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Product Engineering Services Trends Q2

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PES Trends Q2

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Product Engineering Services Trends Q2

  1. 1. WORKING SESSION: RECRUITMENT BEST PRACTICES MAY 2014 Product Engineering Services Trends Quarterly Analysis- Zinnov PoV April 15-July 15 AUGUST 2015
  2. 2. R&D Globalisation and Outsourcing Summary – April 15-July 15 • Product Engineering Services (1.5% QoQ) had a slower growth rate compared to the IT services growth rate (3.5% QoQ) • European Service providers growing faster than Large India Heritage IT service providers • Niche service providers targeting inorganic route for horizontal diversification in IoT and Embedded space A R&D SPEND ANALYSIS • Overall R&D spend increased by 0.8%(QoQ) for the top 50 R&D Spenders • R&D spend in Automotive and Healthcare is expected to grow whereas Telecom and Energy will see lesser R&D spend for next two quarters • Semiconductor and Medical Devices verticals continue undergoing industry consolidation through M&As • 50 + R&D captives were announced in the last quarter to be set up across the globe • India continues to be most preferred globalization destination followed by Israel and USB R&D GLOBALIZATION C PES MARKET 2
  3. 3. Key R&D Trends Automotive Development of Autonomous Vehicles and Fuel Economy have been the prime focus Telecommunications ISVs Healthcare Energy Rolling out 3G and 4G and companies invested more on research for 5G Large Greenfield projects put on hold amidst diving oil prices The oil market indicates that prices could stay lower for longer, delivering a fresh blow to hard-hit energy exploration-and- production companies. Smaller deals and technology integration are rising among software enterprises Integration of Technology and Medical Devices has revolutionized healthcare Audi, Daimler and BMW are inviting other car companies to join their consortium to use “Here”, the dominant supplier of digital maps for in-car navigation, and share the development costs and benefits GM, Honda cut cost of fuel cell stack by slashing the size, and weight of the chemical processor that combines hydrogen and oxygen to make electricity MDMs are working on building Smart mobile devices and applications, working in concert with cloud computing and big data analytics Quantified health data, Medical records on-the-go, On-call doctors via telehealth and 3-D printing have accelerated the functioning and diversification of the Healthcare Industry Telecom Equipment Manufactures are investing more on key 5G technologies like Radio access technology of air interface technologies 5G research and trial investment is expected to reach 5 BN by 2020 The ISV sector is trying to harness the power of connected technologies to drive digital business Service vendors may have to be content with smaller deals as large contracts seem to have vanished from the market place with customers expecting a prolonged recovery from the economic downturn | Source: Zinnov research and quarterly reports | 3
  4. 4. R&D Spend Analysis: ISV Automotive Energy Top Spenders Top Outsourcers Healthcare Telecom Samsung 3.04 3.65 Intel 2.84 2.9 Microsoft 3.06 2.9 Cisco Alcatel Lucent British Telecom Microsoft Amazon Paypal General Motors Jaguar & Landrover Caterpillar Medtronic GE Healthcare Toshiba Alstom Parker GE Energy Cisco 1.1% Huawei NA Ericsson 4.04% Alcatel lucent 5.3% Nokia Networks -2% Amazon 9% Google 1.09% Microsoft 3.6% Oracle 4.3% Facebook 10% Volkswagen NA Toyota NA Daimler 6.2% Honda 13.6% BMW 15.7% Baxter 30% Medtronic 41% Boston Scientific 14.5% St. Jude 2.3% Thermo Fisher 5.4% Shell 15.4% Schlumberger 4.4% Cummins -14% Petro China 72% Total -44% 0.8% R&D growth rate Of top 50 R&D Spenders * Analysis of top 10 R&D spenders in each vertical| Source: Zinnov research and quarterly reports | 4
  5. 5. Key Mergers/Acquisitions: M&As drive consolidation in Telecom, Semiconductors and Oil and Gas verticals Company Target Acquired Amount (USD Bn) Why 56 The acquisition will drive investment in advanced broadband network, allow for wider deployment of new competitive facilities based WiFi networks in public places, and the footprint expansion of optical networks to serve the large marketplace 37 The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors 16.7 The acquisition will couple Intel’s leading-edge products and manufacturing process with Altera’s leading field-programmable gate array (FPGA) technology 15.8 The complementary aspects of MarkWest`s, MPLX`s and MPC`s highly diverse asset base provide significant additional opportunities across multiple segments of the hydrocarbon value chain 13.8 Pall is a complementary fit for Danaher, with Danaher’s management system and strong financial position with Pall's expertise, brand and channel strength in the field of filtration and separation science 13.4 The acquisition will position the combined company as a leader in the musculoskeletal industry and is aligned with Zimmer's strategic framework, which focuses on growth, operational excellence and prudent capital allocation 5
