Cellular Module Vendor Evolving Strategies as Market Transitions to 4G and LPWA

ABI Research has been tracking the cellular module market since 2003 and publishing both module forecasts and module vendor results since 2005. Every year in late spring, after all module vendors have reported, ABI Research publishes previous year actuals for module shipments, forecasts for the coming year, and module vendor shipment and revenue results. The following insight provides a sneak peek at the soon-to-be-published results of module vendor activity and forecasts.

The module vendor reports to ABI Research regarding their 2017 shipments by air interface indicate that 2G once again dominated shipments at over 50% share. This is only a minor decrease from 2016 where 2G shipments were 53% of total worldwide shipments. Major segments continuing to use 2G include metering, remote monitoring and control applications, and aftermarket telematics. Within the asset tracking segment, it is bike sharing that gave 2G an unexpected boost, with nearly all of it coming from the Chinese market.

Regionally, the Chinese market led worldwide 2G end-use shipments, followed by India and the United Kingdom. Interestingly, China’s stellar 2G results came about due to challenges for Narrowband Internet of Things (NB-IoT) technologies in 2017. These challenges were poor network coverage, new network launch issues, lack of NB-IoT devices, and long Proof of Concepts (PoCs) being conducted by enterprises deciding on their choice of a post-2G technology. For many enterprises, these issues were the nail in the coffin, causing them to stay with 2G. But the leading issue for NB-IoT that drove enterprises to stay with 2G was its cost. Primarily in China, with its strong base of suppliers, 2G modules can be bought in volume for less than US$3 per module. NB-IoT modules in 2017, even at their best price, were more than US$8!

Moving forward, ABI Research expects 4G to become the dominant module air interface technology by 2020 (measured in terms of shipments). The year 2018 will entail more network build-out for Cat M and NB-IoT networks, but radio chipset availability will not be an issue, leading to more device development and greater access for validating these two technologies. By 2020, ABI Research expects these two technologies to constitute approximately 50% of all 4G technology shipments. So where will the other 50% reside? Right now, Cat 1 is expected to be the next large segment for shipments, but Cat 1 volumes could take a nosedive once Cat M2 and Cat NB2 modules become available (3GPP Release 14). Devices that are greater than Cat 3 are the next big category in 4G, and China will again play an important role in driving adoption of the higher bandwidth technologies as a result of price. Before NB-IoT, China made 4G a national initiative, with 4G Cat 3 modules being used in the traditional low-cost smart meter segment. In fact, in 2017, the average 4G > Cat 1 module cost from Chinese module vendors was about US$30; for all other vendors, it was greater than US$50.

As the cellular module market transitions from 2G and 3G to a 4G-dominated world, and as Chinese Original Equipment Manufacturers (OEMs) become more prominent in the supply of cellular Machine-to-Machine (M2M) modules, it is worth looking at the strategies of the established module suppliers and how they are changing.

Sierra Wireless continues to be the revenue leader in cellular modules, selling a large share in Western markets and leading in 2017 4G revenues (number two in 4G shipments). Sierra Wireless’ strategy has not changed in that it will be the first with the fastest bandwidth products, currently offering Cat 12 modules of up to 600 Mbps downlink speed. This strategy strengthens its leading position in terms of selling to the automotive OEMs. Sierra Wireless was first to deploy 4G-only products and was the leader in this market in 2017.

SIMCom was number one in shipments in 2017, leading in 2G shipments globally, which, not surprisingly, was boosted by strong sales in the shared bike market. SIMCom invests in engineering talent and Research and Development (R&D), allowing it to create quality products—part one of its strategy. However, SIMCom has also competed on price, allowing it to capture a large share of the Chinese market. Its sales mainly to developed markets of the United States, Japan, and Western Europe allow it to generate more revenue and margin.

U-blox occupies a unique position within the cellular module community because it has stuck to its strategy of primarily selling hardware in the form of cellular modules and Global Navigation Satellite System (GNSS) chips and modules. As of the writing of this report, U-blox has not decided to move up the Internet of Things (IoT) value chain into other services. This strategy works particularly well with telematics clients who like to buy their GNSS and cellular modules separately and integrate them into the telematics devices, rather than buying a cellular module with built-in GNSS. U-blox has been aggressive with its roll out of Narrowband IoT (NB-IoT) modules relative to other suppliers; unfortunately, the primary market it is selling to—Western Europe—has been slow to take off in NB-IoT adoption. U-blox is changing its strategy to better compete with low-cost suppliers and announced it will be offering its own NB-IoT and Cat-M chipsets along with modules.

Interestingly, two of the three suppliers mentioned are transitioning their businesses to become less dependent on modules. Sierra Wireless has become an IoT Mobile Virtual Network Operator (MVNO) through several acquisitions, with its IoT services business revenues increasing by 26% in 2017. Meanwhile, SIMCom was acquired by Sunsea Telecommunications, a major supplier of Information and Communications Technology (ICT) network infrastructure in China. Sunsea Telecommunications is beefing up its IoT division, headed by former China Telecom executives, starting with cellular modules but also by moving into IoT platform services. Sunsea Telecommunications was a lead investor in a recent US$60 million D funding round in Ayla, an IoT platform supplier. All new SIMCom modules deployed in 2018 will have an Ayla agent for rapid onboarding to IoT cloud services.

ABI Research forecasts that Cat M and NB-IoT will grow their share of the module market and become the biggest sector by 2022. This position is reinforced by the availability of Cat M2 and NB2 modules, both higher bandwidth versions of the current market products of Cat M1 and NB1. Cost will be a significant driver of volumes for this segment, which suggests that profitability will continue to be squeezed for suppliers in this market. ABI Research therefore sees the module vendor community continuing to be swallowed up by larger suppliers. For the acquired module vendor, an acquisition will give it the financial resources necessary to compete as well as invest in R&D. For the acquiring conglomerate, it will give it a wide-area and low-cost technology from which to sensor-enable and connect its products. More importantly for the acquirer, it will give it insight into building a connected product and services strategy, a reality that all companies, particularly OEMs, will have to confront. Beyond Sunsea Telecommunications’ acquisition of SIMCom, Thales is awaiting approval to buy Gemalto. ABI Research knows of more due diligence activity in this space, with at least one more acquisition being possible in the near future.