INDUSTRY ANALYSIS

AUTOMOTIVE ELECTRONIC INDUSTRY

BY

RKV

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 TABLE OF CONTENTS

INDUSTRY DEFINITION...................................3
INDUSTRY SEGMENTATION..............................4
MARKET TRENDS .............................................5
Scope of Growth for IT Sector:................................................................................................................6
Trends in dynamic Control systems:........................................................................................................6
Trends in Navigation systems:..................................................................................................................7
Trends in Electronic Safety systems:........................................................................................................7

TECHNOLOGY IN THIS SEGMENT......................8

CURRENT SOLUTION PROVIDERS.....................8
RELEVANCE OF INDUSTRY SEGMENT ...............9

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Industry Definition

The Automotive electronic Industry is a multi billion dollar industry, which is

forecasted to grow over 100 billion by year 2003. Automotive electronics
contribution has been growing in vehicles and many mechanical systems are
being replaced by highly reliable and accurate electronic systems.

The Past four decades have witnessed an exponential increase in number of

sophistication of electronic systems in vehicle. Today the approximate cost of
electronics in luxury vehicle is more than 23% of the total manufacturing
cost. Analyst estimate that more than 80% of the innovation in automobiles
comes form electronics. In last fifteen years the electronic content in vehicles
have increased by 18 times. The resulting demands on power and design
have led to innovation in electronics, focusing on development of electronic
systems that will safely and efficiently replace the entire mechanical and
hydraulic applications.

The above figure shows the sheer number of systems and applications
contained in a modern automobile.

This industry is being focused since the company is already in the field of
embedded systems but has negligible market share in servicing automotive
electronic manufacturers. The potential of this industry and the company’s
relevance in terms of domain expertise and market accessibility makes this
an area of interest.

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Industry Segmentation

The automotive electronic industry is broadly classified as

Automotive Control system:

The Automotive body systems encompass a range of comfort, safety, and
convenience controls. Designers incorporate advanced electronic technologies
to network sensors and body systems making controls safer, more
intelligent, energy efficient, and reliable.

The powertrain is an essential part of the automobile today, and it

continues to evolve. In the future, we will see many changes in power
control, power sources, and efficiency driven by tighter regulations of
emissions and fuel economy. This will include adaptive powertrain control,
hybrid vehicles, and continuously variable transmissions (CVT).

As the automotive chassis moves toward a framework of electronically

controlled mechanical systems, advanced technologies are finding their way
into systems such as power steering, braking, and suspension control. These
advances allow manufacturers to reduce assembly cost, reduce weight, and
save energy.

Automotive Safety & Security systems:

Security products and systems are designed to protect the vehicle, its owner,
and its contents. These types of applications use precision electronic devices
to keep them functioning in their demanding environments.

Living in an increasingly mobile society, the user needs a vehicle system that
will provide them with greater safety and security. Manufacturers are
challenged to design occupant protection technology and safety validation
capabilities with governmental regulations in mind.

Automotive in-Vehicle Communication system:

In vehicle network manages real time critical functions such as engine
management, anti-lock brakes and cruise control. It also manages comfort
electronics like seat, window movement controls and other user interfaces.

Telematics:
Driver information and telematics involve the convergence of consumer
electronics, computing, and communication in the vehicle. Navigation, digital
radio, Internet, multimedia entertainment, reconfigurable displays, wireless
access, and other applications are driving the need for advanced electronic
components in the vehicle.

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Market Trends

• The Automotive electronic Industry is a multi billion dollar industry, which

is forecasted to grow over 100 billion by year 2003

• U.S. IT spending for hardware, software, and IT services within the

manufacturing sector will reach $139.6 billion by 2006, IDC reveals. The
high-tech industry will remain the largest single sub-industry for
manufacturing spending, accounting for $26.9 billion by 2006, with the
automotive industry following in second place at $19.5 billion.

• Industry insiders project automotive information service revenue to reach

$250 billion to $1 trillion within 5-10 years

• 5 to 50 micro controllers (MCUs) are used in today's 55 million new

automobiles to monitor and control operation of the vehicle and its
mechanical subsystems

• By 2010 one in every three new cars will feature electronic steering.
Conservative estimates put the average electrical power requirements for
high end vehicles at 2.5 kW by 2005

• 4.5 million auto navigation systems were sold worldwide in 2001 and this
is forecasted to grow over 50 million by 2005 [Matsushita Communication
Industrial]

• Americans spend nearly 1 billion hours per week in a car [Forbes]

Industrywise Embedded Market Share

US $ 21 Bn Telecom / Datacom /
Computing
Consumer Electronics
9%
8%
34%
10% Industrial Automation

Automotive

19%
20% Office Automation

Others

• The overall embedded software market for the current year is forecasted
at US $ 21 billion by NASSCOM report. The automotive industry share is
estimated to be 10% of the overall market. The growth of 25% by the
Indian service providers is estimated to reach US $ 4 billion by the year
2008.

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• The vehicles will become more like PCs, creating the potential for a host
of plug and play devices. Also with about 55 million new vehicles per year,
this offers the potential for vast growth in automotive application software
– much like that of the PC industry over the past decade.

Scope of Growth for IT Sector:

The forces driving the growth of embedded system outsourcing as per
NASSCOM are:

• Rising software content

• Constant Up gradation / Release of the new Hardware

• Lack of universal communication protocol

• Limited software skills in OEM

Trends in dynamic Control systems:

The rigid mechanical components are replaced with dynamically configurable
electronic elements. The sophisticated features such as chassis control, smart

sensor, electronic steering, anti-lock braking systems etc., which were

earlier, a part of luxury vehicles are now becoming a part of mainstream
vehicles. This means that there is continual pressure to achieve lowest
possible cost and yet continually improve functionality. The significant
volume of embedded components consumed by the industry has led to an
ever-accelerating life cycle of automotive electronics. The above figure shows

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how the dynamic driving control systems are replaced in a vehicle over the
years.

