On January 20 (2017), u-blox announced that it purchased the customers, products, team, patents, and copyrights of SIMCom Wireless, the M2M cellular module division of SIMTech Group Ltd., for US$52.5 million. The SIMTech Group Ltd. is a small, diversified electronic manufacturing firm whose major product lines are cellular wireless modules and handsets, in addition to building OEM and ODM integrated products. 2015 revenues for SIMTech Group Ltd. were US$392 million.
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On January 20 (2017), u-blox announced that it purchased the customers, products, team, patents, and copyrights of SIMCom Wireless, the M2M cellular module division of SIMTech Group Ltd., for US$52.5 million. SIMTech Group Ltd. is a small, diversified electronic manufacturing firm whose major product lines are cellular wireless modules and handsets, in addition to building OEM and ODM integrated products. 2015 revenues for SIMTech Group Ltd. were US$392 million.
u-blox’s cellular module business is one part of a bigger organization that offers short-range wireless modules and location/positioning hardware. Short-range wireless modules include Bluetooth, Wi-Fi, and V2X modules; positioning hardware includes GNSS modules, chips, smart antennas, and dead reckoning products. In cellular modules, u-blox was different than its competitors because it did not offer GPS integrated modules, but instead offered the GPS module separate from the cellular module. So far, this product offering strategy proved successful with cellular module growth across revenues and shipments of about 36% over the last three years. u-blox states it gives OEMs a choice to allow innovation and integration using separate radio components.
SIMCom was a fast-growing player in cellular M2M modules, moving from #4 to #1 in shipment market share from 2013 to 2015. This growth came at the expense of revenues, with revenues growing at half the rate of shipments over the same period. As a comparison, the revenue to shipment growth rates of the top three revenue earners in the cellular module category, Gemalto, Sierra Wireless, and Telit were about 1 to 1. Regionally, SIMCom benefitted over the last few years from growth in the China market where it has a large market share.
What Makes SIMCom Attractive Now?
Other module vendors entertained buying SIMCom but never pulled the trigger. One explanation could possibly be that the acquisition price was higher than what u-blox paid. Another example, is market focus, where it was believed that SIMCom’s target market segments were, did not align with those of the acquirer. The latter issue also drove the question of whether SIMCom’s products could meet the sophisticated requirements of many of the embedded markets, such as automotive.
SIMCom’s acquisition seems obvious based on the price, its location, and its customer base. In 2015, the SIMCom Wireless group sold US$95 million in wireless modules to external customers. Based on 2016 revenues, the price to revenue ratio is about 0.5—a valuation of less than 1!
SIMCom’s headquarters in China and a prominent base of Chinese customers (~50% SIMCom shipments are in China and India) are huge benefits for u-blox for several reasons. First, the other large cellular module vendors have little, if any, business in China, so the acquisition is competitively advantageous. Second, China Mobile, China Telecom, and China Unicom all committed to NB-IoT. The SIMCom acquisition potentially gives u-blox fast track approval of u-blox’s SARA NB-IoT module on Chinese operator networks.
But, there are other factors that make SIMCom attractive now, which likely led to u-blox acquiring them. The first factor was the new wave of growth projected for LPWA technologies particularly for the Asia-Pacific market. Cellular LPWA technologies including LTE Cat 1, Cat M, and NB-IoT will comprise 68% of cellular module sales in 2021, 30% coming from the Asia-Pacific region. The second contributing factor was access to the Chinese automotive market. SIMCom gained traction in that market, and given the current geopolitical climate in China, the development of its car market is likely to continue. Third, SIMCom offers integrated modules of GPS and cellular providing u-blox breadth to its product offering.
These three factors will benefit u-blox not only for sales of cellular modules, but equally for the sales of its short-range wireless modules. Another benefit is that LPWA technologies are expected to open up new application segments providing u-blox more cross selling opportunities, which can then be applied outside the Chinese market.
So, the big question is, why did SIMTech Group Ltd. sell its module division for such a low price? Adding fire to this question is that the SIMCom Wireless division was also supplying modules for its faster growing integrated products business whose customers were increasingly seeking products for IoT solutions. The reason for the low price is as part of the acquisition, u-blox agreed to have its modules manufactured by SIMTech Group Ltd. It is not clear for how long or how much of u-blox’s product line is part of the agreement. However, SIMCom was moving in the direction of becoming an advanced manufacturing supplier and this agreement provides a boost towards this goal and validation.
Note: The reported SIMCom Wireless revenues have always been for sales of M2M cellular modules to non-SIMCom companies. However, the SIMCom Wireless division also manufactured cellular modules for another SIMTech Group division called the Handset and Solutions group. ABI Research always reported SIMCom Wireless’s total cellular module shipments and revenues sold both externally and internally to customers creating IoT solutions. u-blox’s reported SIMCom Wireless sales of US$95 million does not account for modules manufactured and used by the Handset and Solutions group. Total SIMCom 2015 cellular module shipments and revenues can be found in the ABI Research report entitled, M2M Cellular Module Vendor Market Share, (MD-M2MMS-157).