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© 2012 Tieto Corporation Key opportunities in evolving Product Engineering Services market Antti Vasara
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Key opportunitiesin evolving ProductEngineering ServicesmarketAntti Vasara
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Product Engineering Services in brief
Strong domain-specific knowledge and competences
World-class software R&D processes and WoW
Global delivery model
Tieto Product Engineering Serviceshelps our customers with theirproduct R&D through
We serve customers in4 main product segments
We are 4500 experiencedengineers with main sites in
Telecom infrastructure
Mobile devices
Semiconductor chipsets
High-tech electronics, e.g., automotive
Sweden
Finland
China
Germany
Poland
Philippines
Czech Republic
Denmark
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Sales by country
Sweden
Finland
Germany
China
Poland
Other
Customer sales 1–9/2012:EUR 250 million (pro forma)
Personnel:~ 4 500 (pro forma)
Market position:Top 3-5 globally in its mainsegmentsExcellent footprint for Europe andAsia based customers
Product Engineering Services (PES)Based on the new structure effective 2013 (pro forma)
Pro forma figures in this presentation are preliminary and may be subject tochanges during the completion of the company’s operating model design
© 2012 Tieto Corporation 4
Competition is coming from bothWestern and Asian companies
HCCorigin
LCCorigin
IT generalists w/ R&D service lines
Captive partnersIndian specialistsIndiangeneralists
WesternIT giants
R&D focused
Small and localspecialist
companies
Chinesechallengers
Western specialistsWesterngeneralists
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What is ourmarket?
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Trends driving product engineeringR&D spend
Increased use ofelectroniccomponents andcommunicationtechnologies overall
Attention to theenvironment,alternative fuels andrenewable energy
Convergence oftechnologies andcrossing of deviceboundaries
Increasing demandfrom hundreds ofmillions of newmiddle classconsumers inemerging markets
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We are witnessingan explosive growthin data traffic and# of connecteddevices
Daily internet traffic in EU in 2020:
23x of 2012 trafficUMTS Forum, 2007
20 billion connecteddevices by 2020 and a300-fold increase in trafficIntel, 2009
50 billion internetconnected devicesby 2020Ericsson, 2010
500% wirelesspenetration ispossibleVerizon, 2009
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Total addressableESO market
~200
Cost savingsbecause ofoutsourcing
~300
Engineeringservices which can’t
be outsourced/offshored
~500
Non-engineeringrelated spending
Global spend oncapex
12 000 – 14 000
ESO comprises three major segmentsProduct design ($125bn)Embedded systems ($40bn)Plant engineering ($35bn)
Addressable market for Engineering ServicesOutsourcing in 2015 will be ~$200bn
$ bn, 2015
% 100 92 4 2.5 1.5
11 000 – 13 000
Source: McKinsey & Company estimate
© 2012 Tieto Corporation
Embedded systems provides the biggestnear-term opportunity for Tieto
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Key servicesMajor industry verticals coveredChip design – ASICMechatronics – integration of electronic andmechanical designEmbedded software design incl OS, middlewareand application developmentBoard designTesting and prototyping
Communication systems – handsetsand infrastructureComputing and storageMedical equipmentAutomotive electronics
Embedded systems engineering services
R&D seen as core for manykey players
Complex product portfoliosmaking outsourcing of individual
products difficult
Outsourcing mainly used forflexibility to cope with thecyclicality of the business
Still very low penetration ofoutsourcing as % of
total R&D spend
Share of embedded SWincreasing in many areas
Scale efficiency benefits comingfrom OSS, platforms, cloud, etc.+
-
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Three main trends impacting our market
Consolidation of providers
Moving to managedservices in a controlledway
Changing demandsdue to more intertwinedproduct portfolios
Customers are increasingly moving away from niche providers,which are seen as more expensive and increasing complexitywhile larger players gain capabilities – focus is on consolidatingto providers able to serve a wide variety of needs
Trend towards managed services instead of pure capacity iscontinuing
Customers are outsourcing specific processes entirely, butmaintaining more control over coordination between processes
More focus on co-operation between the customer andservice provider (e.g. in cases where ESP is handling a matureproduct family and company itself the latest generation)
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What is ourbusinessmodel?
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Capabilities toscale-up or smoothenout temporary or cyclic
resource needs
Long term expertiseand trust to maintainnon-core assets on
behalf of the customers
Leading edgecapabilities offered toreduce time to market
and drive newinnovations
Product engineering services market hasconsisted of three kinds of business models
Time
Spearhead Flexibility Legacy1 2 3
High Low Mid
Relative profitability of business
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New success factors forengineering services providers
From generalist to domain specialist
From low-cost provider to productivity driver
From body shopping to ecosystem partner
Fromoutsourcingto services
and solutions
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How doesTieto plan todifferentiate?
© 2012 Tieto Corporation
First new generation serviceofferings launchedR&D ExcellenceA holistic way to improve R&D efficiencyby optimizing process, methods andtools /technology integration
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Carrier cloudThought leadership, R&D services andsolution accelerators to implementcarrier cloud in core networks
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Tieto targets growth with PES and betterprofitability through scale and solutions
PES focus
• Domain knowledge andsolution offering
• World-class scale, quality& processes andcustomer intimacy
• Global delivery model
Size of the bubble represents revenue in 2012 and 2016 (M€)
EBIT
%
Tieto target profitability 2016
PES 2012
PES 2016
Growth
Averagemarket growth
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Tieto Product Engineering Servicespursues global growth opportunitiesas part of Tieto Group
Internet of things, billions of smart connected devices and explosive data growththrough cloud and SaaS drives the demand for product engineering services
• Tieto Product Engineering Services is well positioned throughstrong domain knowledge, world-class software R&Dcompetences and global delivery model
• We maintain strong operational focus to execute our plans withcurrent customers and expand to new customers for whom wehave a strong offering
• Tieto’s strategy and plans for PES will be revisited during 2013 toformulate an implementable growth plan
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