Trends in Navigation systems:

The Navigation systems, Internet
connections, and entertainment
systems are finding themselves
into automobiles worldwide. The
convergence of these systems in
the automobile signals a shift
toward a dynamic service-delivery
model where timely information,
services and entertainment will be
delivered to the car while you're
on the road.

The diagram depicts the likely

end-to-end solution for the
automotive market.

Trends in Electronic Safety systems:

The figure below shows the past and potential future improvements in the
field of active and passive safety system such as air bags, road recognition
sensors etc.,

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Technology in this Segment

There are many opportunities for microprocessors, microcontrollers, and

digital signal processors in automotive systems.

• Every aspect of vehicle monitoring and control

• Vehicle stability control or

• Occupant safety

• Information system and Navigation functions

Microcontrollers have numerous opportunities in the systems' sensing input,

in configuring and driving outputs, and in monitoring subsystems. Providing
data to an automotive information system may require adding sophistication
to the microcontrollers already performing dedicated tasks in the car. Digital
signal processors have opportunities in filtering noise from audio inputs,
pattern matching for voice commands, speech synthesis, noise cancellation,
and a wide range of human interface tasks. Very important in the automobile
is minimizing the driver's distraction, and this is just the area in which DSPs
can excel.

Every configuration discussed has radically different processing needs,

assuring opportunities for virtually every microprocessor, microcontroller, or
DSP family. Integrated processors and controllers will be best suited to
automotive systems because many peripheral interfaces will be important.
Architectures with the greatest range of performance and I/O capabilities will
be most attractive to the OEM considering accommodating all those
individuals, using one fundamental design.

Current Solution Providers

Some of the largest and most important players in the automotive electronics
segment are Delphi, Delco, Visteon, TRW, AISIN AW, Siemens, Bosch, VDO,
and Denso. It is also important to note that some of the OEMs also have their
captive electronics division to cater to the requirements.

Since there are large number of innovation in automotive industry due to

high demand by buyers, the operations in this industry is wide open and
multi dimensional. It is possible to put greater thrust in one or two industry
segment described in section 2 and dominate the market to build the loyalty
of buyer and our brand. An easy switchover or diversification will be possible
after achieving an aggressive customer base in the selected industry
segments.

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Relevance of Industry Segment

Though initiated and started its contribution to this industry segment about
three years ago, its market share in this potential segment potential is not
significant. Considering current & prospective clientele and projects executed,
it is required to penetrate this industry segment with full thrust. We have
demonstrated our capability and knowledge in earlier projects, which suggest
that we can support this industry with full-blown activities.

Currently the company executes projects in the following areas in automotive

electronics segment:

• Modeling and Simulation (Control system)

• Software reliability analysis (Control System)

• Software FMEA (control system)

• Development of application software for Dash board systems (Driver

Information system)

• Developing, Upgrading and Maintenance of legacy systems (Driver

information and control systems)

• Porting and Migration (Control systems)

• Development of test stand for automotive Electronic Control Unit (ECU)

for production and maintenance support

• Development of GUI based tools & screens for use in Car Navigation
System

On analysis it is very clear that most of our projects executed could be

classified in these areas

• Modeling & Simulation

• Maintenance of Legacy systems for vehicle control & monitoring

• Development of application software

• Technology upgradation of legacy system

Now, it is time that the company should diversify the area of operation in to
the following areas in the automotive electronics domain by targeting full life
cycle projects which include both hardware and software development. The
Porter’s forces depicted below provide the picture of the Industry.

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The primary areas which needs focus are:

• Core areas of control system

• Navigation

• Safety

• Information and telematics

Effect of Porter’s forces on this particular industry segment

Entry threat:

• Domain expertise

• Does not require a huge capital. Instead, one needs a rather small
number of highly imaginative and qualified programmers able to develop
niche-oriented products that find a home in an ever-expanding
marketplace.

• Switching cost involved by customer is low

• Brand image and loyalty is a differentiating factor

• Industry has product lines protected by patents

• Lack of availability of a highly skilled management, engineering, and

production workforce

• Expertise and reusable components reduce price and avoid entry for other
players

Supplier:

• Non availability of the skilled programmer

• Obsolescence of the tool/hardware

• Innovation of the supplier leading to patent and high switching cost

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Substitute:

• A successful new product entry can prove to be highly profitable, thus

providing the capital and marketing base needed to challenge a firm that
may previously have been in a leadership position.

• Technology shift (use of better tools and change of technology of the

product) to reduce the cost of service and fast solutions

• Innovation of new product to meet the government regulations.

• Demanding compliance to industry standard products in EMI/EMC and

reliability and safety area required high cost and development time

Competitive Rivalry:

• A larger number of firms

• Slow market growth

• Low switching costs

• Competition from geographic areas, which are able to derive advantage of

production cost.

• Low levels of product differentiation

Buyer:

• Higher bargaining power due to slow down and few brand leaders in the
industry

• Focus of procurement from brand leaders

• Buyer is more educated and he uses his acquired skills during

negotiations and discussions.

• Change in products and budget constraints affecting the outsourcing

• Demands innovation for distinctly different product for attracting their

customers but want to keep the cost low

• Trying to distribute the contracts to have multi-vendor support, thus

reducing their risk of non-availability of product /services but reducing the
share of a particular competitor

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