PES Trends Q2

1. WORKING SESSION:
RECRUITMENT BEST PRACTICES
MAY 2014
Product Engineering Services
Trends
Quarterly Analysis- Zinnov PoV
April 15-July 15
AUGUST 2015

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. 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. 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. 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. 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. 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. 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
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. 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. 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. 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. Bangalore
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