Chinese curse that says “May you live in interesting times.” As the pace of technology change continues to accelerate (did anyone consider the ascendancy of Linux in the past or Android today?) the plight of many embedded developers and managers (not to mention cost controlling CFOs) – many facing limited windows of opportunity – makes choosing among the best alternatives very difficult.

For the past 15 years, EMF  has conducted detailed and extensive surveys of embedded developers. Using the EMF Executive Dashboard (a data analysis tool unique to the embedded market intelligence community) we have been able to relate the decisions of embedded developers to their design outcomes. This also enables us to develop ROI and total cost of development calculations to establish the most cost effective of the many possible design undertakings. Our readers and downloaders of our many white papers are familiar with our results.

In our 2011 EMF Survey of Embedded Developers, we asked our readers to take the same survey as that of the statistically accurate industry wide survey. It has been an assumption/theory of mine that embedded professionals that take the time to research and read authentic market intelligence would produce better and more cost effective design outcomes.

We are currently examining this comparative data and we will report on our analysis in a later blog or white paper. The first step, however, was to look at whether there was a difference in how our readers stay knowledgeable as compared with developers in the industry at large.

Comparative responses to the question “How do you typically first become aware of and stay knowledgeable about embedded products and services?” is presented in Table I.

EMF Blog readers are far more diligent about gaining information than the typical industry professionals with web searches and white papers being the principal sources of information. It is interesting to see that web advertisements and virtual events constitute the least sources of important information.

                                                                          Table I

In the 2011 survey, developers were asked to choose from a list and select only two sources of information that they trusted the most to provide the quality information that they need.

The overwhelming response from industry developers was from “Peers”, whereas our Blog readers equated Peers with Vendor Websites, Professional Magazine Websites and White Papers.

Frankly, the fact that so many respondents selected Vendor Websites as a leader among the most trusted sources of information came as a major surprise to me. Why embedded professional would trust that vendors “tell the truth, the whole truth, and nothing but the truth” boggles the mind.

But statistically accurate developed information is what it is – a reliable picture of reality. Like it or not – believe it or not – it is what developers are reporting. In market intelligence, it is useful to speculate and to hold hypothesis until proven wrong. Slanting data to please a customer is doing a disservice.

The responses to the question “Which TWO sources do you trust most to give you quality information that you need?” are presented in Table II.

                                                                                Table II 

Stay tuned for more data comparing embedded professionals that are EMF Blog readers with embedded professional industry wide.

EMF has recently published a detailed analysis of the Mobile Device Industry focusing on best practices and ROI analysis. This paper is available for free download from our website.

  Overview: It’s not easy being a mobile device manufacturer today

 Profound economic conditions spawn profound opportunities and challenges. As in any economic contest, there will be winners, losers and those that can’t tell the difference. Market uncertainties challenge vendors and OEMs alike to find new niches, competitive advantages and markets that will remain stable while enjoying growth potential.

For example, the FCC has recently adopted a regulation that could dramatically improve our wireless devices. The rule offers a brand new and much-improved slice of the radio space for unlicensed use. The new frequencies are known as “white spaces” and result from making available to the public the frequency spectrum previously used by analog TV transmissions. This spectrum will enable greatly enhanced WiFi capabilities which will provide for mile-long connectivity as well as increased and more reliable data handling capabilities. One can imagine the many new and powerful apps that will emerge – most of which will require reusing developed code.

EMF believes that this will both increase opportunities as well as risk for mobile device manufacturers. EMF strongly believes that the issues we present in this report are essential to those manufacturers that will dominate this emerging market opportunity. Merely maintaining a growing position in the current expanding marketplace will not be competitively sufficient.

As processor costs continue their downward spiral, and as fickle consumers of mobile technologies are increasingly ready to move to more interesting and useful displays and functionalities, consumer-based markets are becoming characteristically disposable. New platforms appear nearly monthly – like quantum particles appearing and disappearing into the void of consumer insanity – characterized by more functional and entertaining GUIs that enable the technologically disadvantaged to easily link to social sites, read email, text and perform acts of information magic that would have made Merlin give up his wand.

