2018 Was a Record-Breaking US$3 Billion Year for Cellular IoT Module Vendors

The Internet of Things (IoT) experienced a record-breaking year for cellular module revenues in 2018. Annual revenues increased one and a half times faster than shipments, exceeding the US$3 billion mark worldwide. After an extended period of fourth quarter reporting that lasted into May 2019, substantial growth was recorded in module shipments, too, albeit less so than in 2017. Crucially, however, 2018’s shipments were firmly focused on the “right” module products, propelling this increasingly competitive market onward. The module vendor market experienced notable structural reorganization during 2018, which also represented89 a year when the long-tail vendor community started to need to be taken seriously.

In regard to the internal dynamics of today’s cellular module market, there are 40-odd vendors worldwide that are considered “serious” in terms of either the size of their module business or their specialization as module vendors. Two thirds of these vendors may be significant enough to be shipping one million modules or more. One third is shipping four million modules or more and the top ten are the more familiar names that account for 83% of the entire market’s shipments and 86% of all market worth. How quickly can a relatively new vendor become a powerful player? Very. Chinese vendor Quectel launched its first module in 2009 and gradually ramped up to half a million shipments in 2014 and exploded to over 40 million shipments in 2018.

Just under 210 million cellular modules were shipped in 2018, which was 44 million more than in 2017, for a healthy 26% annual growth rate. By comparison, 2017 saw 62 million more units shipped than 2016, for a whopping 60% annual growth rate. However, this apparently decreasing rate of growth in no way indicates a slowing market. It is instead confirmation that 2017’s exceptional performance was due in part to a short-term surge in 2G, especially in China, specifically due to 2G’s highly commoditized price. Such increases were never expected to be repeated in subsequent years, even though it is true that 2G will persist for some time and remains more highly regarded than 3G in the eyes of many IoT industry participants.

More than US$3 billion was made in cellular module sales in 2018, a figure that is 40% higher than it was in 2017. Not all modules are equal, however, when contributing to the revenue pot; 2G represented 45% of all shipments in 2018, but only accounted for 13% of revenues. That same year, 4G accounted for 66% of revenues, with multi-mode >Cat.1 modules responsible for the bulk: just under US$ 1.5 billion, effectively 50% of the total market value. Multi-mode >Cat.1 and Narrowband-IoT (NB-IoT) are two especially important markets right now. The former is where vendors seek to make money in the short term, and the latter is where they seek to achieve scale in the medium-to-long term. New entrants are focusing on both of these product lines as a springboard to swiftly board the IoT bandwagon.

The most important growth in 2018 came from 4G, which accounted for 40% of all cellular modules shipped. It is inevitable that 4G will become the dominant connectivity technology market for the IoT; the only question is when. It is expected that 4G will be the single largest technology family in cellular module shipments by the end of 2019, and that at the end of 2020, 4G will have the majority share. ABI Research’s analysis includes NB-IoT as a sub-segment of 4G. While NB-IoT shipments have started to build in earnest, most of the demand seen so far was created during the very last quarter of 2018, so there will be more to say about NB-IoT’s fortunes around this time next year.

Individual vendors in China are now shipping twice as many modules as historic market leaders Gemalto, Sierra Wireless, and Telit. The shipment growth achieved by new entrants has never really troubled the incumbents, as those new entrants were not generating as much revenue and their shipment mix contained a relatively low proportion of the high-value 4G products that the market leaders were concentrating on. Sunsea and Quectel built a lot of their shipment base on the less valuable 2G market, but in 2018 Sunsea and Quectel generated revenues on a par with Gemalto, Sierra Wireless, and Telit for the first time. This change in fortune was due to an increase in Quectel and Sunsea’s 4G modules business.

If current trends continue, it will only be a year or two before the dominant players of the last 20 years no longer lead the market in shipments or revenues. A difference remains in mid- to long-term strategy however. Incumbents are pivoting their business models to combat the increasingly slight margins that result from an increasingly successful, competitive, and commoditized hardware market. u-blox seeks to own its own silicon in the ultra-low margin, yet potentially ultra-high volume, NB-IoT market, while Sierra Wireless is moving away from unit sales towards End-to-End (E2E) service-based subscriptions. But the newer vendors from China still rely on entirely a unit volume approach.

Technological advancement may only be a short-term buffer against encroaching competition, however. An exception among the new entrants is Sunsea. In addition to acquiring vendors SIMCom and LongSung in 2018, Sunsea also bought a 9% share of Ayla Networks, empowering Sunsea to launch a “cloud module” in May 2018. The cloud-based element is a big data-driven hardware failure model, providing predictive maintenance for modules and their host devices. Device-to-Cloud (D2C) is a business model that, according to Sierra Wireless, has lifetime value four times greater than one-off module sales. Generating revenue that is recurring and predictable, so securing long-term stability, through a monthly fee per unit. It is only natural that others are realizing this, too.