  6. 6. Top R&D Spenders initiatives R&D investment Q1 2015 Focus Areas Details | Source: Zinnov research and quarterly reports | 1. 2. 3. 4. 5. E-Commerce 2 .75Bn USD Amazon Is expanding and restructuring its R&D, With A Focus On Prime Air Drones And Speech Tech Internet of Things 2.99 Bn USD Intel is looking to explore the IoT market and build products around the same. Over 70% of Intel India’s staff are into R&D Toyota to restructure R&D organisation, plans to introduce advanced safety and lighting technologies in 2015 Fuel Economy also a big focus in R&D spending 2.32 Bn USDSafety and Lighting Technology 3.65 Bn USD Samsung is spending a huge amount of money to beat its competitors to the ‘next big thing’ Will continue to develop a grand mobility portfolio through IPsMobile and Internet of Things Big Data and IT Security 1.78 Bn USD Daimler to ramp up R&D facility by employing 1700 more engineers in Mercedes-Benz Research and Development India (MBRDI), primarily in the space of big data and IT security solutions 6
  7. 7. Top R&D Spenders initiatives R&D investment Q1 2015 Focus Areas Details 6. 7. 8. 9. 10. Activities related to vehicle emissions control, improved fuel economy and the safety of drivers and passengers are the top focus. Also focus on improving digital communications systems for vehicles Apple is said to be working on something positively massive whose significance could dwarf the iPhone, the Apple Watch or any other major product Apple has released so far Shell has recently developed a clear base oil derived from natural gas, a cleaner burning fossil fuel Shell India Markets Pvt. Ltd. also announced the creation of an in- house Global Information Technology Centre in Bangalore 1.87 Bn USD 1.32 Bn USD 1.91 Bn USDNew and Innovative Products Clean and Renewable Energy 1.21 Bn USD 5G network and IoT 1.54 Bn USD Cloud Computing and Big Data Alternative Propulsion Cisco stated that the IoT will most likely be the underlying fabric of 5G The difference between wireless and wireline networks will to continue to blur, leading to more virtualisation and automation of the network IBM has developed the “7 nm and beyond” silicon technology that will address serious physical challenges threatening current semiconductor scaling techniques Development of alternative technologies for post-silicon era chips
  8. 8. 50% 10% 30% 10% Asia North America Europe RoW 28% 14% 12% 12% 34% ISV Computer Peripherals Automotive Consumer Electronics Rest 25+ R&D centres to be set up in Asia ISV and Computer Peripherals account for ~40% of all new captive setups Globalization Trends: India continues to be the most preferred globalization destination 64% 36% Vertical wise Split50+ New R&D Captives to be set up Geographical Split 8
  9. 9. 9 Ew Captive’s centers in India Company Location Why Perpetuuiti Chennai, India The facility will play a critical role in developing competitive products for the global marketplace, creating innovative technology solutions that are well aligned with the various advancements happening in the area of artificial intelligence and cognitive computing. Brocade Bangalore, India The center will enable Brocade India to showcase proofs-of-concept and pilot projects for customers and partners while contributing to the development of next-generation, fabric-based and software networking solutions Inspirata Bangalore, India Development centre aims to support all three of its business units, i.e. digital pathology work-flow solution, companion diagnostics and the cancer information data trust, and also will work on data mining, data analytics and predictive software algorithms. HID Global Chennai, India The center will accelerate the development of new features and capabilities for Genuine HID products and reduce time to market for new products. It also features validation and verification service for all electronic and software products and services. Danaher Bangalore, India Centre will concentrate on data analytics, internet-of-things and cloud computing. The unit will deliver high-end technology solutions for our global and local businesses.
