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Wine from Sour

WARREN ANDREWS

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Last issue, Editor-in-Chief, Tom Williams accused me of being a Pollyanna–looking at the glass as ¼ full rather than ¾ empty. History may be proving him right. As I sit down to put this column together, it’s becoming increasingly difficult to find a lot of encouraging news. However, I’m sure it’s there, so here goes. Let’s try and make some wine out of sour grapes.

All reports from the embedded computer industry continue to be cautious, but optimistic. But for some, things are already starting to turn south. I spoke with a few companies that sell into the semiconductor equipment sector and they have already seen cancellations of orders and nothing new on their plate. Applied Materials–the world’s largest seller of chip-making tools–expects a 50% drop in spending on equipment this year. Applied reports that it is running its plants at 30% to 40% capacity. Others in the industry such as TLA Tencor, Lam Research, Novellus, Varian and others report similar results. The embedded-computer business supplies control and imaging equipment to these chip-making equipment manufacturers.

The story has been much the same in other industrial automation areas. There remains a handful of bright spots as some companies shuffle to get into lower cost systems and higher productivity. And, needless to mention, retail and POS hardware and software is at a standstill.

And while this tells a dreary tale, there are some points of encouragement. In the public service and security sectors it seems activity has slowly been ratcheting up. Similarly, the medical instrumentation industry appears to be on the increase. Though the big imaging systems–CAT scanners, MRI, PET scanners, EBT and other systems suppliers are not expected to see much growth over the next few years, smaller portable and desktop systems are expected to grow as the healthcare system flattens out. This is likely to play out as new initiatives in healthcare are enacted and more monitoring and diagnostics are moved to a virtual world. And new initiatives as part of the stimulus plan (see below) are expected to kick in next year.

Military: A Bright Spot, But Is There an Eclipse Coming?

And the other area that it appears may be salvaged–at least for the next year or so–is the military and defense industries. The proposed Presidential budget for 2009/2010 actually shows an increase of some 4%. And if Congress continues on its spending spree, that amount might even be increased as special projects near and dear to the hearts of congressional supporters are revived and expanded.

The Navy is likely to see more new ships and planes, the Air Force will probably see a new salting of F-22 aircraft and other planes, the Army new and improved ground vehicles, and all the services, improved communications, training, simulation and services.

But there are clouds on the horizon. This year’s defense budget is larger in inflation-adjusted dollars than at any time since WWII. The Army has fewer divisions, the Navy fewer ships and the Air Force fewer planes. And, according to the CBO, what hardware we have is older than it’s ever been. And the list goes on and on. In spite of all the acquisition reform, cost overruns have been higher than ever measured: Further, no current system has been delivered on time, on cost and as promised for performance.

The fear is that this cloud over military acquisition is building, and simply throwing more money at the problem won’t make it go away. Sooner or later, the bubble is going to burst and we’re going to see some dramatic changes. The good news is for those in the embedded-computer business that will continue to supply upgrades and new technology insertion into older systems. Granted, going forward I think we’ll see lower ASPs, but these retrofit programs will not only continue, but probably accelerate.

Where There’s Light, There Is Competition

There continues to be some light at the end of the tunnel. As big buyers like banks and auto companies are on the spot these days, squeezing every penny, tech hardware makers are looking to win sales from smaller companies. This is particularly true in the embedded-computer business, however, larger companies and even some in the commercial laptop and Netbook business are scrambling for small customers since the bigger customers are “frozen up.”

There apparently is still some good news on the employment front also. A survey by TalentDrive reports that some 52% are investing in increased marketing efforts and a sales-force increase, 58% are implementing new services and repositioning their company to attract new clientele, 57% predict the staffing downturn will lighten by Q3 2009, and 65% of staffing firms find the over abundance and quality issues of resumes the number one concern for 2009. The survey looked at over 7500 staffing firms and independent recruiters. That’s the good news. However, when asked if new technology was being employed to assist with sourcing, 66% responded negatively.

Despite some setbacks, Intel is still upbeat over the future of WiMax. WiMax has had its difficulty in the U.S., primarily because Clearwire, the company building networks in the U.S. has been financially challenged and has managed to launch service in only two cities. However, Intel reports that networks based on WiMax now send their signals to 430 million people around the world and should cover 800 million people by the end of 2010.

The competition? While cellular 3G certainly has a leg up in acceptance, it’s nowhere near as fast. Other approaches include LTE (Long-Term Evolution–see below), which is expected to offer similar speeds to WiMax, but it’s not here yet. And it’s getting back to the chicken and egg problem, having the equipment to take advantage of the technology versus having the infrastructure to service the equipment. Embedded-computer technology is expected to take advantage of WiMax in a broad variety of applications once it becomes available.

And while on the subject of Intel, congratulations to our friends at PLX for being recognized by Intel for its contribution to advancing the PCI Express 2.0 interconnects on Intel microarchitecture, codenamed Nehalem, platforms. PLX’s switches were recognized for providing power and performance efficiency to the quad-processor platform.

And is 4G service just around the corner? At the Mobile World Congress, Verizon announced that it picked Ericsson and Alcatel-Lucent to build the first 4G Network. Often known as Long-Term Evolution (LTE), 4G technology will allow mobile access to features such as high-quality video previously available only through fixed-line broadband networks. Verizon, and its joint-venture with Vodafone, expects to begin commercial service of the new technology in 2010. More information as it comes in.

Obama’s Stimulus: Something for Every Techie

Such was the wording of a recent headline in a large national newspaper. While the article cited that the stimulus has many costly parts, some of which don’t seem to be fully baked, it said that the high-tech executive community probably wasn’t going to be complaining.

Let’s take a look at what’s in the stimulus plan for the techies. First there is some $19 billion allocated for automating healthcare facilities. That’s going to be fun. Intel and others have already gotten started here and it’s likely there will be a host of other embedded-computer applications forthcoming. It’s important to remember that the new breed of product (hardware and software) is going to have to carry FDA approval. That means specialized embedded computers that carry much higher margins and ASPs than we expect from cell phones and consumer products. Certainly in the capability range of many in the embedded-computer industry–particularly with the new generation of small, low-power, low-cost platforms. Everyone should be able to feed off that bandwagon from the semi makers right on through the embedded-computer makers and packaging experts.

Then, we’ve got $7 billion to broaden Internet access. Will Intel’s WiMax start to fit into this niche? At least part of the spending is intended to bring broadband networks to rural areas; this could directly impact WiMax. The embedded-computer market will obviously be one of the recipients of the infrastructure build out. How far will $7 billion go? My guess is quite a ways. However, not being able to access the whole stimulus bill, I don’t know what other special considerations/conditions were attached.

Then there’s the $3 billion going to the National Science Foundation, which grants money to Universities and companies for research projects that we hope will result in significant developments. While traditionally much of the creativity from Silicon Valley has come from creative entrepreneurship fostered by venture capital, it’s not certain that the NSF will function the same way. And when you start to take out the incentive–then add the burden of restricted option granting, higher taxes and the reduction of other incentives–perhaps the $3 billion could be better spent.

Now, add to the stimulus bill the proposed 2009/2010 budget, and hundreds of more billions of dollars will be available in areas such as healthcare, social services, security and other. Perhaps the high-tech industry should indeed be looking up.

Until next month,
Pollyanna