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The booming Internet of Things space just got another significant vote of confidence last week, as the news broke that telecoms-equipment heavyweight Huawei has acquired the narrowband-connectivity pioneer Neul for a reported US$25 million. This is a great deal for all parties. In Neul, Huawei buys an innovative supplier that is well-positioned to enable billions of connected Things and thus become a major player in this future multi-trillion-dollar industry. In Huawei, Neul gains a synergetic partner with global resources to take its value proposition to the next level. Meanwhile, the reported price represents a lucrative exit for Neul’s investors, which had collectively spent $18.8 million on funding the company. For the wider IoT space, this serves as yet another validation that…

And blah blah blah. Let’s. Just. Stop. Right. Here. Did anything in that showcase of canned Monday punditry stick out?

Neul’s technology does have potential and from the strategic viewpoint Huawei is a decent fit for it, and all that, but in the scheme of things that’s irrelevant. What’s actually remarkable in this deal is how poor a return it represents for the investors, and I’ve been slightly taken aback by how entirely that side of things has been overlooked by the majority of the folks commenting on it.

Credit to BusinessWeekly, which originally broke the news, for touching on the valuation aspect, but pretty much all other analyses I’ve seen are blissfully ignoring it. Bearish developments like this are of course inconvenient to the usual IoT hype narrative, but that’s not an excuse for us chattering classes to go all rose-tinted about them.

As regards the big picture, here are four points that I would advise everyone to consider:

    • Technologically speaking, Neul had a good gig going on with Weightless, but it seems to have dramatically underestimated the regulatory obstacles associated with the protocol. That oversight then made a mess of its business plan.
    • From a potential buyer’s perspective, the regulatory downside hugely outweighed any technological upside. That’s essentially why the valuation is as low as it is. Huawei surely wasn’t the only possible Plan B for Neul.
    • While every “thing” in the IoT needs to be connected, the actual connectivity per se won’t be as valuable as you might think. Based on our calculations, it will barely account for more than one-fifth of the whole value chain.
    • Due to the convergence of networking technologies, for many IoT deployments there will be more than one solution to the connectivity problem. That will further limit the pricing power of the relevant suppliers - also in the LPWWAN market, which we at ABI Research have recently studied in great detail


Rest assured that Neul won’t be the last IoT vendor whose exit will disappoint its investors. There are a lot of moving pieces that need to come together before one can actually make money in this business, and not all of them are necessarily in the vendors’ own hands. That can make any due diligence a devilishly complex affair.

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