ABI: Cellular Machine-to-Machine Module Vendors Seek Relief in Difficult Market
June 22, 2007 // Published as a news service by IHS
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Manufacturers of the cellular modules at the heart of machine-to-machine (M2M) communications are facing an extremely difficult market characterized by increasing commoditization and shrinking gross margins.
According to a recent study from ABI Research, nearly 18 million cellular modules were shipped into M2M applications in 2006 - including telematics, telemetry and wireless local loop (WLL) - with estimates that this number will grow to roughly 90 million in 2012.
Telematics shipments are expected to increase at moderate double-digit growth rates, analysts said, while both telemetry and WLL shipments should see strong growth in excess of 30% compound annual growth rate (CAGR).
"Vendors face a variety of fixed and variable costs to operate, and even with unit growth at 30%, they can be squeezed if they can't derive sufficient revenue to cover these costs," said ABI Research principal analyst Sam Lucero.
Vendors are responding to these conditions, analysts said, with a variety of strategies designed to preserve or recover their financial viability.
"Some M2M module vendors are trying to increase their share of the silicon content in the application, integrating more powerful processors and hoping to host more of the end application's total value," Lucero said.
"Because there are certain M2M applications that benefit from high-speed connectivity - video surveillance, digital signage and fixed wireless terminals, for example - others have taken the tack of including 3G (third generation) technologies in the mix. These companies have existing businesses in 3G PC cards and laptop PC cellular broadband connectivity, so they're using those as a launching pad into the M2M space," he said.
Still others are trying to stick to their game plan and provide an effective business "wrapper" around the module. Analysts said this provides value by removing the burden of developing radio frequency (RF) expertise and an RF supply chain from the application developer.
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Meanwhile, Asian (particularly Taiwanese) vendors who are operationally more efficient than their counterparts in North America and Europe are increasing the gross margin pressures on the North American and European vendors. Analysts said a key vendor in this area is Sim Technology, based in Shanghai.
Source: ABI Research.