Points of Pain: issues that mobile device manufacturers must consider to remain competitive

Manufacturers must understand that the value proposition for mobile devices is in the software – not in the hardware

Code Reuse

The mobile device market is becoming increasingly disposable. Newer chips offering additional capabilities are coming into the market at a rapid rate. Given the cost of chips falling rapidly, we are facing a ubiquitous seamless market in which product turnover will be measured in months – not in years. In order to remain competitive, manufacturers must be able to retain all or part of developed and tested application software. EMF expects that manufacturers will learn to capitalize application software.

In addition, mobile device manufacturers must be able to modify legacy code in order to create new apps and displays. Having to replace existing code for every change of hardware to introduce new applications is extremely costly, time consuming and a downside burden if windows-of-opportunity are missed. These are the true measures of risk – and manufacturers that ignore them do so at their own peril.

Product Portfolio Management (PPM)

Given the high cost of software development and the importance of time-to-market, manufacturers are confronted with a litany of available platforms, any one of which might significantly increase sales or, conversely, increase competition and reduce revenues. Currently developers are faced with the choice of Android, RIM, Apple and Symbian platforms. Consider the advantage of being able to export application software that can be modified to work on these platforms, interchangeably.

Let’s expand on the concept. PPM can be used to develop a comprehensive set of requirements to address different standards required by different countries. For example, the GPS GUI supported in the USA (e.g., Tom-Tom, Garmin, etc.) shows a car situated in the center of the display while road conditions move from top to bottom. Conversely, in parts of Europe, the car appears to move from bottom to top reappearing at the bottom again with the new road display.

These differences can easily be contained in a single set of requirements from which traceability tools can be used to extract the code appropriate to the application. This example represents one of many ways to get to code reuse and is the basis for Product Line Engineering (PLE – which will be discussed in detail in a future paper).

Security

Success among mobile devices has bred a new wave of security concerns as hackers are finding value in hacking mobile devices to obtain remote banking access, CRM intelligence, medical data, and otherwise just being a nuisance. With wireless technologies consuming a greater portion of the communications marketplace, the ability of outsiders to obtain data transmitted over wireless connections, conduct phishing ventures and otherwise disrupt commerce is creating a need for mobile device security.

Embedded security is not well understood – even by very experienced embedded developers – and is frequently integrated into embedded systems incorrectly. Just as the early networked desktop PC’s and server’s were unprepared to address the new security implications of network connectivity, today’s mobile embedded systems present a significant new security concern, which must be addressed immediately and systematically. 

Furthermore, the reuse of desktop code introduces additional security risks for code that is not completely understood nor adequately mapped.

Complexity

It doesn’t take much of a leap of intellect to appreciate that a systems modeling approach on a broader scale can contribute to PPM as well as effectively address complexity. Certainly, the evolution of mobile capabilities adds to systems complexity. Furthermore, the ability to effectively manage the design process addresses and enables code reuse, and it also deals with understanding legacy, third-party and evolving interfaces brought on with new design features and requirements.

       But what is worse – bad information or no information whatsoever?

I recently read a story about an explorer looking for artifacts along the Amazon River when he happened upon some 50 or more tribesmen each carrying spears. Fearing for his life he cried out “Dear Lord I’m totally screwed”. A dark cloud appeared and a loud voice cried out, “you are NOT screwed – pick up the stone in front of you and kill the chief.” The man picked up and threw the stone hitting the chief in the head, killing him instantly.

The explorer looked up to see more than 50 tribesmen running at him aiming their spears at him. Looking up to the dark cloud, he heard the voice say “NOW you’re screwed!”

This is what Dolores and I ponder when we are publishing survey-based market intelligence and using it to address opportunities and threats that confront our subscribers. Giving advice is easy – giving “good” advice based on statistically accurate comprehensive surveys is essential.  

We carefully track what we and what others publish and how close each of us comes to correctly forecasting the marketplace. As Dolores is relatively new to our industry, she is finding it hard to understand why market research groups that have been grossly wrong made much more money than we did. Dolores was beside herself asking what happened to those companies that got it wrong. The answer is nothing – newer companies bought their research and the analysts that were wrong found new lines of work. We, on the other hand, have been here for 15 years and plan to be here a lot longer.

Before we get to our forecasts, let me provide some background. Perhaps some of you can help me answer some of Dolores’ questions – questions that I wish I could answer. Times have changed since I was on your side of the industry.

