Electronic Engineering Business Plan

The market for Product Category One devices is keyed to the production of Technology 2 microprocessors.  Over 180 million 32-bit microprocessors are being delivered annually.  Conservative estimates have the market growing at 22% annually.  Some estimates are much higher.  Market trends indicate that most, if not all, of these microprocessors will be wanting Technology 1.  At the present time, the number of makers of off-the-shelf Product Category One devices is limited and unlikely to be able to fill the demand.

4.1 Market Segmentation

Statistics related to Product Category One devices are very difficult to find, and when found, usually outdated.  A number of industry newsletters (Technology 2 Processor Watch, Microprocessor Report, Technology 2 Systems Programming) will give dollar figures from time to time for the total embedded market.  In 1999 the market was quoted to be $3.5 billion and expected to grow to $9 billion by 2003.  The Product Category One devices sold by RNSE are connected to this total Technology 2 product market.  The more products that are produced, the greater the demand for Technology 1.  According to Jim Turley, Editor-in-chief of Technology 2 Processor Watch…  “in 1997, more than 180 million Technology 2 32-bit microprocessors were shipped.  This does not include the 32-bit microprocessors placed in the 80 million PCs, the three million MACs, or the approximately one million work stations.” Mr. Turley’s article goes on to state that if the low-end 4-bit and 8-bit microprocessors were included, the totals would be more than doubled.  He estimates that there now exist about 35 low-end microprocessors in every middle-class North American home.  It is, however, the 32-bit sector that is growing fastest.  It is this sector that is most meaningful in projecting the market for RNSE’s products.  Of this total of 180 million 32-bit microprocessor units, the market research firm of Information Architects, claims that the market is broken up roughly into thirds:

• Office Automation (34%).  This included laser printers, faxes, feature phones, etc. 
• Consumer (33%).  Includes video games, portable games, CD players, and high-end audio visual equipment. 
• Communications (28%).  Includes network hubs, routers, switches, telephone infrastructure equipment. 
• Automotive (3%). 
• Military (1%). 
• Other (1%).

Since the total dollar market is predicted to grow from $3.5 billion to $9 billion in the five years 1999-2003, we will assume a 22% annual growth rate over the next three years.  Although the 180 million shipped 32-bit microprocessor data was for 1997, we have not made any growth assumptions for the period 1997-1999, but will apply the 22% annual growth during the next three years to the 1997 data.  It is however highly likely that the market has grown substantially over that period 1997-1999.

In addition to the new Technology 2 microprocessors, there are hundreds of millions of older 4-bit, 8-bit and 16-bit boards that have already been sold.  These too, although ignored in the market study, represent a potential demand for Product Category One devices retrofitted into many of those microprocessors.

The 33% consumer share of the market is characterized by high production runs and price-sensitivity.  VCRs and MP3 players are good examples of products in this consumer market segment.  Similar comments can be made concerning the office automation market segment as well.

The third large sector of the market, telecommunications (28%) does not appear to be as price sensitive nor are production runs as large.  It is this sector that has so far accounted for the majority of Rosafarbenes Nilpferd & Sons Engineering’s sales.

The other category, representing only 1% of the total, probably includes various industrial automation products as well as testing and instrumentation.  These fields, although small in relation to the three major categories, still accounts for over two million microprocessors placed in high-ticket equipment, nearly all of which will need Internet connectivity.

The chart and table below summarize estimated domestic market potential for the RNSE’s products.  As stated above, RNSE will selectively focus on the telecommunications and other customer segments.

*Note: Propriety and confidential information has been disguised or removed from this sample plan.

