Considerable attention and speculation has been given to the use of COTS hardware across different vertical markets, and whether this trend is expanding, remaining stable or declining. If the use of COTS is expanding, one would expect to see an economic benefit to its use – hence, a more important measure of COTS utilization would be reflected in the budgeted amount of COTS hardware as a percentage of total hardware cost.

In a recent 2011 survey of embedded developers (653 respondents), EMF asked respondents to report the percent of their total hardware budget that was devoted to COTS hardware.

Table I presents their responses according to vertical market. Whereas Aerospace/Avionics and Military had the highest response (these data reflect the percent of the COTS hardware budget compared with total hardware budget) Datacom and Electronic Instrumentation had a better than average response.

                   Table I

Table II presents developer responses according to chip architecture.

It is interesting to note that the budgeted percent of COTS hardware is consistent across all architectures, DSP and FPGA, but it is significantly larger for dual core and multi core developments. This might be due to the recent inclusion of multiple cores in embedded developments where the focus might be on software development within a mostly reusable hardware configuration. It will be interesting to see if this data is repeated in 2012.

                             Table II

Information regarding the survey and data can be found at

www.embeddedforecast.com.

Survey data and the use of the EMF Embedded Dashboard used to compute these data can be seen at:

http://www.embeddedforecast.com/emfmip_videos.php

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.

I have recently been contacted by senior executives from RTOS companies mentioning UBM’s survey of embedded developers that placed FreeRTOS as the most used RTOS for embedded use in 2011 (14% of respondents). FreeRTOS placed 3^rd in the 2010 UBM survey. Year-over-year EMF data is at substantial odds with these findings.

EMF takes no position on how UBM conducts their survey or on their results. EMF data for the past two years have shown that FreeRTOS usage has garnered less than 1% of total developer responses. This encompasses over 1200 responding developers. This is a significantly lower response than the 14% reported by UBM. EMF has no idea of how this discrepancy came about. We stand by our data as our surveys and responses are restricted and carefully monitored. We make no judgment regarding UBM’s methods or results. We are responding to requests to report our findings.

In EMF’s 2011 Annual Survey of Embedded Developers, eleven thousand embedded developers were statistically selected and sent invitations to participate in the 2011 survey. Six hundred and fifty three developers responded to our invitation. PIN numbers were assigned to each request so that we could insure that only those invited participated in the survey – and that they could respond only once.

In 2011 developers reported using an in-house RTOS (20.1%), Android (19.3%), XPE (16.5%) and CE (15.9%). FreeRTOS was used by 0.9% of respondents. From our perspective, the suggestion that FreeRTOS use would exceed that of in-house, Android, XPE, CE, or VxWorks use is beyond any reasonable reality check.

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.

This is not an April Fool’s joke. The fresh snow on my Massachusetts lawn and driveway was our unexpected April Fool’s joke. If you responded to our request of our reader’s to take the same survey as did our embedded industry respondents, be proud and go ahed and ask your boss for  raise.

We recently posted a Blog comparing EMF Blog readers with their industry counterparts regarding how they stay knowledgeable about embedded products and services. There was, as might be expected, a substantial difference between the two groups. Our Blog readers were far more aggressive is gaining information than their counterparts.

In that Blog we posited the question whether such professional conduct would provide better and more cost efficient design outcomes.

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 have examined this comparative data and we present it in Table I.

                                                    Table I

It is clear from Table I that the EMF Blog readers (that took the time to complete the survey – congratulate yourself if you did and show this to your boss) experienced substantially lower design costs that that of their industry counterparts. One might assume that professionals that take the time to keep current with embedded information would experience better results.

Judge for yourself.

Survey respondents were asked “How close was your final design outcome to your pre-design expectation?” The choices made available were: within 10%, 20%, 30%, 40%, and 50% and not within 50%. EMF believes that design outcomes within 30% represent a good design outcome – and within 20% represent an excellent design outcome. Table II presents the comparison between the groups.

                                              Table II

There is no difference between the groups. What we might deduce from Tables I and II is that although the design choices by our Blog readers were enlightened enough to produce a significant savings in design costs, their ultimate design outcomes were comparable. Of course, the pre-design expectation of the Blog readers might have been higher that that of the industry at large. This is pure speculation – the data does not support the assumption.

Nevertheless, if I was the CEO I’d go for the significant savings.

       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.

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.

(Sung to Santa Claus is coming to town)

Yes indeed – and it’s about time.

The FDA’s Center for Devices and Radiological Health (CDRH) reported that in 2006, 21% of all medical device recalls were for software defects – it is also estimated that one-in-three software-based products is recalled. They haven’t updated this data since, but one can assume that it might have gotten worse.

Medical device developers and company CEOs should be aware that this is an unacceptable situation and that it is going to rapidly change. Those that don’t get it straight won’t be around when the dust settles.

Is there enough aspirin to relieve the headaches that our government is giving medical device manufacturers? Moreover, is it deserved? The answer – depending on the specific question – is yes and no.