 A bit of background:

Dolores moved from education to the dreaded private sector when we became engaged some 5 years ago. Though having sufficient credits to complete a Ph.D. in performance analysis for validating student progress (skills that would bide her well at EMF), she was already at the highest pay level she could attain and she was more interested in seeing student improvement first hand, rather than theorizing about it and writing papers for her peers.

The professional environment in which she performed was union-based and raises were predicated on time on the job, degrees and post-graduate credits – actual performance was not a consideration and tenure was earned in as little as 3 years.

Her transition to our performance-based world was easy – she studied hard and attended many conferences and technical presentations over the years, yet her background in data analysis and performance outcomes supported her curiosity regarding how businesses grow or fail based on how they use available information for strategic planning, competitive analysis and sales support. Not only was she able to support my data-mining efforts with her experience, but she is able to ask embarrassing questions of me when she read (and schoolmarmed) my reports.

As embedded professionals, perhaps you can relate to the questions she has asked – and maybe provide us some feedback.

It usually begins with “I’m sure that this is a stupid question, but …” If I can’t explain it to her, then I probably didn’t think it through sufficiently.

Here are some of the many questions that she asks about companies in the embedded industry that I have a hard time answering:

1)     Why do companies with very smart people spend hundreds of thousands of dollars on sales development and much less on marketing?

2)     Why to companies that understand the value of marketing for sales and competitive positioning – and spend in some cases millions of dollars in their marketing efforts – spend very little on detailed, relevant and comprehensive market intelligence information?

3)     Why do these very smart people choose to ignore clear market signs (even when made aware of them) that can significantly impact current markets, future revenue streams and company survival?

4)     Why do so many European-based company CEOs micromanage their executives instead of hiring the best and freeing them up to success? Is this a better approach to corporate controls?

Forgive what might be construed as a commercial – what really drives her buggy is that she asks me (and not infrequently potential subscribers) “Tell me what I’m missing here; Companies can have access to detailed data that they can use for sales promotion, strategic planning, and competitive analysis for less than one-fourth what they pay for an administrative assistant. Moreover, they can have access to the information that the US military and many prime contractors have about them in order to better respond. Why isn’t someone fired?”

 What’s on the Embedded Horizon?  EMF’s look at markets that are in transition – creating opportunities as well as threats

Looking at Mobile Devices and Consumer Electronics

If you are in – or looking to get into – this market segment you will find plentiful opportunities and incredible challenges. New processors and new platforms are appearing regularly and the fickle user base will drop you without hesitation. Now that analog TV signals have gone the way of the Platypus, the FCC is assigning these “white channels” for public use. Herein we will see long range WiFi, and enhanced data handling capabilities that will provide new and dazzling apps that will drive newer markets. Time-to-market will be a crucial consideration, so the ability to reuse code and to apply such code to new interfaces and hardware will determine who will win and who will lose.

Do you provide mobile or consumer electronic products or applications? Do you know what processors, OSes and platforms provide better and timelier design outcomes? Does it matter to you? Is your resume up to date?

Looking at Medical Devices

If we separate medical devices into two cadres; one that supports devices that are attended to by medical staff (ultrasound, CAT scans, renal dialysis, etc.), the other that needs to operate independently of medical support staff (patient monitoring) we see that the same technology that keep military and commercial aircraft operating under secure and mission critical conditions is overkill for medical applications.

Did you know?

• The medical device marketplace has been growing at a double digit rate – and new considerations should enhance opportunities for embedded vendors in 2011 – IF they take the time to correctly understand the selling points
• Considerable attention has been given to the medical marketplace by vendors seeking a safe haven from the expected decline in mil/aero. EMF believes that many such vendors don’t understand the market segment, how to sell to it, or what the users need and will purchase
• It would be funny if it wasn’t sad that certain leading RTOS vendors are pushing their certified high power, mission critical OSes towards an industry that develops products whose defining frequency requirements are less than 100 Hz
• New CDRH/FDA initiatives are acting to create opportunities and threats.

Having brought many products through the 510k process and to market, and understanding the purchasing value system within the medical device marketplace, I am amused at the hundreds of thousands of dollars that vendors throw away on pursuing meaningless approaches to this marketplace. Dolores gets the “everything looks like a nail theory” and it was hard for her to keep a straight face when one colleague who is a vendor’s VP told us that it took them a year (and mucho dinero) to discover that what we gave them for free was correct.

