by 
With component sales prices and profit margins under consistent pressure, distributors have moved up to value chain to offer more value-added solutions. Embedded computing is one segment that’s been targeted by the channel; in fact, Avnet Inc. has made embedded one of the cornerstones of its new, streamlined distribution strategy.
Embedded is an area that merges software with hardware—a good fit for value-added distribution. Intel is a leading supplier to electronics distributors who reach small and mid-sized customers that Intel does not support directly.
But IHS Markit has found that differing form factors in embedded computer boards and systems is slowing the sector’s growth. The world merchant market for embedded computing is estimated at $2.54 billion in 2015 and is forecast to grow at 3.7 percent CAGR over the next five years. While growth in the embedded computing market varies by differing form-factors, there is an overall trend toward smaller form-factors aimed at the Internet of Things (IOT), according to IHS.
The greatest challenge for the traditional embedded boards market lies in the growing end-user appetite for software-centric solutions rather than hardware-based solutions on which the embedded boards market depends, IHS reports. In 2014 and 2015, the popularity of software defined networking (SDN) and network functions virtualization (NFV) transformed the commercial communications sector.
According to the IHS Markit Embedded Computer Boards, Modules and Systems Annual Service, world revenues for xTCA boards in 2015 fell by 13 percent from 2014, while xTCA systems revenue fell by 29 percent. IHS Markit believes that software technologies are likely to have a negative impact on the xTCA board and systems markets for the foreseeable future. IHS forecast a CAGR of -11 percent for xTCA boards from 2015-2020 and a CAGR of -16 percent for xTCA systems.
The World Market for Embedded Computer Boards, Modules and Systems by Product Type
Interestingly, embedded systems sales rely on design-wins, a topic of interest in the distribution channel. Embedded sales in 2017 depend on design wins made in 2014 and 2015, according to IHS, and grow at different rates for different form-factors. Commercial communication projects, for example, have typically become “run rate” business faster than defense, civil aerospace or railway projects. System-level technologies typically reach run rate business faster than board-level business.
For system-level ATCA (communication), 2014 was a reasonable year for design wins, said IHS. However, vendors report that the outcome of these wins has not materialized into the production runs originally forecast. In some cases, system vendors would offer both ATCA-based and software-based products simultaneously and the latter outsold ATCA systems by far. As a result, ATCA vendors may have to transition away from a focus on hardware and telecom platforms to a more software-centric one, for example, by investing in new product lines to enable the transition to SDN/NFV environments.
As IHS points out, design-wins don’t always materialize into volume sales. Within the components distribution channel distributors are compensated for design-wins by suppliers. There are indications, however, that suppliers are pulling back from design-win programs and calling on customers themselves.
In other board technologies, IHS Markit has identified both declines and growth opportunities:
COM (computer) will become one of the most popular solutions in coming decades driven by the needs of industrial automation and Industry 4.0. Over the next five years IHS forecasts growth in COM of 8.6 percent (CAGR). The smaller modules in particular are perfect for OEMs with medium/large project quantities requiring high flexibility in a limited space.
COM in general is capturing more industrial board solutions from other industrial standards, such as compact PCI which chiefly addresses the defense and industrial automation sectors. Vendors reported declining revenues in 2014 and 2015 and IHS believes that compact PCI classic will continue to decline as OEMs move on to new technologies.
Like COM, standalone boards target the industrial automation sector whose growth is linked to the industrial internet of things and IHS predict growth in standalone boards of 7.7 percent to 2020.
PICMG (industrial) has a relatively small overall market share and revenues in 2014 and 2015 for PICMG boards have not grown. IHS predicts a similar trend going forward although there is still some opportunity for growth in PICMG systems with PICMG 1.3 dominating.
Sales of VITA (mobile) standard board and systems are reported by vendors to have been depressed in 2014 and 2015. The majority of VME and VPX boards and systems are sold to defense companies that in turn, sell to governments principally the United States. The U.S. budgets for defense procurement and research are both increasing which will help to fund new design wins and sales growth which IHS estimate at 3.2 percent (CAGR).