The Obama administration under pressure from Congress has combined the medical device industry with the drug industry as one, and has proposed taxing both industries to pay for universal health insurance (Obama Care). Hopefully thoughtful senators and representatives will see that these taxes will be passed down to patients and other users and will also impact the elderly who most require such devices and can ill afford them – then again it is more realistic to depend on the Easter bunny. But logic is no relief for the headache – particularly when it comes to Washington politicians. It’s no fun being a medical device executive today.

On July 31, 2008 a Senate Bill cosponsored by Senators Edward Kennedy (D – MA) and Chuck Grassley (R– IA) was filed that  would require senior officers or directors of drug and medical device companies to certify under penalty of perjury that all information submitted for a product’s approval is accurate and in compliance with federal regulations.

The Drug and Medical Device Accountability Act Bill expired at the end of the two year Senate session on December 31, 2008, but was refiled in the Senate (2009) with the hope of amending the current legislation by the end of October 2009. This is an important piece of legislation, and medical device executives should get their house in order to accommodate the provisions.

The Bill provided that product applications later found to have contained false or misleading information would be subject to stiff fines (up to $5,000,000), assessed both to companies and their senior officers, who, in addition, could face jail sentences of up to 20 years. These are serious issues. Currently the CDRH has a forensic group that looks at device software only after a device has been recalled.

This is a bad time, and a very costly time (regardless of the Act) for a medical device manufacturer – particularly if software development hadn’t been given the detailed oversight of using best practices. The new Obama tax on medical devices – used to pay for Obama Care – is allready a blow to the industry and to smaller medical device manufacturers.

The “Drug and Medical Device Accountability Act” will change the medical devices industry similarly to how the Sarbanes-Oxley bill impacted corporate accountability. Laws being what they are, we should expect overkill from its enactment. This is why medical device company’s senior management should take time to rethink their strategic approach to the delivery of their products.

EMF has available a report presenting alternative paths for developers to produce quality software for medical devices, minimize product recalls, and affordably provide comprehensive audit trails for CDRH inspectors (Critical Issues Confronting Medical Device Manufacturers). Keeping the company alive and your CEO out of jail are bonuses.

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.

On November 10, 2009, Cavium, a publicly traded provider of highly integrated semiconductor processors that enable intelligent networking, communications, storage and security applications, signed a definitive agreement to acquire MontaVista. Cavium stated that MontaVista would continue to operate separately and their customers would not be restricted to using only Cavium processors.

Immediately, questions arose: 

• Who is Cavium and why did they make this acquisition?
• Was Jim Ready clipping Burger King Coupons?
• Was MontaVista motivated by Intel’s acquisition of Wind River?
• Does this mean that commercial Linux is facing financial do-do?
• What is really going on behind the scenes and is this a good or poor marriage? 

Security is one of the most neglected aspects of the embedded world and whereas the embedded focus has been on MILS and EAL security (which is a systems level orientation), the National Security Agency’s (NSA) mandated requirement for communications security (FIPS 140-2) is largely ignored. 

Cavium owns and markets the NITROX XL CN16XX-NFBE Adapter family; the world’s fastest FIPS 140-2 level 2 and 3 certified Hardware Security Module (HSM) with PCI-Express Gen2 connectivity in a low profile form factor and integrated Network Interface Card (NIC) functionality. 

Cavium’s more than 100 customers include Cisco Systems, Inc., F5 Networks, Inc., Sumitomo, SonicWALL, Inc., Citrix Systems, Inc., Blue Coat Systems, Inc., Juniper Networks, Aruba Networks, Inc., Nokia Siemens Network, IBM, Yamaha Corporation and Nokia Corporation. This is a very good match for MontaVista as well as for the embedded Linux marketplace.

EMF research has shown, year-over-year, that all commercial Linux products out perform “roll-your-own (RYO)” Linux developments – and MontaVista’s commercial Linux offerings showed a higher ROI than other commercial offerings. Their latest MVL-6 offering would permit RYO developers to move to MontaVista in the middle of their design without having to restart the development. EMF data also shows that embedded Linux use has become pervasive across many verticals and is preferred in many cases to commercial RTOSes.

EMF has been publishing and warning embedded developers, OEMs and systems integrators about the need for NSA required FIPS 140-2 security for the past 5 years – and we have been largely ignored. Cavium’s customers are keenly aware of the NSA’s requirement. Hence, we believe that this acquisition will further expand the use of MontaVista Linux by adding a security component that is unique in the embedded industry. 

The world of computer technology is rapidly changing and Tier 1 vendors that depend on military revenues are facing an 18% to 40% reduction in DoD discretionary funding. EMF believes that there will be a ripple down effect that will have dire consequences to Tier III (embedded) vendors. 

Hence, this acquisition makes sense to us as it brings financial stability to MontaVista and to the broader Linux community that it serves. 

In summary, we believe that this acquisition is an excellent one for the following reasons: 

1. 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

2. Cavium’s 140-2 security certification make MontaVista the only embedded OS vendor that has this important security capability

3. The investment of a public company like Cavium in MontaVista adds stability to the embedded Linux market. We believe that it positions MontaVista in a more favorable light by dispelling rumors (true or false) regarding their financial stability (an important consideration in up selling to military and prime contractors whose projects run for decades)

4. Cavium has a history of delivering solutions that work with other company’s processors.

5. 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.