The Coming Tsunami

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 that observers (embedded vendors included) who expect small changes are mistaken, thereby fostering a false and dangerous sense of security across much of the industry and government.

The impact to our economy goes far beyond our current financial problems and involves fundamental structural changes taking place in the industry and in the market. As in prior shifts of this nature, there will be winners and losers – however these shifts may be profound, creating more dramatic winners and losers than in the last cycle.

The impact of major primes shifting financial challenges to their vendors (and by association to embedded sub-vendors) will reach down into the value chain, in some cases devastating naïve second and third tier vendors.

To make matters more challenging for industry, as spending draws down, the effect on industry will be dramatic beyond the proportions of top line reductions.  This will be caused by a squeeze on the so called “Investment Accounts.”  These Investment Accounts are the funds used for product development and buying equipment.

Embedded vendors that offer “high end” OSes and tools will be hardest hit as reductions in DoD discretionary funding and the actions of prime contractors to absorb overhead within the limits of their financial structure.

We expect to see reductions in outsourcing to and purchasing from embedded markets defined as “mission critical” and that involve MILS security, DO-178B, and virtualization technologies as these anticipated contractions take place over the ensuing 2-3 year period. Many high-end vendors are already looking to alternative markets to shore up expected reductions – but most lack the data to determine which markets they can competitively serve.

In a soon to be published EMF white paper, cadres of comparable design outcomes were developed between developers that used MBD tools and those that didn’t. Cadres were established worldwide, for North America, for Asia, and for Europe.

In addition, specific analyses were conducted for MBD and non-MBD cadres for Telecom/Datacom, Medical, Automotive Transportation and Industrial Automation application markets.

Total Cost of Development calculations were conducted using:

• Number of software and hardware engineers per project
• Time from design start to product shipment
• Percent of designs cancelled and the number of months elapsed before cancellation
• Percent of designs completed behind schedule and number of months behind

The following table summarizes EMF’s findings. For comparison, the cost per developer man month was chosen to be $10,000. Clearly, this dollar value is high for Asian developers. However this value was chosen for internal geographic analysis only – to establish whether MBD provided an advantage or not. These values are not to be used to compare, for example,  Asian costs with European costs.

Looking at worldwide developments (that is interrogating the entire database irrespective of geographic considerations), the following table summarizes the EMF findings.

It is interesting to note that in every analysis, regardless of the cadres used (i.e., each vertical or geographic comparative breakout), MBD projects used fewer developers. When analyzing cost overruns (i.e., the number of developer months lost to cancellation or late completion) to total project developer months, the percent of cost overruns to total project developer months was less for MBD in every analysis.

EMF suggests that this data shows that the advantages in using simulation-modeling as a design methodology are real and that these practices will be adopted for reasons not only related to design outcomes, but for financial ROI reasons as well.

Each year EMF conducts a thorough and detailed survey of embedded developers. Using the EMF Dashboard – a web based tool that permits vendors and developers to correlate information between any responses to any question, EMF presents selected insights from its analysis of the 2010 data. The Dashboard enables vendors to look at the responses of their customers (and potential customers) as well as to their competitor’s customers. This provides invaluable insights for strategic and sales planning. Developers can see what their fellow developers are considering in their selection criteria

Product opportunity windows are fleeting and time-to-market issues dominate design considerations. The two factors that invariably make the difference between success and failure are first, the knowledge that comes with an accurate insight into the internal and external forces which drive product markets and second, an insight into the concerns, desires and thought processes of those customers who make the decision to purchase a particular product or deal with a particular vendor.

The following data, taken from the 2010 EMF Embedded Developer Survey, addresses many issues of which embedded vendors and developers should be aware. The data presented here represents embedded industry averages across many application verticals, many vendors, many OSes, etc. Subscribers to the 2010 EMF Market Intelligence Program have access to their custom Executive Dashboard with which they can create unlimited cross tabs to further examine the data presented here.

 Criteria Most and Least Important to Developers in Selecting an OS

Developers were asked to indicate which criteria were most important to their decision in selecting an OS. The top (most important) responses and the bottom (least important) responses are presented in the following tables.

There was an interesting reordering of priorities in 2010 with cost remaining the principal factor. Realtime performance fell (no surprise here) and safety certifiable and virtualization remained as a small part of the collective consciousness of embedded developers.