4.2 Target Market Segment Strategy

Rosafarbenes Nilpferd & Sons Engineering plans to concentrate on the telecommunications segment of the market (28% of total market) as well as the industrial automation and testing and instrumentation segments (1% of total) as these sectors are most likely to have more demanding requirements which are suited to RNSE’s premier, cutting-edge of technology architecture.  These sectors are most likely to be installing the Product Category 1 devices into high-ticket item instruments and appliances, thus making these clients less price-sensitive in relation to the high-volume consumer (MP3 players, Palm Pilots, etc).  VARs and OEMs (Fortune 500 as well as venture capital start-ups) connected with these market sectors are the most attractive target customers for RNSE.

4.2.1 Market Needs

The market, whether it is a maker of telecommunication switches, industrial automation equipment, or a VAR with a time and money-saving idea for a specific industry, wants to concentrate on its special product and bring it to the market place as soon as possible–hopefully ahead of the competition.  They want to out-source the Technology 1 need because they know that trying to engineer it themselves would be more expensive and slow down the launch of their end product by six to nine months.  Some Technology 1 needs, for example, an inexpensive 4-bit microprocessor lodged in a thermostat, can be satisfied without spending $350-650 for a Rosafarbenes Nilpferd & Sons Engineering Product Wrasse.  This need would be satisfied by one of the low-end devices (like Outsource Provider 3).  RNSE needs to focus on the customers with the more demanding requirements for Product Category One.

4.2.2 Market Trends

The market trend is to add Technology 1  to just about everything, leading eventually to a view of the future well-expressed by the CEO of Hewlett-Packard (see the section on Technology).  The trend is moving so quickly that the market is having problems keeping pace with the demand.  Reports of component shortages among chip makers have been in the business news.  For the foreseeable future, we can expect Technology 1 products to be a sellers’ market.

4.2.3 Market Growth

The market for 32-bit microprocessors totalled $3.5 billion in 1999 and is expected to grow to $9 billion by 2003.  This amounts to a 22% annual growth rate (see the section on Market Segmentation).  In 1997 180 million 32-bit microprocessors were delivered, not counting those that were used in computers and work stations.  A 22% growth rate comes to an additional 40 million annually.  Nearly all of these (180 million plus 40 million annually) will need Technology 1.  The total unit sales projected for Rosafarbenes Nilpferd & Sons Engineering in the third year will amount to only .00014 of that.  In the absence of more specific market data, we have projected market growth at 22% for every segment of the Technology 1 market, although it is likely that some segments will grow faster than 22% annually and others perhaps less.

4.3 Industry Analysis

The industry encompassing Technology 2 microprocessors, the operating systems housed in them, the makers of components used to build them, and the people developing software to make special applications possible is quickly mushrooming into one of the world’s largest industries.  To be successful in marketing a Product Category One device it is essential to understand the patterns and major players in the industry.

4.3.1 Competition and Buying Patterns

Currently, demand for the Product Category One devices outstrips supply.  With the trend of adding Technology 1 to almost any appliance, demand will continue to grow.  The variety of offered platforms and configurations of such devices lead to the market fragmentation where no incumbent company holds a major market share.  For low-end devices, pricing is one of the major factors.  However, for high-end devices, such as the products supplied by Rosafarbenes Nilpferd & Sons Engineering, high technical specification and flexibility with major operation systems are more important.

4.3.2 Main Competitors

The main competitors for Rosafarbenes Nilpferd & Sons Engineering’s products are listed in the section on Competitive Comparison.  The listed competition is unlikely to even come close to satisfying a small portion of the demand for Product Category One devices indicated by market research.  One hundred, eighty million 32-bit microprocessors being delivered annually with a projected growth rate of 22% is a huge market for Technology 1, not to mention the billions of microprocessors already delivered in stock configuration.  Obviously, much of the Technology 1 will be done by internal engineering.  But this option has serious drawbacks for the company trying to develop this feature on its own.  First, its engineers have to examine hardware and software options, which, given the number to choose from, could take months.

• Will the component support the input/output (I/O) requirements needed by the product?
• Do separate add-on components need to be designed and manufactured?
• Which operating system vendors support the component?
• Does the hardware vendor support the operating system (O/S) vendor?
• What about integration of the hardware and software?

