Hardware Virtualization Gaining Momentum Across Verticals, but Adoption Barriers Remain

Over the past years, the foundational paradigm of software-defined solutions and related hardware virtualization (sometimes referred to as Operational Technology (OT) virtualization in industrial contexts) has started to dominate debates on digital transformation across many, if not all verticals and end markets, ranging from telecommunications and automotive to energy and manufacturing more recently:

• Automotive and Transportation—Software-Defined Vehicles (SDVs): The automotive industry explored SDV and digital cockpit concepts early on, in the wake of developing infotainment solutions such as connected navigation and smartphone integrations such as CarPlay and Android Auto. More recently, new centralized vehicle architectures, often as part of new Electric Vehicle (EV) concepts designed by new entrants from China, are aggregating a wider set of functionalities, including dashboard clusters, additional (rear-seat) infotainment displays, and, most importantly, safety functionality ranging from Advanced Driver-Assistance Systems (ADAS) to fully driverless systems as software solutions implemented in a single high-compute general-purpose hardware platform with hypervisors ensures functional domain separation in software to guarantee secure operation and functional safety. This represents a fundamental shift away from decentralized and fragmented approaches dominated by embedded software on specialized hardware. While SDV has now become a core concept in passenger cars, it has also started to spread into commercial vehicles and trucks.
• Energy—Virtual Substations: With the energy sector facing the new reality of both distributed and intermittent energy resources and systems, the need for greater flexibility is huge, especially at the edge of the energy grid, which experiences the highest friction between static energy supply and dynamic energy demand in a rapidly electrifying environment. This is where software-defined low- and medium-voltage energy substations come into play in terms of facilitating flexible Over-the-Air (OTA) functionality upgrades and configuration changes, as well as managing and coordinating the two-way flow of energy in real time. Key suppliers of virtual substation solutions include Schneider Electric and ABB.
• Manufacturing—Virtual Programmable Logic Controllers (PLCs) and Software-Defined Automation (SDA): Vendors like Siemens and Beckhoff have developed entirely virtual PLCs that can be downloaded as an edge app and fully integrated into the Information Technology (IT) environment. This is covered extensively in ABI Research’s Software-Defined Automation: Market Trends report (AN-6230).
• Telecommunications—Software-Defined Networking (SDN): Hardware virtualization has been developed for many years in the telco environment, which probably is most advanced in deploying software-defined approaches on a wider scale. It has transformed how telco networks are managed and operated.

Key common benefits of hardware virtualization across verticals include:

• Flexible and Agile Lifecycle Management: Remote OTA software updates not only for reconfiguring and adding new functionality, but also for fixing issues and maintaining cybersecurity protection
• Reduced Costs: Designs based on standard hardware and open software; lower maintenance costs
• Reduced Exposure to Supply Chain Risks: Availability of alternative hardware solutions
• Faster Time to Market: Open platforms and ecosystem of compatible solution providers avoiding vendor lock-in
• Improved System Resiliency: Reduced downtime though avoidance of shutdowns
• Artificial Intelligence (AI)-Readiness: Future-proofing AI compute power

Ecosystem activity around hardware virtualization is increasing rapidly in terms of product launches, partnership announcements, sessions at conferences, and the creation of consortia. Recent examples include:

• Panasonic Automotive Systems and Arm: Partnership aimed at standardizing architectures for SDVs
• Volvo and Daimler: Joint Venture (JV) created by leading truck Original Equipment Manufacturers (OEMs) to co-develop SDV solutions
• Enlit 2024 Conference in Milan: Energy substation virtualization as one of the main themes
• Edge for Smart Secondary Substation (E4S) Alliance: ABB, Schneider Electric, Intel, Dell, Enedis, VMware
• Virtual Protection Automation and Control (vPAC) Alliance: ABB, Schneider Electric, Intel, Dell, Siemens Energy, Red Hat, Advantech, and VMware
• Siemens Virtual PLC (SIMATIC S7-1500V): Downloadable as an edge app through Siemens’ Industrial Edge Hub

Interestingly, many of the players lower down in the value chain (silicon vendors and middleware software developers) are active across multiple verticals:

• VMware: An example of a software vendor active in multiple segments (telecoms, energy)
• Qualcomm/NVIDIA/Arm: High-compute solutions targeting multiple markets

Cross-vertical approaches will be instrumental in growing this fledgling ecosystem, boosting the sustainable profitability of vendors in the long term. However, other suppliers, such as Mobileye, are focused on single verticals like automotive.

While the underlying value chains and ecosystems are maturing, one of the main barriers holding back the fast deployment of hardware virtualization across segments and verticals is upgrade cadences being limited to long lifecycles ranging from 15+ years in automotive to up to 40 years in industrial segments. With retrofitting of existing systems being both complex and expensive, and sometimes simply impossible, software-defined solutions are typically only implemented as part of replacement or extension programs. Even with all new installations expected to be based on virtualized hardware at some point in the future, it will take a long time to see this reflected in the entire installed base. At the same time, these long product lifecycles mandate the selection of silicon and hardware partners, which can guarantee long-term product support, while continuing to meet the changing requirements of various market verticals.

Other barriers, limitations, and roadblocks include:

• High levels of Capital Expenditure (CAPEX) investments
• Lack of internal awareness and in-house expertise (aging workforces)
• Safety aspects related to critical software-defined assets and systems

• Cybersecurity concerns around software-defined critical infrastructure (energy, manufacturing)
• Organizational challenges—need to align legacy siloed organizational structures with centralized technology approaches (automotive OEMs)
• Hardware virtualization "washing" and shallow implementations falling short of reaping the full benefits of software-defined approaches (different levels/grades)

Recommendations for OEMs, service providers, and technology vendors:

• Leverage ecosystem approaches through partnerships and consortia
• Adopt open future-proof platforms
• Achieve full/high levels of virtualization fast
• Consider and develop retrofitting approaches where possible
• Explore new financing models (vendor financing, public grants, etc.)

Ultimately, the level at and the speed with which software-defined architectures are adopted by vehicle OEMs, grid operators and utilities, telco operators, manufacturers, and many other vertical service providers will, to a large degree, determine their competitiveness, profitability, and, most importantly, their ability and agility to address future challenges and disruptions. We have seen this in the past with the rise of Tesla adding a host of service-related digital innovations and we now see it again with Chinese vehicle OEMs like Nio and BYD expanding into the European market with state-of-the art automotive technology. While new entrants and startups have an edge in embracing hardware virtualization, it will be essential for legacy players to pivot to a software-defined future as fast as they can.