Dolores and I made our annual trip to the Left Coast to attend the annual Embedded Systems Conference last week. It was the best ESC West in many years – more booths; larger booths; good floor traffic; interesting announcements and new to embedded players.

I’m not sure how Rich Nass does it – but the keynote speaker was again excellent. This time Michio Kaku, the co-founder of string theory and TV science presenter was the speaker and was charming, funny (but Seinfeld can breathe easy), informative and delightful. We joined the mass exodus to avoid the obligatory hour dedicated for the Microsoft Embedded Group (aka MS Purgatory – otherwise known as We B Arrogant). Granted that Microsoft contributes a lot of $$ to these very important events – for which I am grateful – but give me a friggin break MS, Windows 7 is not the promised land for the embedded world.

This was the year that the chip companies made confessions of love to many OS companies. Freescale made announcements with such stalwarts as Green Hills, while Intel teamed with LynuxWorks for an ill chosen medical product. ARM was very impressive as was Microchip, while Xilinx ran away with the FPGA application announcements. Xilinx for the 7^th consecutive year (by EMF survey data) was the most used FPGA in the embedded space (and had the best ROI).

Green Hills also made a networking arrangement with Cavium (who recently acquired MontaVista and MV Linux) which caused us to ask if Dan O’Dowd (who has publicly claimed that anyone who used Linux was brain dead – or worse) had to be drugged or restrained to cut a deal with a Linux company. We checked the stock market for Prozac manufacturers to see if consumption was up in Santa Barbara. All chuckles aside – it was an excellent deal for Green Hills.

It surprised and impressed us that Green Hills made behind the scenes moves that portend for significant growth and positioning against Wind River by hiring two individuals that bring another dimension to the competitive marketplace that will be to their advantage. Although I’m not obliged to keep such under wraps, I do respect the Green Hills folks and will keep these details to ourselves – other than to mention that they are the first of the usual suspects to clearly see the light.

Also impressive was the traffic through the VersaLogic and Synopsys booths. Although Kontron had the large booth, VL garnered significant leads. Also the large Express Logic booth had standing room only for their presentations – recognition of how ThreadX continues to grow. Micrium, though having a smaller booth had significant traffic as well. This shows that the smaller OS companies are making progress against the larger incumbents.

We were also impressed with our discussions with MontaVista. They had requested some specific questions be placed in the 2010 EMF Survey of Embedded Developers – questions that we didn’t clearly understand, but as we had the room for them we included such. They explained to us how these questions allowed them to quantify actual BOM costs for open source Linux and how this enhanced their market strategy. As they are the only commercial Linux company to provide a mid-development migration path for RYO Linux developers to roll into their MV6 product, we were delighted to learn how they used our data to arrive at their findings (we learn a lot from our subscribers).

A year ago Glenn Perry was handed the reins of Mentor’s group from Neil Henderson. Glenn at that time laid out what we thought was an overly ambitious agenda – we were wrong. Although much of our discussions were for internal consumption only, we can tell you that they have made impressive gains and are on the verge of major gains.

It is becoming clear that discretionary DoD funding levels are falling and OS companies have been running to the medical devices industry to compensate. As most companies are in love with their products and feel that they have the cure for the imaginary disease that they feel will cure and enhance the medical devices marketplace. Having built a number of medical device companies (taken two public) and having successfully filed a very large number of 510k applications, I found it interesting that no one wanted to listen to what we feel are the needs of medical device manufacturers and where the sales process differs from different verticals (most want to believe that medical and defense verticals have the same requirements).

It is interesting to have discussions with companies (they know who they are and I won’t embarrass them) to learn how many hundreds-of-thousands of $$ they have wasted being off message on who they were targeting and what they were offering. For such brilliant folks, they forgot the basics of market intelligence.

IBM Rational was in attendance and on-target and impressive as always. Artisan didn’t show with their MDD offering which was probably a good idea on their part. General Dorriot – the head of the original funding group of Digital Equipment Company – once wrote “bad ideas like dead horses should be buried with a minimum of ceremony”. Atego, the renamed Artisan group that includes Aonix, was represented by Gary Cato – a wonderful and incredibly patient and competent guy who made the rounds with spirit. As in the play Death of a Salesman, Gary is finding limited success notwithstanding that he’s firing at targets with limited ammunition. He has my vote as the most unsung hero at the show.

