Status of China's embedded software industry

CCID Consulting examined the status and the future of China's embedded software industry in its report "Analysis of the current status of China's embedded software industry."

The embedded software industry in China is valued at Rs.53,796.23 crore ($13.3 billion), yet the lead players are embedded top equipment manufacturers Huawei, ZTE and Haier, rather than independent software vendors (ISV).

There is little support in the industry chain, CCID reported, and the embedded application software is mainly programmed, sold and used by the terminal manufactures themselves. The products are not standardised and third-party software suppliers are reluctant to enter this field, making the specialisation and marketing of these products relatively low.

CCID cites the following as factors responsible for the lack of development in this industry:

• Device suppliers are reluctant to give up software R&D that may bring about high profit. The cost of electronic components is falling, and embedded software products are becoming the source of the added value of electronic devices. The software becomes solidified in the devices after primary development, and the return rate for the device is higher. Additionally, the business model for third party embedded software is to collect royalty payment according to the number of sets, which increases the software purchase cost of device suppliers.

• Embedded software is applied to many fields, while the operating environment needs to be designed, developed and optimised for specific electronic products. It is difficult to copy software, and the conditions for shaping standardised software are inadequate. The result is that the industry is in a state of dispersion, lacking well-organised coordination.

• In contrast to the WinTel PC monopoly, the embedded chip manufacturer and OS suppliers form a relatively dispersed pattern of competition. The main chip manufacturers include Intel, Samsung, TI, Toshiba, ST, Renesas, NXP and Freescale and the operating systems include WinCE VxWorks, Linux, OSE, pSOS and QNX. Standards for embedded systems have not been released. It is costly to graft embedded software from one platform to another, which limits the development of a common embedded software supplier.

• Competition in most of the electronic equipment markets are moderate and device suppliers have the time and energy to develop embedded software themselves.

• Most of the electronic equipment made in China now are in the medium or low end, and provide few functions. Device suppliers are capable of developing the software.

Growth figures and factors
CCID estimates that the embedded software industry will reach Rs.103,690.48 crore (RMB 194 billion) in 2007, Rs.133,621.75 crore (RMB 250 billion) in 2008, Rs.167,294.43 crore (RMB 313 billion) in 2009, Rs.206,846.47 crore (RMB 387 billion) in 2010, and Rs.248,536.46 crore (RMB 465 billion) in 2011. This growth will be brought about by changes in the industry.

The spread of mobile information, commerce and recreation will result in the generalisation of 3G and mobile computing, and the demand for mobile terminals and application software will trigger the development of embedded software industry. This will be followed by the development of information security software, audio/video software, office ware and communication protocol software that would be developed by different specialised software suppliers, creating conditions for the development of third party software suppliers.

The trend of electronic devices towards networking, and the development of Internet Protocol ver 6 (IPV6), would drive the development of networked non-PC equipment such as digital home electric appliances and electronic security systems. Such networked devices would need embedded software that would cross device types, and thus would provide the basis for the development of third party software suppliers.

Embedded middleware would gradually screen the difference between substratum chips and operating systems in order to create conditions for multiplexing, transplanting and integrating embedded application software to make different software suppliers specialise in certain fields and seek cooperation with each other. This would lay the foundation for boosting high-end electronic device development and development of third party software suppliers.

The electronic device market will see keen competition owing to the high profit. Device suppliers would win decisive chances by reducing the period of the new product release. It is difficult to develop new functions by oneself and they must seek co-partners to develop software or purchase software from others.

Embedded software development will change from being driven by technology to being driven by applications. The new applications would generate new markets and the marketability would be enhanced by absorbing new applications in the process of device generalisation. While third party software suppliers have advantages when developing new applications with special characteristics, for instance, the GPS navigation generalisation has been profiting from the R&D of some stand-alone software suppliers for years, such as Careland and RITU.

CCID sums it up that along with technological development and changes of the application and competition patterns in the future, the embedded software industry will seek collaboration and the industrial chain will improve. This provides a golden opportunity for the growth of third party software suppliers, and there are already domestic and foreign enterprises lined up for the challenge.