Embedded Software and Tools Market Update & Outlook

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.