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Telit Buys GlobalConect and Expands Its Strategy in the M2M Market

Telit Buys GlobalConect and Expands Its Strategy in the M2M Market

August 03, 2011

​In July 2011, Telit Communications – a leading global provider of embedded cellular M2M modules – announced it had closed the acquisition of GlobalConect Ltd. for an offering of $2.9 million in cash and stock. GlobalConect Ltd. is a provider of cellular connectivity services for M2M applications, similar to a company like KORE Telematics or Numerex (albeit a much smaller company). Telit’s CEO, Oozi Cats, is quoted as saying, “Adding wireless connectivity to our offering is an important factor for Telit’s continued growth and success. Our customers expect superior M2M solutions from one source and with the acquisition of GlobalConect we will now be in a position to address their needs more comprehensively.” Apart from the assertion that customers want a single source M2M solution, what factor likely had the most impact on the decision to acquire GlobalConect Ltd.?

The cellular M2M module market is undergoing a process of commoditization and consolidation among traditional vendors, driven, in part, by new entrants from China able to compete aggressively on price. Consequently, many of the M2M module incumbents have either exited the market as independent entities (e.g. Wavecom, Enfora, and Motorola Wireless Modules), or have expanded their strategic approach by incorporating other elements of the M2M value chain in their offering. Telit, which has been notable to date for sticking to a very traditional component vendor business model, is now essentially agreeing that commoditization pressures in its core area of business warrant it expanding its strategic scope as well, in this case with a connectivity service offering for M2M applications.
So, will Telit’s plan work? ABI Research’s assessment is decidedly neutral. On a positive note, M2M connectivity services can be fairly high margin in a fast growing market segment; certainly compared to traditional voice/data telecom services. This is the reason so many mobile operators are have now jumped into the M2M market with both feet, establishing M2M business units, opening M2M development centers to assist application developers, and even partnering with certain module vendors to bring down the costs of 3G modules even more rapidly.
Nevertheless, Telit has chosen a particularly difficult way to enter the services market. MVNOs (and Telit would essentially be an MVNO, re-selling data from mobile operators) are facing an increasing amount of competition from mobile operators in the M2M market. Mobile operators, as network owners with typically much larger financial resources relative to MVNOs, are well-positioned to compete on price, to bundle M2M data connectivity with other telecom services, and to leverage their deep existing business customer relationships and enterprise sales forces to win new M2M business.
There are certainly things that Telit can do to improve its chances for success, but ultimately only time will tell if the GlobalConect acquisition was a wise decision.
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