KUALA LUMPUR -- The need for product differentiation is compelling SMT equipment manufacturers to increase software functionality, but ongoing pricing pressures might spur further vendor consolidation.

The business model adopted by most surface mount technology equipment manufacturers in Southeast Asia has been traditionally hardware-centric, evident from the fact that the software component accounts for less than 10% of the overall product cost. Demand for flexibility, self-troubleshooting, shorter programming time and improved process control will widen the use of software in SMT equipment, says a market analyst.

"Currently, software is primarily offered as a package bundled with hardware," said Frost & Sullivan Measurement and Instrumentation Research Analyst Vivek K Reghu. "Hence, the increased capital investment by electronics manufacturers migrating to Southeast Asia from China will accelerate the development of the SMT software market in the region."

Frost & Sullivan says SMT line equipment software market revenues were $35.4 million in 2014 and will grow to $61.5 million in 2019. Thailand and Vietnam offer vast potential for market growth, the firm adds.

Although software adoption is on the rise, profits from software sales may not reflect this surge. Price-sensitive customers are either unwilling to purchase software separately or coax SMT equipment manufacturers to provide the software for free, forcing several SMT equipment software providers to significantly reduce prices.

SMT equipment software providers must differentiate their products based on value-added service rather than competing on cost. Ensuring integration between SMT equipment, enabling process optimization, and meeting manufacturing requirements through software will bestow vendors with higher bargaining powers while selling software.

"To further bolster their standing, SMT equipment software suppliers are likely to scout for merger and acquisition opportunities, especially if the trend toward line solutions picks up," noted Reghu. "With customers increasingly demanding customization, SMT equipment software providers must also interact directly with end users in order to understand their needs and strengthen customer loyalty in the Southeast Asian SMT software market."