During this webcast, originally presented on 12/8/2009, Steve Balacco, Director of VDC Research’s Embedded Software & Tools practice discusses the challenges facing embedded device & systems manufacturers and their embedded solutions providers and offer his thoughts on how they will have to adjust given current the current economic climate.

1. The Embedded Software and
Tools Market:
A Market Update and Outlook
Embedded Software and Tools Practice
Steve Balacco, Director Embedded and Tools

2. Recording Available
These slides are from a webcast presented on 12/08/09
12/08/09.
A full audio recording is available for download at:
http://www.vdcresearch.com/market_research/
embedded_software/freeresearch.aspx#Webcast

3. VDC Research
Complimentary insights & marketing data on the
embedded software and tools market available at:
www.vdcresearch.com
www vdcresearch com

4. Today’s Speakers
• Steve Balacco, Director – Embedded Software and Tools Practice
 9 plus years experience covering the embedded software and tools market
 Managing a team focused on major aspects of the embedded software and tools market
 Involved in all syndicated research and proprietary engagements
 Prior to joining VDC, Steve worked for over 30 years in the information technology sector developing software,
in sales and sales managements, and business development
 Eastern Nazarene College BSBA
3 –  2009 VDC Research Group, Inc.

5. Agenda
About VDC and Our Research
Market Definition & Segmentation
Market Estimates and Forecasts
Industry Consolidation and Opportunities to Grow Market Share
y pp
Topics of Interest
Future Market Outlook
2010 Service Year Overview
4 –  2009 VDC Research Group, Inc.

6. VDC Research, Embedded Software and Tools
Practice
• VDC Research was founded in 1971.
 Continuous, profitable operation since.
 Staff of about 30 located in Boston, Chicago, Los Angeles.
 Focus on a number of different technology areas including: Embedded Software & Tools, Embedded Hardware &
Systems, Mobile & Wireless, Industrial Automation, AutoID &Transaction Automation, Power Management, a number of
niche IT markets
• Over 14 years covering the embedded software and tools market
• Driven by extensive and constant primary research
 Supply side – Operating system, software development tools, and multi-core components and tools suppliers (00s of
telephone interviews annually)
 Demand side – Electronic Systems Manufacturers (000s of web surveys and telephone interviews annually)
• Syndicated & custom engagements with clients in the embedded software and tools market
• Practice Team Members
 St
Steve B l
Balacco, Di t
Director
 Chris Rommel, Analyst
 Jared Weiner, Analyst
• Practice Blog – On Target: Embedded Systems
 http://blog.vdcresearch.com/embedded_sw/
5 –  2009 VDC Research Group, Inc.

7. Market Definition and Segmentation
Scope of VDC’s R
S f VDC’ Research
h
Geographic Regions
g p g
Business/Office Automation
Retail Automation
Industry
Others
ospace
Segments
Military/Aero
A
Mobile phones
Embedded/RTOS & Mobile OSs
Industrial Automation
Automotive
Consumer Electronics
Medical
Datacom
Software and System Modeling Tools
Telecom/D
Technologies
Automated Test and Verification Tools
Virtual System Prototyping/ Simulation
Tools for Software Development &
Verification
6 –  2009 VDC Research Group, Inc.

8. Market Estimates and Forecasts
2009 i f
is forecasted t b a d
t d to be down year; moderated growth f
d t d th forecasted t return i 2010
t d to t in
Current VDC Forecast
Embedded Software & Tools Market Current & Projected Market, 2006-2010
(US$ in Millions)
(Excludes Symbian Ltd. revenues for 2006, 2007, and 2008)
2006-2010 CAGR: ~5% 2006 2007 2008 2009 2010
Market Size $1,960 $2,214 $2,334 $2,234 $2,416
Growth % 13% 5% -4% 8%
• The worldwide recession negatively impacted the market starting in Q408 and is has
continued through 2009.
 I
Impact was uneven across product categories – S i analysis tools expected to grow i 2009 all others
d i Static l i l d in 2009, ll h
contracted;
 All regions contracted – EMEA slightly more than The Americas and Asia Pacific
 Certain verticals are expected to be impacted more than others – automotive, consumer electronics, and retail
contracted the most medical de ice market is e pected to sho a lo single digit increase
most; device expected show low increase.
• VDC currently projects that the embedded software and tools market should grow again
from 2009 to 2010, however, the return to pre-recession rates will be at a slower pace of
growth.
• The the macroeconomic recession has impacted embedded systems manufacturers and
accelerated changes within the supply-side competitive landscape.
7 –  2009 VDC Research Group, Inc.

