Key eSIM Theme Focuses on Connectivity and Security Convergence in 2018

The consumer eSIM market remains in a nascent phase, but one that is rapidly evolving in terms of device support and component development. The year 2017 proved extremely important for the consumer eSIM market, thanks to the launch of the Google Pixel 2, alongside the Apple LTE-enabled smartwatch. Despite this, the market is still awaiting its tipping point. Meanwhile, those active in the development of the required eSIM hardware have been innovating through technology convergence in a bid to differentiate prior to tipping point realization.

The impending rise of eSIM within the consumer market is driving another level of innovation in a bid to differentiate products and services, which was evident at MWC 2018, where, most notably, NXP launched an eSIM product family. In its first foray into the SIM market, NXP launched a standalone eSIM solution and another eSIM with combined NFC connectivity and secure element functionality. The firm draws on its strengths within the NFC market to provide a convergence solution from which connectivity and secure applications, such as payments, access control, or ticketing, could be enabled. Another announcement in the space came from ARM, which launched its iSIM solution, capable of integrating eSIM capabilities at the application’s processor level.

Handset Forecast Assumptions

• The Google Pixel 2 with an integrated eSIM shipped between 1 and 2 million units in 4Q 2017.
• Thereafter, the Pixel 2 handset was forecast to ship in the region of 7 to 10 million units annually. The new Pixel devices will also likely continue to support and include an eSIM.
• Apple will probably integrate eSIM capability across all handset device types in 4Q 2020, increasing the overall forecasts to 80.4 million unit shipments in 2020, with approximately 70 million delivered by Apple.
• The year 2021 will mark the first full year of Apple eSIM handset shipments. At the same time, Samsung will launch its first eSIM handset device in its flagship Note and Galaxy devices. Combined, Apple, paired with the Pixel and select Samsung devices, will see shipment numbers around the 259 million mark in 2021 (with approximately 225 million for Apple, 24 million for Samsung, and 10 million for Google).
• In 2022, Samsung will likely begin integrating eSIMs into some of its lower-tier devices and Huawei will launch its first set of eSIM devices, probably targeting higher-end flagship devices first.

Tablets

• Overall, ABI Research expects a steady increase in eSIM tablet shipments throughout the forecast period as more end users choose to purchase cellular tablet variants over Wi-Fi only as the price of cellular tablets falls and nears Wi-Fi-only price points.
• In turn, this will grow from a relatively small base of 4.5 million units in 2018 to reach 10.2 million in 2022.
• Shared device subscription packages are the key to unlocking the tablets market.

Wearables

• Launched in 4Q 2017, the LTE Apple Watch Series 3 helped boost 2017 shipment numbers.
• The LTE Apple Watch Series 3 will ship approximately 3 to 4 million units annually in the short term, but Apple may shift its complete watch portfolio to cellular in 2019/2020.
• Many other wearable devices will make use of cellular connectivity over the forecast period, including but not limited to: wearable cameras, headphones, hearables, wearable healthcare devices, sports and fitness trackers, and smart clothing, creating a very dynamic and diverse eSIM opportunity.

Laptops

• Windows eSIM support will help boost cellular laptop shipment volumes, aligned with a strategy of selling cloud services and connecting a greater volume of devices through market seeding, which is the key to unlocking future revenue opportunities.
• Low-level shipment volumes are expected in the shorter term, but integration of cellular modems into wider connectivity platforms, such as Qualcomm’s Snapdragon, will drive down cellular laptop prices, closing the price point gap between Wi-Fi-only and cellular variants.
• Mobile network operators (MNOs) have a role to play in the success or failure of cellular laptop demand. Subscription packages, rightly priced, will include additional devices for a singular subscription to help increase demand.
• Driving data and services into the cloud is the focus at the original equipment manufacturer (OEM) level, which has resulted in the subsequent support of eSIM technology.

Others

• The others category is very diverse and includes devices such as consumer trackers, automotive, portable gaming, speakers, and connected toys.
• ABI Research believes the others category will be more niche in the shorter term until applications, including automotive, become more commonplace. Given automotive lead times, this will not likely happen at a large scale (in the consumer market) within this forecast period.

Product differentiation is becoming a key theme within eSIM development. This is supported by both NXP, which has launched an eSIM with integrated NFC radio and secure element via its SU070 and SN100U solutions, and STMicro, thanks to its ST54H solution, which combines the ST33J22M0 secure element functionality and the ST21NFCD contactless front end for hosting secure applications.

Security is the common denominator, leveraging connectivity with contactless capabilities. Secure hosting and storage is a way to differentiate, providing a chipset with multiple use cases and functions. In addition, the ability to use existing certifications and expertise, including, but not limited, to ISO 14443, NFC, EMV, common criteria, etc., will be a major differentiator. Market convergence and multi-application enablement is pushing eSIM development in this direction, with companies like NXP and STMicro, which are leveraging their respective expertise in contactless and security and combing them with cellular connectivity.

It must be noted that the secure element will not only be used to host and secure NFC applications, but will be further leveraged as secure storage to provide a tamper-resistant area from which other secrets are stored, which could be a unique identifier, an identity, or even PIN storage or biometric data. The latter is technically feasible as the secure element is, after all, a secure hardware-based chipset. As long as it has the required memory and certification requirements (end market-specific), then extending and using it for other security requirements is more than possible. Standalone hardware-based security, designed and proven to securely store secrets, is being positioned and reapplied for IoT use cases, combined with connectivity to help reduce bill of materials (BOM) costs.

A further driver is vendor consolidation. The Qualcomm and NXP merger, and later in 2018, the merger between Thales and Gemalto, will likely be completed. Ultimately, this brings together different technology features, pushing further convergence between different and complementary technology types.

The ability to provide a lower-cost platform that original equipment manufacturers (OEMs) can use for additional features will free up valuable design space, particularly for small device types, such as smartwatches, where design space comes at a premium. The smartwatch is a good example of where a multi-function eSIM could be used to free up space to allow an OEM to incorporate larger batteries to address battery life and bigger processors, enabling more standalone functions and a further shift away from reliance on the tethered handset.

The eSIM market, from a consumer standpoint, is in an extremely interesting place and product differentiation will prove a key factor in defining form factor success or failure. In addition, the stacking/combining of functionalities will be another key requirement in a project-driven market where success or failure will be directly underpinned by OEM partnerships and supply.

You can find more information on this topic in a recently published report, eSIM in the Consumer Market.