As we kick off the VDC Research project focused on engineering and support services provided by embedded computer system suppliers I could not ignore the recent news about HP’s charge of close to $8 billion related to its services business. This was big news in that the services business for HP had represented approximately 28% of total revenues. Despite this setback for HP, the outlook for services for embedded computer suppliers is still positive. In this blog, I will explore how the embedded services business will benefit from many market drivers including the cloud.
Business / IT Services: The main decrease in services business that HP is reporting is for IT related services. The IDS business that HP acquired in 2008 specialized in providing complete data center operations services for enterprise type customers and large government sector agencies. As many companies are now taking the next step and are migrating to the cloud, there is a subsequent decline in direct IT services for companies like HP. Although IT/Business is central to HP’s services offerings, the OEM/embedded market is also important to HP, Dell and IBM among other IT suppliers.
Embedded Computer / OEM Services: With respect to services, there are some very important differences in the embedded/OEM market as compared to the business/IT market. The following diagram shows the service markets that VDC is covering and where they fit in the OEM / embedded system lifecycle:
An embedded integrated computer system supplier usually has the inside track when an OEM or end customer is looking for embedded system solutions. With an economy that remains stagnant and some markets such as Mil/Aero looking at cutbacks, VDC believes that leveraging a supplier’s engineering expertise can often be the best strategy for reducing product development costs and timeline. The cloud also provides many opportunities as customers look to the advantages of Machine to Machine (M2M) connectivity for their products. As the number of M2M connected products grows, the data that is generated by them can drive actionable intelligence when aggregated and processed in the cloud. The most recent VDC estimate for embedded services indicated a CAGR of over 7%.
In 2012, as we begin the latest research VDC believes that it is certainly possible for the projected growth to be in double digits in the immediate future. The caveat being that embedded system suppliers will need to streamline their service product offering to be in line with customer needs. If not, there are other market participants ready to expand their presence.
Competitive Landscape for Embedded Computer / OEM Services: The embedded computer suppliers do not have exclusive presence in the services market. As mentioned previously, the major IT suppliers such as Dell, HP, and IBM sell into the OEM market and provide many services to integrate and/or customize their products. Suppliers such as VMware and Wind River will also be competing for services business that leverages their software expertise. On other fronts VDC sees that systems integrators, value added resellers and consultants will also be competing. The strengths of these competitors will be their ability to offer the customers a complete solution that leverages best in class software and hardware from multiple companies.
Looking for Your Opinion and Guidance: For this 2012 report, VDC is looking to profile as many companies (large and small) as possible. We intend to describe the strategies and product offerings that differentiate the profiled companies from their competition. If you believe that your company participates in the services market for OEMs / embedded systems, please contact dlaing@vdcresearch.com for an informative 2-way briefing. Research and outreach have already started and publication will be at the end of September, so there is still time to be included.