9. Impact to Embedded Systems Manufacturers
Companies l ki t weather th storm
C i looking to th the t
Company Cost Reduction Measures Past 6 Months Expected Company Cost Reduction Measures Next 6 Months
(
(Percent of Respondents)
p ) (
(Percent of Respondents)
p )
Hiring freeze 42.0% Hiring freeze 28.2%
Promotion/salary Promotion/salary
increase freeze 35.5% increase freeze 25.1%
Non-labor related
Staff layoffs 32.9% 24.1%
budget cuts
Non-labor related
32.4% Staff layoffs 21.2%
budget cuts
Across the board Across the board
salary decrease 13.5% salary decrease 8.3%
None of the above 22.3% None of the above 26.7%
Don't know 9.8% Don't know 20.7%
0% 10% 20% 30% 40% 50% 0% 5% 10% 15% 20% 25% 30% 35%
Note: Percentages sum to greater than 100% due to multiple responses.
8 –  2009 VDC Research Group, Inc.

10. Impact to Software Solution Providers
Organizations are under i
O i ti d increased pressure t cut costs – d more with l
d to t t do ith less
• Project starts -
 Scaled back
 Budgets reduced
 Delayed
 Canceled
• Financial implications
 Reduced upfront project license/subscriptions fees
 Reduced maintenance & support fees
 Potential impact to product shipments that effect royalty stream
• Increased focus on ROI for product investments and methodologies as project budgets
decrease
 Software component investments being scrutinized
• What products are critical to project success?
• Will engineer productivity improve?
• Can quality be improved?
• What impact will this have on schedule?
9 –  2009 VDC Research Group, Inc.

11. Embedded Industry Consolidation
How might th competitive l d
H i ht the titi landscape b affected?
be ff t d?
• Intel acquires Wind River Systems and Rapidmind
 It is clear that Intel viewed enhanced software and services offerings as critical to competing for next
generation embedded designs – Linux and multi-core support
 This acquisition has the potential to dramatically alter the competitive landscape, as well as the overall level
of adoption of commercial Linux in the embedded space
• P
Presents other market participants with the opportunity to capitalize on any uncertainty or
t th k t ti i t ith th t it t it li t i t
reevaluation around Intel/Wind support for non-Intel architectures
 OS and Tools Vendors
• If other semiconductor suppliers become less willing to share roadmaps with WRS
 Semiconductor P id
S i d t Providers
• Non-Intel suppliers look to expand strategic partnerships with other operating systems and tools
suppliers
• If a combined HW/SW offering emerges to significantly enhance system performance and application
development, then other processor IP or silicon vendors may need to consider their own acquisitions
or enhanced i t
h d internal software and t l d
l ft d tool development efforts.
l t ff t
 OEMs
• OEMs will ultimately dictate the behavior of and level of continued cooperating between the various
stakeholders.
• With many development projects requiring years of development and life-cycle support, the true
support
magnitude of the impact on the competitive landscape will not be known for some time to come.
10 –  2009 VDC Research Group, Inc.

12. Embedded Industry Consolidation
How might the competitive landscape be affected?
• Mentor Graphics Acquires Embedded Alley
 A th t diti l RTOS company offering choice b t
Another traditional ff i h i between th i proprietary OS and Li
their i t d Linux / A d id
Android
development and services
 Companies such as Wind River, LynuxWorks, SYSGO AG, Enea
 Renewed focus on the embedded software market
 Focus on expanding non-mobile embedded projects using Linux and Android
 Opportunity for the company to recapture lost customers who migrated from Nucleus to Linux and attract new
device designs
• Cavium acquires MontaVista Software - Linux yet again at the core of another acquisition
 Allows Cavium to diversify cash flow and recognize revenue at design win timeframe – not just as
semiconductor product shipment
 Guarantees future access to a commercial carrier grade distribution of Carrier Grade Linux (CGL)
• Critical to Cavium's strategic plans to grow their business in the networking space
 Acquisition continues to validate current and future investment in the software enablement strategies by
semiconductor suppliers
semicond ctor s ppliers
11 –  2009 VDC Research Group

13. How can Firms Take Market Share in the Current
Environment?
Unprecedented opportunities for suppliers to capture market share
• Consolidation creates an opportunity for second tier RTOS and OS players to shift market
share
 Expand relationships within the semiconductor industry
 Identify and pursue non-Intel-based silicon business opportunities
 Linux opportunities based on “silicon neutrality”
pp y
• By aggressively defending their core, and seeking out new ways to support existing and
new customers
 More integrated functionality
 Migration/porting support
• By taking cost out for their customers
 Deliver greater value from investments in software components
 L
Lower software development costs and i
ft d l t t d increase productivity
d ti it
• By listening to customers’ technical requirements – and creating roadmaps that balance
now-term ROI and potential for longer-term sustained competitive differentiation
12 –  2009 VDC Research Group, Inc.