For those of our readers that are in or interested in the medical devices arena, EMF has produced a market brief, Critical Issues Confronting Medical Device Manufacturers – EMF Guide for Medical Device Developers

http://www.embeddedforecast.com/emf-briefs.php

Fanaticism consists in redoubling your efforts when you have forgotten your aim – George Santiago

Tough economic times create strange bedfellows. Does one need to purchase a technology, with its attendant costs and complications, when a lease or partner relationship would suffice? Do complimentary technologies and markets provide a return greater than the sum of the parts – or is the result characterized as “subtraction by addition?”

 EMF believes that embedded consolidation through acquisition will be the norm over the next few years as roll backs in DoD discretionary funding impact the larger purchasers.

 Let’s look to four recent acquisitions with an eye on compatibility, growth potential and whether there is a measurable outcome. Is this a trend, a lifeline or a passing strategic initiative – you decide.

 These include:

• IBM Rational buys Telelogic
• Intel buys Wind River Systems
• Cavium acquires MontaVista
• Artisan acquires Aonix

IBM Rational buys Telelogic

Recently IBM Rational added Telelogic to their comprehensive product lines and markets. We reported it as the Great Train Robbery of 2007. For around $800 million, IBM became the most capable and effective organization in the embedded industry, bringing with it the ability to link IT and embedded technologies under the rubric they call “smart devices”.

• Telelogic (along with the I-Logix acquisition) products have particular strength in software and systems development (in particular Rhapsody), requirements management (DOORS), and enterprise architecture. Their reputation in automotive, telecom/datacom and aerospace and defense systems development is outstanding
• IBM Rational brings IT development strengths to the partnership in addition to Rational Development Suite, DoDAF and MoDAF architecture capabilities as well as an impressive and unique communication infrastructure for cooperative development and management (JAZZ)
• This combination of capabilities gave IBM the ability to integrate many embedded tools within their Model Driven Development (MDD) thereby expanding the marketplace for other embedded vendors.
• IBM Rational acquired some of the best systems engineering talent in the industry – and a senior VP that is revolutionizing the embedded industry by organizing around markets rather than products.

How has this worked out for IBM? In 2009, which was admittedly an economically troubling year, Telelogic revenue contributions nearly tripled. EMF calls this acquisition multiplication by addition.

Intel buys Wind River Systems

Did either of them think through their respective channel strategies? Will Freescale users convert to Intel – or will there be a sales pushback?

So what’s in it for Intel and why did Wind River bail out so easily? Let’s look at the facts:

• Intel doesn’t need the additional $300 million on their balance sheet
• Wind River has been losing market share for some time now and their “subscription model” (which they have abandoned) cost them dearly in the mil/aero marketplace and allowed Green Hills and LynuxWorks to significantly underbid them
• Rob Davidson, Wind River’s VP of A&D, has publicly stated (at an Intel sponsored event no less) “let me make it clear that Wind River is a Freescale company” since 85% of Wind River’s military sales are Freescale-based
• Intel, notwithstanding their successes, is facing considerable competition from ARM and FPGA vendors – particularly Xilinx
• The Mil/Aero market and the primes that spend the most on embedded technologies and sub-systems are decidedly moving to a “software centric” purchasing model

Truth be told – both Intel and Wind River are missing the emergence of an embedded market that will soon overshadow the rest of the marketplace. It involves several components – none of which are within the new Intel’s capabilities.

• Systems development – with C and C++ developers working simultaneously on the same development
• Unique problems associated with systems-within-systems developments and long term support of such
• The new era of “Smart Devices” – the merging of IT database capabilities securely communicating with intelligent embedded devices

So, how will this work out? From Intel’s point they have really nothing to lose. They bought Wind River at a somewhat generous revenue multiple, but will get that back in a few years, even if Wind River continues to lose market share. Wind River’s legacy revenues in telecom and mil/aero will continue to fill Intel’s coffers.

There is a chance that Intel will be able to cut into Freescale markets and pick up new chip revenues. However they have a terrible record when it comes to successful acquisitions. Wind River’s global distribution agreement with Kontron for VxWorks and Wind River Linux is an example of why Intel will make back their investment.

EMF rates this “neutral”. Whereas mission critical applications are a fraction of broader embedded sales, the lack of a competent systems capability will be a drag on future expansion opportunities.

