"This IBM white paper makes the case for a smarter electronics industry. The time to transition to a smart electronics system is now: The demand is strong, the products are maturing."

1. Sales and Distribution Smarter Electronics
White Paper
The Case for Smarter Electronics

2. 2

3. 3 Sales and Distribution
In many ways, we have been living in the era of electronics. But change does not come easy to this industry. For many
In the last 100 years, the electronics industry literally has decades electronics companies have made a living designing,
revolutionized the way we live and work, laying the foundation manufacturing and shipping products into the channel,
for powerful waves of innovation, from radios to robotics never to hear from them again. They did not have relationships
to medical imaging. And the industry continues to drive with the users of their products. They did not do customer
innovation today, outspending all other industries in research service. In fact, while nine of 10 electronic company CEOs
and development and fostering the widespread adoption of fully anticipate major changes in their industry in coming
technology, from personal computers to mobile phones.1 years, only 60 percent of them are confident in their ability
to manage that change.4
The capabilities of these innovations are enabling us to
instrument our world, collect and analyze valuable data, As a result, new players from outside the traditional
integrate disparate systems and improve the efficiency of electronics industry are already entering the market.
entire industries, from healthcare to finance to retail. Service-oriented companies, software providers and even
big-box retailers are developing alliances with fast-moving,
But the electronics industry itself has been slow to take forward-thinking startups. They are already building a more
advantage of the remarkable potential its own products enable. connected electronics industry. And they are doing this by
There are still billions of isolated, unconnected electronic combining smarter products with new services that are
devices in the world. Information about the use of these devices becoming the building blocks of smarter planet systems,
is not collected or analyzed. There are precious few services such as smarter healthcare, smarter transportation and
being offered alongside electronic products. And there is smarter energy.
almost no communication between these devices in their
respective operating environments. To meet these challenges, electronics manufacturers must
abandon old ways of doing business. They must deliver
The result is a series of commodity products under severe products and services that make the most of the Internet to
margin pressure. In 2009, the consumer electronics market collect and analyze data and create new value. They must
saw a nearly eight percent decline in overall revenue, even as foster new and direct relationships with their customers.
unit volumes increased by 10 percent.2 Even smart phones, And most importantly, they must recognize that their products
one of the hottest electronics markets right now, lost four are part of a broader ecosystem, a so-called “Internet of things,”
percent of their margins in the last two years.3 This is not a a platform for the development and delivery of services that
sustainable trajectory. will significantly advance the entire industry.
But for the companies that embrace this new landscape,
the opportunity will be enormous. They will learn more
The electronics industry has been about how their products are used and how to use that
information to tighten their operations, from design to
slow to take advantage of the delivery. They will develop new, higher-margin revenue
models based on services and fueled by ongoing relationships
remarkable potential that its own with their customers. And they will connect the dots between
disparate devices — and grow the entire electronics market
products enable. There are still as a result.
billions of isolated, unconnected In short, they will build a smarter electronics industry.
electronic devices in the world.

