CCID Consulting, which claims to be one of China's leading market research providers, has released a report and forecast on the state of the country's embedded software industry. While the sector is growing rapidly, it still represents a minuscule portion of the nation's overall software industry, the analyst firm says.

In 2007 so far, the embedded software industry has been worth 1.9 billion yuan (about $258 million). CCID forecasts this to grow to 4.6 billion yuan (about $612 million) by 2011. Even so, this is a small fraction of China's overall software industry, said to be valued presently at about 100 billion yuan (about $13 billion).

According to the company, the first three of China's top 100 software developers — Huawei, ZTE, and Haier — are all embedded equipment manufacturers. So why, asks the report, aren't embedded software vendors even on the list?

CCID says there are five main reasons for this. First, the company says, the cost of electronic components is falling in accordance with Moore's law. This means that embedded software, whose cost is relatively constant, represents an ever-increasing proportion of each device's costs.

“Thus device suppliers are reluctant to give up software R&D that may bring about high profit,” CCID explained in a summary of its findings. In addition, in-house R&D is often cheaper than making royalty payments, the research firm added.

Second, “the industry is in a state of dispersion, lacking well-organized coordination,” CCID said. Because embedded software needs to be designed, developed, and optimized for specific electronic products, “It is … difficult to copy software and the conditions for shaping standardized software are inadequate,” the firm added.

The third reason provided for the slow emergence of an embedded software ecosystem is due to lack of standardization, which makes it costly to “graft” software from one platform to another. Given the variety of chip manufacturers and operating system vendors, “the industry is in a state of dispersion, lacking well-organized coordination,” the analyst group said.

Another cited factor, related to the above, is that unlike with the “WinTel monopoly” on PCs, embedded chip manufacturers and OS suppliers form a “dispersed pattern of competition.” Since there are no standards for embedded systems, “it costs a lot to graft the embedded software from one platform to another,” said CCID.

Fourth, CCID claims, is that there is no urgent demand for time-to-market in most of the electronic equipment markets, with the result that device suppliers have the time and energy to develop embedded software on their own.

Fifth, charges the market researcher, most of China's electronic equipment is medium- or low-end, not innovative. This restricts the scope of cooperation between device suppliers and third-party software vendors, “as device suppliers are not clear which part of the software needs to be refined and which part can be purchased or outsourced without affecting their core competitiveness.”

CCID did not disclose pricing for the full report, entitled “Analysis of the current status of China's embedded software industry.” More information on the report and the company's consulting services may be found on CCID's website, here.

 
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