Cavium acquires MontaVista

Here we have a chip company acquiring an established Linux market leader. MontaVista is a major driving force in the embedded Linux marketplace.

Fifty percent of the current Linux marketplace is for in-house, or what EMF calls Roll Your Own (RYO) Linux – as distinct from commercial Linux offerings. EMF research has shown, year-over-year, that commercial Linux products produce a superior ROI to RYO Linux. The commercial Linux market opportunity would be enhanced if commercial Linux products were able to rescue RYO developments that are failing or reach a stand-still position. MontaVista is the first commercial Linux provider to provide such a solution.

By having Cavium’s resources behind them, MontaVista is in a commanding position to maintain their advantage over Blue Cat and Wind River Linux initiatives.

EMF believes that this acquisition is an excellent one for the following reasons:

• Acquisition gives Cavium multiple revenue account opportunities. One by winning the processor design, two by selling SW and services during the design phase, and three by generating revenue in software and services even if they lose the design
• Cavium’s 140-2 security certification makes MontaVista the only embedded OS vendor that has this important security capability
• The investment of a public company like Cavium in MontaVista adds stability to the embedded Linux market.
• Cavium has a history of delivering solutions that work with other company’s processors.
• MontaVista should be able to invest in more multi-core and virtualization technologies. While this benefits Cavium, it also benefits all of their semi partners with multi-core processors. Another potential win-win.

Embedded Darwin Awards

One of my favorite readings is from the book The Darwin Awards which reports on those whose carelessness and ignorance contributed to their early demise thereby removing them from the genetic pool. Quoting from the 2008 edition:

“The Darwin Awards celebrates those who have dived headfirst into the shallow end of the gene pool. From offering a beer to a bear to self-testing a Taser to jumping off a drawbridge on a bike, The Darwin Awards Next Evolution honors these macabre and entertaining feats of hapless misjudgment”

The following example might have earned at least an “Honorable Mention” if the book carried embedded technologies as a subtopic. 

Artisan acquires Aonix

This to EMF is one of the stranger acquisitions of recent memory. Take one struggling company attempting to climb out of the shadow of IBM Rational’s MDD capabilities acquiring a company that has been in free-fall for the past four years in order to gain a marginal Real-time Java capability. Some may remember that 5 years ago RT Java was forecast to displace C++ for military applications in order to permit software to inter-operate across different hardware systems. Fast forward to today and C++ is more entrenched than is Java. So buying Aonix to gain access to a Java capability (that is competing directly with IBM) that is readily available for licensing is like searching for a wife at a brothel – too expensive (it’s cheaper to rent) and history suggests that it won’t provide a long term benefit.

Someone should have asked Artisan if they knew the difference between Santa Claus and the need for RT Java (the answer is that there really is a Santa Claus) before they made the acquisition.

To add to their pain is the re-branding of the combined companies to be called Atego (this makes sense to change the Aonix name – but the Artisan name as well?). This is the 3^rd acquisition in the past year and a half for the management bought-out Artisan enterprise.

So why did this happen – and to whose benefit is the establishment of Atego?

EMF might accept the argument that a vastly superior management team could make a difference by integrating the companies – yet the Aonix component remains under the control of the management team that ignored market realities and caused Aonix’ decline.

The Artisan folks are not stupid people – misguided perhaps. EMF suspects that the investment bankers at risk for each of the enterprises came together to attempt to minimize risk.

If so, perhaps these bankers might have followed Warren Buffett’s admonition “When management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it’s the reputation of the business that remains intact.”

We are not sure that Buffett would characterize Artisan’s management as brilliant.

File under “assured mutual destruction.”

When will the next shoe fall? 

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.  These impacts will reach down into the value chain, in some cases devastating naive second and third tier vendors as major primes shift financial challenges to their vendors.

These third tier vendors constitute the embedded marketplace.

One might expect that in a market contraction, companies would seek to outsource more seeking lower costs.  We think this will happen for some defense firms, but we believe that many will resist it.  The largest contractors have been formed by merger and acquisition activity.   In many cases, large fixed costs have been merged on corporate balance sheets and are being depreciated.  Outsourcing might require significant write downs for post-merger balance sheets.

EMF expects to see a necessary consolidation of vendor offerings as falling revenues will be stabilized by acquisitions – acquisitions that might be found at bargain prices.

EMF considers the usual suspects in its published research.

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