4. 4 The Case for Smarter Electronics
The Path to Smarter Electronics One example is a manufacturer of office productivity
The transformation into a smarter electronics industry products, working with IBM® to develop an advanced device
demands that companies capture the opportunity resulting and printing management system. The system infuses office
from connected devices and services and develop new business devices with real-time reporting and monitoring, significantly
models, from design to delivery and beyond. It consists of reducing print-related costs, improving service and cutting
two main phases, which must be accomplished at both the back on carbon footprints. The system can identify service
company and industry level: issues with devices and automatically route alerts to local
service desks for remediation before service is affected.
Connect, Collect, Analyze
By connecting devices to the Internet, several things become Even a small amount of intelligence embedded in a device
possible. Information about how a product is used can be positions it as a potential node in a more powerful network.
collected. Updates and upgrades can be sent directly to In this scenario, the compute-intensive work is done not by
devices. Service issues can be detected and remediated the device itself, but on more powerful computers that
automatically. And eventually, devices can communicate aggregate and analyze the data in the cloud.
and share information with other devices on the network,
igniting a host of new capabilities and possibilities. For example, a medical device manufacturer developed a
patient care system that allows clinicians to remotely access
This process starts with more sophisticated software in and analyze patient information from implantable cardioverter
the products themselves. Already about 70 percent of the defibrillators (ICDs) and pacemakers. Using a Web application,
development costs of some televisions are spent on software. clinicians can analyze therapeutic and diagnostic data from
And a single smart phone can include as many as 11 million a patient’s device, and be alerted to a potential medical
lines of code.5 This built-in intelligence gives electronic condition without patients having to leave their homes.
devices extraordinary new capabilities. For example, they The data can be added to the patient’s electronic health record,
can detect, diagnose and debug problems at any stage during providing a more comprehensive view of overall health, or
the product’s lifecycle, from the design and testing phase cross-referencing on patient record against other data sets to
through to the end market. In addition to improving customer search for anomalies.
satisfaction, these capabilities can actually speed a product’s
time to market by creating new efficiencies during the When companies harness the data their products give off,
development and testing cycle. And these intelligent devices they can apply powerful analytics that inform every part of
can evolve as market demands change, upgrading and their business, from design to delivery, from supply chain to
updating features remotely and automatically. services. But intelligent devices are only the first step toward
a smarter electronics industry. Soon, there will be a trillion
connected devices in the world.6 By combining the data coming
from these devices with information throughout the web,
a new platform emerges, one with the potential to greatly
enhance the usefulness, longevity and profitability of today’s
electronic devices.

5. 5 Sales and Distribution
Combine, Create and Act Because these key components will live in the cloud, it allows
The end state of a smarter electronics industry is the for the rapid development of these services at low cost, enabling
understanding that every electronic device, whether it lives experimentation and iterative improvements. It also hides the
in an office, a living room, a car or a factory floor, can be a complexity of these systems from the user.
node in a network. We call this the “Internet of things.”
One example of how combining smarter electronics devices
This realization brings with it some powerful implications. in a single operating environment can transform that space is
For one thing, it turns an industry into a system, with far in the home. Though it has been talked about for years, the
more potential. It makes the case for open standards, which connected home is now becoming a reality, thanks to an
are crucial if we are to design environments of connected increase in web-enabled home devices and the potential to
devices in a home, car, hospital or factory floor. And it also mask from the user the complexity of managing a home
places new importance on collaboration throughout the network of devices.
industry, because makers of previously unrelated electronic
devices will need to break down barriers and develop products ABI Research expects the connected home global market
that can communicate with each other. to grow by a compound average of 23 percent annually to
more than $10 billion in 2014.7 Already service providers are
When data and services from these different devices are combining content, applications, networking, gaming and
combined in the cloud, the resulting network becomes a even energy management in their offerings, catering to a
platform, like the Internet itself, with endless potential. market looking for a more integrated experience.
We are just beginning to explore the possibilities in this
world, such as appliances or equipment that automatically
cycle on and off when they receive price signals from the
electricity grid. Or services that aggregate a user’s habits
and preferences across all their media devices (smart phone,
television, computer, etc.) and serve up relevant content
as a result.
Players from outside the
traditional electronics industry
are developing alliances with
fast-moving, forward-thinking
startups. They are already
building a more connected
electronics industry.

