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.

A few months back I gleefully reported what the voters of Massachusetts did for the medical device industry by electing Scott Brown as our new Senator. The US Senate had cobbled together a poor Health Care Bill in order to send it onto the House of Representatives assured that the Republicans would not win Kennedy’s seat and gain the blocking vote. It was, by admission of many Democratic Senators, a terrible bill – but that it would be cleaned up in a House-Senate conference. 

With Senator Brown finally seated it seemed to be a no-brainer that the Health Care Bill would have to be dropped or reconfigured as it would not stand a filibuster challenge.

I was one of those relieved given my concern for my beloved medical device industry which was going to be the scapegoat of the current administration and be severely taxed for no other reason than its name sounded a lot like the pharmaceutical industry. I felt that we had ducked a massive bullet.

The gross distortions in favor of forcing through the bill under Reconciliation were mind-numbing. How the public could be convinced that spending more than a trillion dollars would result in a “massive middle class tax reduction” and how could taking $500 billion out of Medicare “strengthen” it?

Here’s what has happened and what we might expect – how much more damage can Congress inflict before the November elections?

Companies small to larger have written down expected charges to their bottom lines in order to comply with Sarbanes Oxley accounting practices. Caterpillar has charged their books a billion dollars while AT&T and other companies have taken write-downs in the range of $30 – $500 million. Of course Congress wants to interrogate their executives whose crime seems to be that they are complying with the laws set forth by Congress itself. Company executives could go to jail if they failed to disclose to investors how their expenses might change.

So the country is beginning to see the financial impact of Obama Care.

Massachusetts medical device companies are threatening to move their manufacturing and development facilities out of the US entirely. This is interesting given that our governor is a pal of the president. Our governor is “shocked” that hundreds of Massachusetts based life sciences companies would leave or export much of their business out of the country.

Of course he should be concerned – the medical industry is one of the few segments of the Massachusetts economy creating jobs. Thousands of Massachusetts jobs are at risk – and our federal and state elected officials seemed surprised. Go figure.

With many embedded vendors targeting the medical devices industry to hedge against expected A&D cutbacks, the consequences of the Health Care legislation couldn’t have come at a worse time. The financial impact of this legislation requires massive tax increases to pay for it, so if one group is given a safe haven from this taxation then other segments will be harder hit in order to cover the revenue needs.

Also, should the Supreme Court find that the legislative requirement that all US citizens must purchase health care (how can interstate transport laws pertain to those that don’t chose to buy?) is unconstitutional, the current congressional membership will certainly impose additional taxes on those already hit hard – and that would mean we the members of the medical device industry. We can’t expect that the members of congress would change their minds regarding the legislation given the sleazy way they forced the legislation through.

Of course should the mid-term elections change the constituency of the House of Representatives, they could choose not to fund the Program.

What is happening here in Massachusetts is happening across America. And those of you either currently in the embedded medical device industry or hoping to find new markets herein should pay careful attention.

Notwithstanding our weak global economy, the mindless imposition of new taxes (and the anticipation of additional taxes that are unknown to us at this time) can not only set our economy back further, but is likely to gut the embedded market segment that has shown the greatest growth in revenue and employment year-over-year.

Massachusetts Senator Scott Brown, who has filed an amendment that would repeal the tax, wrote “with unemployment in my state near 10%, placing a tax on medical devices is the absolute last thing we should be doing right now”. Our governor responded by saying health care reform is “very good for the people of America and the people of the commonwealth.”

Good luck Scott – November is only 8 months away.

I wonder how Schwarzenegger in California (whose state is harder hit than Massachusetts) is taking all of this. He’s not a buddy of our prez which might be a good thing.

The State of Massachusetts had a special election to fill the seat held by the late Senator Ted Kennedy. Perhaps you heard of it.

Be warned – this is my first (and probably last) political blog. But I wanted to share with you what was the amazing response of our citizens – it wasn’t an election. It was a happening.

The Democratic primary was won in a landslide by Martha Coakley our Attorney General who promised, among other matters, to tax the medical devices industry (she didn’t say why – and didn’t think it was necessary to do so). In Massachusetts, Democratic registration is triple that of Republicans and our senators and representatives have all been Democrats for decades.

Notwithstanding my concern for my beloved medical device industry, it was going to be the scapegoat of the current administration and be severely taxed for no other reason than its name sounded a lot like the pharmaceutical industry. I was used to accepting the inevitable.

Confession is good for the soul – so let me share my long hidden shame. I have lived in Massachusetts 44 years. I came to work at MIT and attend medical school at Boston University. During that time I remained a fiscal conservative and registered Republican (who once had a Nixon sticker on my car) living in what we fondly call the People’s Republic of Massachusetts.

Moreover, I built 4 medical device companies (helping take two public) while living in Massachusetts rather than moving to tax-free New Hampshire and paid the confiscatory taxes. Somehow, for a guy with 5 college degrees, I just didn’t get it.

My experience in politics was minimal. I once (as a university professor) ran for the local school committee (as a Republican) and lost to a soda jerk (Democrat) working at a local luncheonette who admitted to being virtually illiterate. I lost by only 2000 votes (unfortunately out of 4000 cast). I voted in national elections only for the fact that I wanted to see my neighbors at the local high school.

There didn’t seem to be a reason to go out in the cold to vote against the political machine for a state senator who was one of only a few Republican members of the Massachusetts legislature.

But then I noticed that the polls that once gave Coakley a 31% lead showed that Brown had drawn within 2 percentage points – and an amazing thing happened. People everywhere were cautiously asking “what do you think of Scott Brown?” When I answered that we were going to vote for him, we experienced an unusual outpouring – like a confessional (being Jewish – but having a Catholic wife – I can only assume that it’s this way). Registered Democrats and Independents were confessing that they saw a way out of this mess. Some were engineers, others teachers, others just working folks but they each understood that we can’t tax innovation and small businesses out of existence. And they were encouraged to participate and help get out the vote (Brown won by 5 percentage points).

Americans are resourceful and the emergence of and growth in medical, computer and embedded businesses are what gave us the greatest standard of living the world has ever seen. Small businesses contribute 80% of job growth. We have been tracking local and out of state technology (and energy) companies to get the pulse of future employment. I have spoken with engineers that are getting a lot of interviews (for when the crunch comes) but no offers. I’m told that companies are waiting to understand the financial risks they will have for funding employee health care under the proposed Senate and House bills. Also there is a fear as to which markets will be arbitrarily taxed (currently banks and healthcare – but potentially telecom) that need to be resolved before small and medium sized businesses will increase hiring.

So, for my friends, colleagues and neighbors this was not merely an election – this was a happening! I have received emails from colleagues around the USA expressing their joy and relief.

Even though the Senate will only have 41 Republican members, what happened January 19, 2010 in Massachusetts (known as the Scott heard around the world) may well be the dynamite that opens up the logjam that will help embedded vendors and developers get the loans and financing that they need to support growth.

Dolores, a lifelong Democrat who is equally frustrated about state politics, is now changing her registration to Independent. It’s hard to break an addiction.

Post Script: The Power of a Single potential vote

 Today, one day after the Massachusetts election, President Obama requested that his healthcare legislation be significantly scaled back to a less comprehensive but more affordable bill. This will reduce the need to tax the medical devices industry to pay for the larger proposed program.

Thanks Scott