HomeChannelsAnalyst angleSemtech/Sierra, Telit/Thales set ground for new east-west IoT clash (Analyst Angle)

Semtech/Sierra, Telit/Thales set ground for new east-west IoT clash (Analyst Angle)

There were two high profile pieces of M&A news in the IoT hardware space in the last week. First up, on Friday 29th July, Telit and Thales announced that they were combining the assets of Telit with those of Thales’ IoT hardware business into Telit Cinterion. That was followed on 2nd August by the news that Semtech Corporation would acquire Sierra Wireless.

Hatton – western IoT consolidation is a response to eastern IoT power

Telit and Thales – straightforward merger

Let’s examine Telit/Thales first. The deal will merge Thales’ IoT connectivity hardware business, which it acquired through its purchase in 2019 of Gemalto (which itself had acquired Cinterion in 2010). The new organisation will be called Telit Cinterion. As part of the deal Thales will receive a 25 percengt stake in the new organisation. This is fairly straightforward merger of two companies operating in more or less the same space.

Semtech and Sierra – unusual bedfellows

The Semtech/Sierra Wireless deal is rather different. Sierra Wireless is a more diversified player than the new Telit Cinterion. It has been through a process of building out an IoT MVNO connectivity business, including acquisitions of Wireless Maingate in Sweden (bringing in 500,000 connections), Mobiquithings in France (which had 100,000 connections), Numerex in the US (around 2.5 million connections), and Australia’s M2MOne (which had 400,000 connected devices). 

Today it manages around five million connections. This connectivity business accounted for 30 percent of revenue in 2021. (Check out our ‘IoT MVNO market landscape 2021’ report from November 2021.) Not only that, but Semtech is a very different type of organisation. It is a supplier of semiconductors. Its IoT interest is focused particularly on the LoRa/LoRaWAN technology that it gained through the acquisition from Cycleo in 2012, which it licenses to third parties. 

This contrasts with Sierra Wireless, which is focused entirely on 3GPP cellular technologies, and with a particularly nice gateways business. Could Semtech envisage launching its own LoRaWAN gateway powered by Sierra Wireless cellular-based backhaul? It has all the necessary pieces in place, although how this would play with other gateway manufacturers (check out our  ‘LoRaWAN Gateway Market Landscape’ report) is unclear. Conversely, might we also expect Sierra Wireless to focus more of its connectivity business on public LoRaWAN networks rather than cellular? It’s very likely, and provides a boost to public LoRaWAN deployments.

The total enterprise valuation of Sierra Wireless is $1.2 billion, which represents about a 2.5x multiple on revenues. That’s relatively high for a hardware business, which typically sells for 1-2x revenue. It’s likely to have been lifted by Sierra Wireless’ connectivity business, where multiples on revenue have been at an all time high recently at around 5x revenue, albeit probably declined somewhat in the last 6 months.

Old guard – western consolidation

One of the notable features of these two announcements is that it affects all three of the triumvirate of cellular IoT hardware makers that dominated the global market as little as a decade ago. Collectively Cinterion, Sierra Wireless and Telit accounted for the majority of IoT shipments. However, over the last decade the Chinese vendors such as Quectel and Fibocom have swallowed the lion’s share of the market and driven down prices a bit further.

What do you do in the face of shrinking market share? You consolidate or you find new markets. All three have tried, variously, to do both. They’ve all made acquisitions or been acquired and have diversified. Sierra Wireless went into the connectivity space, as noted above, whereas Telit has recently beefed up its offering as a full MVNO. But these further mergers to gain more scale in IoT hardware make sense. They need scale.

New divide – west versus east

What’s particularly interesting from the Telit Cinterion deal is that it is positioning itself as a “western” IoT solutions vendor. This is illustrative of where the management thinks it can play most effectively – in other words; those companies and markets where it is either prohibited to buy from China or where it is considered undiplomatic to do so. This demonstrates something of a lack of ambition, but probably a reflection of the reality of pricing challenges.

The Sierra Wireless/Semtech deal is less immediately illustrative of this shift, although the requirement for Sierra Wireless to sell out reflects the challenging competitive environment. However, it does create another “western” hardware vendor. And it’s just possible that Semtech might now seek to position LoRaWAN as the “western” LPWA technology. That might be explicit, or just implicit by aggressively targeting a wider set of deployments of public LoRaWAN networks.

Regional LPWA – LoRaWAN versus NB-IoT

It is a very real possibility that Semtech might seek to position LoRaWAN as a western LPWA technology in contrast to NB-IoT which is predominantly deployed (in terms of numbers of devices) in China. Of course, NB-IoT isn’t in any way an exclusively Chinese technology and is standardised by the global 3GPP and deployed by operators around the world. But there is the potential that it can be pitched as such, not least because Huawei (courtesy of its acquisition of Neul) was the company overwhelmingly responsible for bringing NB-IoT to market.

In the event that LoRaWAN gains traction as a western technology, it could trigger a number of consequences. Clearly the mobile network operators outside of China will want to either (i) have a LoRaWAN offering or (ii) be able to demonstrate that NB-IoT is a global offering. The former means more opportunities for the likes of Everynet providing LoRaWAN neutral host networks for mobile operators. 

The latter might trigger hardware makers (Huawei particularly) to make some compromises with operators over providing network upgrades much more cost-effectively. Currently NB-IoT devices are more expensive and with generally inferior battery life compared to LoRaWAN. Driving adoption outside of China by pushing down prices and improving NB-IoT power performance will become a key objective.

As an interesting side-note on this topic, Sierra Wireless has been notable for slewing strongly towards LTE-M and away from NB-IoT (although it does have NB-IoT products). To quote from its own assessment of the relative merits of the two technologies: “There are no NB-IoT use cases that LTE-M can’t also support”. (Although we must note that Transforma Insights disagrees with this analysis). 

Having Semtech/Sierra Wireless as a strong advocate for the LoRaWAN/LTE-M LPWA combination is a very strong possibility.

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