6. 6 The Case for Smarter Electronics
For example, smart meters (and the associated customer For example, a consumer electronics company is already
portals being created in the cloud by energy providers) beginning to explore these possibilities by creating a
allow consumers to see their usage profile and adjust their first-of-a-kind television service. In addition to traditional
energy consumption habits to achieve certain goals, such as television broadcasts, the viewers can access and navigate
reduced cost or carbon footprint. And several electronics personalized content with a standard remote: everything
manufacturers, making everything from thermostats to from web services to social networking sites to television and
security systems to televisions, are releasing products that movie programs. The television actually learns user preferences
work within these constructs. Whirlpool recently announced over time and recommends specific content. To do this, the
it would produce 1 million smart-grid compatible clothes company needed an advanced, intelligent infrastructure on
dryers by 2011.8 which to establish and support a dynamic community of
users and service providers. Since the solution was ultimately
This new paradigm provides opportunities for innovative expected to connect large numbers in many countries of
services that make the most of the computational power and internet-enabled televisions, scalability was a key consideration.
scalability of the cloud. Using a common services delivery
platform based on industry standards, usage data on any kind Openness was also essential. This organization wanted to
of electronic device can be collected, aggregated, analyzed grant equal access to all content and service providers — over
and used to inform new services that add revenue streams to the more restrictive and proprietary “walled-garden” approach
the traditional electronics business model. to web services and content.
Electronics manufacturers
must abandon old ways of doing
business. Recognize that your
products are part of a broader
“Internet of things,” a system for
the development and delivery of
services that will significantly
advance the entire industry.

7. 7 Sales and Distribution
Conclusion
The time to transition the electronics industry into a smart
The time to transition the electronics system is now. The demand is strong. The products are
industry into a smart system is now. maturing. And the technology to tie it all together is available.
The demand is strong. The products Ultimately, however, the industry will need leaders that
accept the challenge to transform their companies and the
are maturing. And the technology industry at large. IBM has not only helped to support this
transformation in other companies, it has undergone the
to tie it all together is available. same transformation itself. Years ago we remixed our portfolio
toward services, software and solutions. We invested in
offerings that fostered communications between our clients
and our company. We embraced open standards to allow for a
stronger, more dynamic information technology industry.
The intelligence of the technical architecture provides the
company with significant business model advantages. These shifts not only pulled our business from the grips
The new model has radically increased product registrations. of commoditization, they also positioned us well for the
And by analyzing preferences and viewing habits, the television services economy of the 21st century. That same transforma-
service portal has the ability to create user profiles that can tion is what’s required for electronics companies today.
be used to personalize the viewing experience by highlighting We’ve been through it. We can help. Let’s build a smarter
or directing users to recommended content. This derived electronics industry.
intelligence has powerful implications for more intuitive
usage, and lays a solid foundation for delivering new apps
and simplified personal interaction that will generate new
revenue streams.
The company’s initiative expands and redefines the focus
of television product development with service integration.
They are able to simplify and streamline at the product level
by embracing key elements of the cloud computing model,
while at the same time laying the groundwork for more
product line flexibility and efficiency down the road.

8. © Copyright IBM Corporation 2010
IBM Corporation
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U.S.A.
Produced in the United States of America
October 2010
All Rights Reserved
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1
http://www.booz.com/global/home/what_we_think/reports_and_white_
papers/article/47086689
2
http://www.dailymarkets.com/stocks/2010/04/14/analyst-interviews-
semiconductor-outlook-and-review/ According to the Consumer
Electronics Association (CEA), the 7.8 percent revenue decline in
consumer electronic goods for 2009 was entirely on account of weaker
pricing, as unit volumes of consumer goods increased around 10 percent.
3
Credit Suisse,”Smartphone Report”. 31 August 2009,Global Equity
Research Credit Suisse: Margins for large smart phone makers have
declined from average of 42.5 to 38.5 in two years.
4
http://www.ibm.com/ibm/ideasfromibm/us/ceo/20080505/
5
http://news.cnet.com/8301-13580_3-9949793-39.html
6
http://www.ibm.com/ibm/sjp/03_09_2010.html
7
http://www.abiresearch.com/press/1499-Connected+Home+Devices+
the+Potential+%E2%80%9CNext+Big+Thing%E2%80%9D:+a+23%25+
Market+Value+CAGR+over+the+Next+Five+Years
8
http://investors.whirlpoolcorp.com/phoenix.zhtml?c=97140&p=RssL
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