After months of evaluation, and spending $25,000 on a leading real-time operating system (plus another $10,000-$20,000 buying and building hardware), more months will pass building, debugging, and integrating the operating system with the software.  More time is spent writing the application.  An engineer (who is an expert in the chosen operating system) will need to be hired, and each year another $5,000 will need to be spent in O/S upgrades and software.  Keeping up with protocols and standards will also take time away from development efforts.  In the end, hundreds of thousands of dollars can easily have been spent just on the task of adding Technology 1 to the product internally.  The end product, now including Technology 1, will have been delayed getting to market by six to nine months.  This delay to market aspect is the strongest deterrent to attempting to engineer one’s own Product Category One device.

*Note: Propriety and confidential information has been disguised or removed from this sample plan.

4.3.3 Industry Participants

There are several major components in the industry:

Microprocessor Manufacturers
The sheer variety and quantity of microprocessors is huge in relation to desktop computers.  There are only a few choices with desktop computers as Technology Manufacturer 1’s MMMM architecture increasingly dominates.  But with microprocessors there are NNNN, PPPP, QQQQ, MMMM, and RRRR which represent only a tiny fraction of the total volume of microprocessors shipped each year.  Even if we restrict the count to only 32-bit chips, there are more than 100 different microprocessors currently on sale.  This does not take count of the all the different speed grades or packaging options.  These 100 different microprocessors represent more than a dozen instruction-set architectures and more than 30 different vendors worldwide.  Some of these manufacturers have large sales forces and large marketing budgets.  The ability to attract the attention of one of these large manufacturers is key to marketing Product Category One devices.  If the Product Category One device uses an Technology Manufacturer 1 chip, Technology Manufacturer 1 has a vested interest in pushing its CPU customers to use that particular device.

Operating Systems
Microprocessors must have an operating system in order to function.  Again, unlike the desktop market where DDDD dominates, there are many competing operating systems.  So many in fact that they are graded as “First Tier,” “Second Tier,” etc.  When a manufacturer of an automated milling machine chooses an Product Category One device, he will want one that is compatible with his chosen Technology 2’s operating system.  In fact, the first time he hears about a particular Product Category One device it is likely to be through the salesman who sold him his operating system.  If the operating system is GGGG, marketed by Software Manufacturer 2, for example, the salesman will recommend only Technology 1 devices that are compatible with GGGG.

Market Integrators
Market Integrators are often referred to as value added resellers (VARs).  There are countless VARs who develop special applications which are usually industry-specific.  For example, Reseller 1 is a VAR engaged in software related to building maintenance.  This involves Product Category One thermostats and other building maintenance connected equipment in large office buildings.  These VARs are heavy users of Product Category One devices.

OEMs
Original Equipment Manufacturers have quickly recognized the importance of adding the power of the Internet to their equipment, for example, the manufacturer of an automatic scale for use in a production line.  The scale will weigh every packet of tea passing along the belt to check that the weight is within certain tolerances.  If not, the packet is removed from the line by compressed air.  By adding Technology 1 to the scale, the scale’s activity no longer needs to be visually monitored by a human in the production hall, but can be remotely monitored from a central location.  This is especially interesting for a factory with a dozen production lines.  The same evolution is having an impact on almost every type of equipment.  The OEMs are important customers for Product Category One devices as the device adds very little cost relative to the ticket price of the equipment.

*Note: Propriety and confidential information has been disguised or removed from this sample plan.

4.3.4 Distribution Patterns

There are large established distributors of microprocessor chips, and other components.  It is possible that one, or all, of these distributors may consider offering an Product Category One device soon with a few limited configurations.  However, the main distribution channel for RNSE’s products is direct.  The buyer may have heard about RNSE through an Technology Manufacturer 1 salesman, or through an operating system salesperson, but the sale would be handled directly.  Most inquiries come initially via telephone or email over RNSE’s website.