14. Multi-core Impact on Product Development
Multi-core ~ G i i Ground and Grounding Expectations
M lti Gaining G d dG di E t ti
Processing Architectures • Multi-core processor adoption is finally
(
(Percent of Respondents)
p ) demonstrating year-over-year growth, with 2009
results showing usage of multi-core processors
up ~4%
61.2%
Single processor • Expected use of single processors continues to
30.0% forecast substantial decreases in favor of multi-
21.9%
21 9% core and multiprocessor architectures.
p
Multiprocessor Current Project
32.1% • Knowledge and experiences with the various
technical and commercial challenges associated
Multi-core and 8.6%
with migrating to these new architectures has
multiprocessor 18.5% Expected in Two finally moderated adoption expectations.
Years
6.5% • VDC expects that the growing use of multi-core
Multi-core
13.6% processors will increasingly influence the
adoption of embedded software solutions that
1.3% hold the promise of easing the migration to new
Don't know
5.8% complex hardware.
• With many of the commercial embedded
0% 10% 20% 30% 40% 50% 60% 70%
operating systems now incorporating some level
Note: Percentages sum to over 100% due to multiple responses. of multiprocessing support, much of the enduring
revenue opportunity will rest with vendors’ ability
to market and deliver differentiated tools that are
more optimized for multithreaded application
development.
13 –  2009 VDC Research Group, Inc.

15. Complexity Impacting Target Operating Systems
Open Source OS Use Advancing
O S U Ad i
Type of Operating System(s) Used on Target Embedded
System on Previous Project, Current Project, and
y j , j ,
Expected to be Used on Next Project • Respondents continue to indicate an increasing
(Percent of Respondents)
use of formal operating systems for new designs
46.9% as their evolving requirements necessitate
No formal OS used 36.2%
21.9%
change.
23.0%
23 0%
Commercially licens OS
ed 30.2%
• Although it is clear that chip- or board- supplied
chip board
31.0% operating systems will continue to satisfy a
20.6% number embedded projects, the percentage of
In-hous developed OS
e 22.4% engineers using them is expected to remain
15.3%
below 10%.
14.8%
Commercially s pp
y upplied/open s
p ource
16.4%
16 4% • Similarly, the investments represented by and the
OS
26.0%
differentiated and specialized functionality
16.0%
Publicly obtained open source OS 16.0% capable through in-house operating systems are
26.4% expected to continue to drive use by about 20%
5.8% of the respondents going forward.
Chip/board vendor s pp
p upplied OS 9.7%
6.6% • Publicly obtained- and commercially supplied-
2.1% open source operating systems are expected to
Don't know/not yet decided 3.4%
14.9% garner the highest percentage increases in use.
0% 10% 20% 30% 40% 50%
Previous Project
Current Project Note: Percentages sum to over 100% d t multiple responses.
N t P t t due to lti l
Next Project
14 –  2009 VDC Research Group, Inc.

16. Outsourcing to Third-Party Service Providers
Outsourcing non-value add – f
O t i l dd focus on core competencies
t i
Engineering Tasks Outsourced Percent of Engineering Task Effort being Outsourced
(Percent of Respondents) (Mean of Respondents)
Softw are app/middlew are
13.9% Mechanical engineering 73.6%
develop/test
Board level engineering
11.6% Operating system
test
develop/test
70.9%
Firmw are
9.3% Board level engineering
development/test 64.8%
test
Mechanical engineering 8.3%
System IC/SoC design/verification 62.9%
8.1%
integration/test/verification
Prototype development 6.8%
Prototype development 59.8%
Operating system
6.4% Firmw are develop/test 56.7%
develop/test
3.1%%
3 1%% System
y
IC/SoC design/verification 45.9%
45 9%
integration/test/verification
Project mgmt/planning 5.6% Softw are
application/middlew are
40.6%
System architecture
5.2%
engineering Algorithm engineering 38.9%
Algorithm engineering 5.0%
Requirements Project mgmt/planning 36.7%
3.5%
t/ ifi ti
mgmt/specification System architecture
Don't know 8.9% engineering
35.5%
Requirements
No outsourcing 52.6% mgmt/specification
26.3%
0% 10% 20% 30% 40% 50% 60% 0% 10% 20% 30% 40% 50% 60% 70% 80%
Note: P
N t Percentages sum to over 100% d t multiple responses.
t t due to lti l
15 –  2009 VDC Research Group, Inc.