  10. 10. TOTAL IT SERVICES REVENUES PES Growth YoY PES Growth QoQ 3.77% 1.98% 10% Overall PES Growth YoY 1.5 % Overall PES Revenue Growth QoQ 16% 0.39% 22.5% 3.8% 10% Overall Revenue Growth YoY 3.5% Overall Revenue Growth QoQ PES REVENUES Market Financial Analysis : Niche Product Engineering Services companies lead the PES market growth | Source: Zinnov research and quarterly reports | Based on Analysis of Listed Companies 10
  11. 11. Market Financial Analysis : EBITDAs and PAT stay healthy for Large IT services companies | Source: Zinnov research and quarterly reports |Based on Analysis of Listed Companies 11 Niche service providers outpaced large IT India heritage SPs- PES division growth while Large Onshore based Service providers struggled for growth Average EBITDA18% Average PAT14% EBIDTA average percentage PAT average percentage Margins 19.9 14.1 21.5 Large Indian Heritage IT SPs Niche SPs Western European SPs 16.3 13 8.6 Large Indian Heritage IT SPs Niche SPs Western European SPs Utilization of Service providers have improved Utilization 79.4%
  12. 12. Company Target Why? With IGATE, CapGemini operations in North America have taken a new dimension and are now its largest market in revenues The combined operations in India reached the size to compete at par with the world leaders in our industry The acquisition of Skava is part of Infosys' strategy to help clients bring new digital experiences to their customers through IP-led technology offerings, new automation tools and unparalleled skill and expertise in these new emerging areas The acquisition will enhance EPAM’s ability to provide digital consulting, architecture and content solutions to customers in North America Globant acquisition will reinforce its capabilities in User Experience, Design and Technology. Globant expands its delivery capabilities for the first time out of the Americas by acquiring a company with operations in India Acquisition of SiConTech will enable Altran to accompany strategic American clients operating in semi-conductors and embedded software. Mindtree's acquisition of Bluefin will strengthen presence in the European market, and also allow Mindtree bid for transformation deals. Acquisition will help Wipro to evolve its go-to-market digital offerings. Designit's capabilities in strategic design, user experience and interaction design will complement Wipro Digital's capabilities Mergers and Acquisitions: Aggressive M&A continues to drive the industry forward | Source: Zinnov research and analysis Insights 1 2 3 Mid Sized PES companies are exploring PE investments to help them scale Global Players are exploring India based delivery approach through acquisition of niche service providers with an offshore presence. 12 Service providers are extensively investing in digital services companies across the entire value chain to offer comprehensive suite of offerings to their customers
  13. 13. Bangalore 69 "Prathiba Complex", 4th 'A' Cross, Koramangala 5th Block, Bangalore-560 095. Phone: +91-80-41127925/6 Singapore Level 42, Suntec Tower Three 8 Temasek Boulevard Singapore 038988 Phone:+65 6829 2123 Texas 21, Waterway Ave Suite 300 The Woodlands TX-77380 USA Phone:+1-281-362-2773 Beijing Meilifang Tower 4, Entrance 4, 10/F #1003, 11 Beiyuan Shuangying Road, Chaoyang District, Beijing China 100012 Thank You Gurgaon Office: First Floor, Plot no. 131, Sector 44, Gurgaon-122002, Phone: +91 124 4420100 California Office 3080 Olcott Street Suite A125, Santa Clara, CA 95054 Phone: +408-716-8432 13

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