AdvancedTCA Market Is Surprisingly Resilient in the Downturn

By Eric Heikkila, VDC Research Group

Despite initial delays and disappointingly slow development, the AdvancedTCA market is showing surprising resilience in the current economic downturn. VDC’s latest data indicate that the market will be about the same in 2009 as in 2008 within a few percentage points. Although this is obviously below recent high double digit growth rates, it is much better than other embedded computing segments and technology markets are faring. For example, both the industrial embedded computing market and the overall communications equipment market are likely to contract by double digits.

Why such resilience? One would expect that the speculative “Greenfield” applications in which AdvancedTCA is typically used would be the first cuts in a rapidly contracting communications market. After all, they are generally high-risk investments without any certain revenue sources. However, they have proven to be surprisingly stable in practice.

The broad adoption of AdvancedTCA among Tier II and III Network Equipment Providers (NEPs) is a major reason because such firms are producing much of the innovative equipment that is still driving new revenue at Service Providers (SPs). With both subscriber numbers and legacy revenue streams decreasing, SPs are trying to innovate their way out of the doldrums at the very high end with new products such as mobile TV and other mobile services, broadband packages, and Carrier Ethernet. The Tier II/III NEPs who are pushing the cutting edge are the beneficiaries. While the Tier I NEPs, being heavily reliant on legacy applications and equipment, are currently bleeding red, the most innovative Tier II/IIIs are actually still growing. Their business models are lean and nimble, and they have been much quicker than the Tier Is to realize that embedded computing platforms are no longer differentiating. Thus must of them are now outsourcing such platforms to suppliers using standard architectures, with AdvancedTCA being a leader. The use of industry-standard platforms helps control costs, increase flexibility, and speed time-to-market. Being able to respond quickly to new opportunities and to handle a wide variety of options is critical for SPs in a confusing, fast-changing telecom space.

This widespread Tier II/III adoption is keeping the AdvancedTCA market relatively stable. There is even still growth in adoption today at many such accounts, which is offsetting declining revenues from Tier Is. Perhaps the most promising aspect here is that, since the market has remained fairly stable so far during the downturn, it should be well positioned for significant growth beyond 2010, as the communications market recovers.  The pace of innovation will then accelerate again. AdvancedTCA will already be a platform of choice at many Tier II/IIIs that will be leaders in the revitalized economy. Coupled with widespread “Greenfield” equipment deployment as SPs scramble to provide 4G through LTE or WiMax, the future looks bright for AdvancedTCA. Besides, the current situation could be much worse. Just ask a supplier of industrial computers.

Eric Heikkila is Director of Embedded Hardware & Systems at VDC Research Group. You can reach him at eric@atcanewsletter.com.