17. Outsourcing to Third-Party Service Providers
OEM shortage of technology talent?
h t ft h l t l t?
Primary Geographic Sub-Region to which Engineering
Tasks are being Outsourced
g Expected Change in the Amount of Outsourcing for a
p g g
(Top Three in Rank Order) Typical Project at Respondents' Companies
(Percent of Respondents)
Operating System development/test
50%
•North America 40.1%
40%
•India/Pakistan/Bangladesh
30%
•Western Continental Europe (excluding Scandinavia) 21.3%
20% 16.3%
Firmware development/test 8.9% 9.4%
10% 4.0%
•India/Pakistan/Bangladesh
0%
•North America Significantly Decrease Stay the Increase Significantly Don't know
decrease somewhat sam e som ewhat increase
•Western Continental Europe (excluding Scandinavia)
Software application/middleware development/test
pp p
•India/Pakistan/Bangladesh
•North America
•East Asia (excluding Japan, S. Korea, Oceania, India, Pakistan, Bangladesh)
16 –  2009 VDC Research Group, Inc.

18. Future Market Outlook
Economic uncertainty has continued throughout 2009 – b t i
E i t i t h ti d th h t but improving
i
• It has been an economic roller coaster since September/October 2008
• Situation fueled by unprecedented global macroeconomic conditions
• OEM Engineer expectations improving – from the engineers’ perspectives
 Layoffs slowing
 New hires
 Salaries reinstated
• VDC continues to engage in discussions with a broad spectrum of companies to understand
market conditions and how companies are responding and here s what we re hearing:
here’s we’re
 Product evaluations increasing
 Project starts returning
 Product investments being made
• VDC is forecasting market growth of ~8% between 2009 to 2010
 We expect growth to be uneven between
• The different product categories (Test tools and OSs to grow the fastest)
• Regions (Asia Pacific to grow the fastest)
• Vertical markets (Medical and industrial control to grow the fastest – automotive rebounds)
17 –  2009 VDC Research Group, Inc.

19. How VDC coverage will help clients stay on top of
these markets in 2010
The 2010 Embedded Software and Tools Intelligence Service
g
• Track 1: Embedded Software Engineering Market Technologies
 4 technology volumes
• T k 2: E b dd d System Engineering Survey Data
Track 2 Embedded S t E i i S D t
 6 volumes
• Track 3: Embedded Systems Market Statistics
 7 vertical market stat volumes
18 –  2009 VDC Research Group, Inc.

20. Primary Research and Market Model Highlights
Embedded Software and Tools: 2010 Market Intelligence Service
Target Communities Target Sample Sizes
Phone Interviews Suppliers of run-time software and tools N~75
Web/Email Surveys Embedded Systems engineers and engineering managers N 500
N>500
Study Publication Date Supplier Share Actual Market Size Forecast Market Size
Service Year 2010 2009 2009 2010-2012
19 –  2009 VDC Research Group, Inc.

21. Other Research in the Works & Under Consideration
• Software Engineering Tools – Project Requirements, Preferences, and Engineer Perceptions
(December 2009 Release)
 Based on VDC’s 2009 Embedded Engineer Survey
 Series of statistically-driven report and modules
• Provide insight into in the embedded developer communities’ current use of and perceptions on the
use of various products within development projects.
 15 different tooll categories
diff tt t i
• Bug/issue tracking, project management, requirements management, source/change/configuration
management, standard- and proprietary-based modeling tools, test automation tools, others
 10 Key Questions
• Tool criticality to success of the project; Impact tools had on quality; productivity, productivity, and
schedule; ROI; ease/difficulty of use; likeliness to use on future project; and others.
others
• Application Lifecycle Management (ALM) – February 2010 timeframe
 Multi-volume proposal – how many and which ones depends on community interest
 Topics under consideration include but are not limited to:
• Project management
• Requirements management
• Source change/configuration management
• Software and system modeling tools
• Test automation tools
• Bug/issue tracking tools
• Others?
20 –  2009 VDC Research Group, Inc.

22. Q&A Session
Thank You for Attending this VDC Webinar
For more information about VDC Research coverage of the global markets
for embedded software and tools – including the Embedded Software and
Tools: 2010 Market Intelligence Service – please contact:
Steve Balacco
Director, Embedded Software and Tools Practice
sbalacco@vdcresearch.com | 508-653-9000 ext.124
b l @ d h 508 653 9000 t 124
Cyril Bernard
Account Executive
cbernard@vdcresearch.com | 508-653-9000 ext.142
b d@ d h 508 653 9000 t 142
Chris Rezendes
Executive Vice President
cjr@vdcresearch.com | 508-653-9000 ext.120
j@ d h 508 653 9000 t 120
21 –  2009 VDC Research Group, Inc.