Senior Consultant at DigiWorld IDATE
Worldwide market represents 22 billion EUR in 2012 – 14% growth compared to 2011
Recently, IDATE has published its annual M2M in-depth market report which analyses the overriding trends and changes taking place in the M2M market around the globe. It explores the driving forces behind the market’s growth and transformation, including an examination of the chief market trends, plus volume and value forecasts up to 2016 by geographical area, by country (China, France, Germany, Italy, Japan, UK and USA). It also presents the quantitative evolution of the cellular modules, by application and by networking technology.
"The M2M market is growing very fast but its development is not spread out homogeneously over the verticals markets," says Samuel Ropert, project manager and senior consultant at IDATE. He adds:"Take the automotive industry worldwide: in volume we predict an average growth rate (AGR) of 40% until 2016. In parallel, the Consumer Electronics industry has an AGR of 15% and will represent barely a third of the M2M volume for the automotive industry in 2016"
- The M2M market is growing very fast. In 2012, the cellular market is expected to represent 140 million modules worldwide for a total market of 22 billion EUR (of which 5.1 billion EUR for connectivity). The annual growth of the M2M market was around 14% in value and 36% in volume. Most revenues will come from software and IT services (around two-thirds of total market value). The world M2M market should grow by 30% in volume, to represent almost 370 million modules in 2015. Asia-Pacific should dominate Europe and North America in volume only. Europe should still lead in value, followed by North America.
- Over the next few years, the M2M market will clearly be driven by the three key verticals of automotive, consumer electronics and utilities. However, while they will theoretically drive the market, some barriers could obstruct growth in the M2M automotive and utilities sectors. The global downturn does not explain the trend entirely. In the short term, some applications in these key verticals are recurrently delayed (as with the eCall regulation in Europe, and high-scale utilities deployments) and have a potential impact of the traditional M2M market. Moreover, the utilities market is now seen as less attractive with business opportunity being somewhat limited. In fact, most smart meters will be connected to the cellular network through a concentrator and large utilities players will try to leverage their negotiation power (quasi-monopsonic positioning) to drive down the unit price. Finally, multiple M2M users are adopting a ‘wait and see’ position regarding the world economic situation.
- The embedded SIM (known as eSIM) has animated the debate on M2M and beyond. The principle of the embedded SIM refers to SIM cards welded into the modules at manufacturing and the capacity for remote activation and provisioning over-the-air (OTA). It provides overall the possibility of switching from one carrier to another one. It has been designed for meeting client expectations (industrial performance improvements) but some hurdles exist to the eSIM implementation in the M2M industry. The eSIM could be a strong driver for market development but also a shoot in the telcos’ arm.
- The telcos are still looking for business opportunity beyond connectivity. M2M offers
them attractive opportunities, as, despite low and declining ARPU, projects offer high lifetime value, reduced churn rate and average deals representing thousands of SIM cards. Connectivity alone should represent 8.2 billion EUR in 2015 worldwide (3 billion EUR in Europe) and more than 5.7% of mobile data revenues for European telcos. MVNOs are being pushed out of the market and are therefore repositioning themselves as tool providers (platform providers), while module providers are challenged to break even in a market where unit prices are falling.
Senior Consultant at DigiWorld IDATE
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What to retain of the recent acquisition of SagemCom's M2M division by Sierra Wireless
This week, Sierra Wireless acquired the M2M division of SagemCom for €44.9 million in cash consideration plus assumed liabilities. In 2011, the M2M business generated €39.9 million in revenue (and was solidly profitable) according to the press release.
For Sierra, the acquisition has 2 main interests:
- Reinforcement of its business positioning on the technology (cellular mainly) and the key verticals which drive the M2M market such as Automotive, Energy market. For instance, Sagemcom provides smart meters for utilities segments and not dedicated modules only. It also reinforces its local presence in Europe, whereas Sierra Wireless is a North American company (based in Canada; even though they bought the France-based Wavecom few years ago).
- Broadening of its vertical positioning. Sagemcom has differentiated assets in key segments like payment, transportation, and railways with its GSM-R technology, where Sierra is less involved in. Moreover, this acquisition offers Sierra new geographical opportunities into emerging countries (and key driver for M2M) like Brazil.
According to IDATE, thanks to this acquisition, Sierra Wireless now becomes the #1 M2M module makers in both volume and value-based ranking. Now, there are three significant players in the market: Sierra Wireless, Gemalto/Cinterion and Telit, followed by SimCom.
However, this acquisition is not a real surprise as the hardware M2M market is experiencing a market concentration since 2008. The phenomenon has been accelerated during the downturn where large players could traditionally make appropriate acquisitions at a good price.
This acquisition has at least two mains origins:
- Fragmentation of the value chain and therefore a quest for scale. The value chain is still too fragmented, being occupied by a large number of small players. Generally, they are specialised in a specific technology/ product, essentially a brick of software or parts of modules. So, we see a quest for scale as some players have already anticipated this consolidation, and they operate a “get bigger or die” strategy.
- Price competition. The M2M market has witnessed fierce price competition on the module market and the entry of Chinese players (with aggressive pricing) pushes this trend further. Indeed, over the last few years, some new players have entered the M2M market. As in other traditional industries such as fashion and automotive electronics devices, Chinese players have sought to enter the market by competing on price. The M2M market has seen the arrival of Chinese players with low-cost products (SIMCom is the #4 module maker). Even, Chinese telecom equipment vendors like Huawei and ZTE now address the M2M market.
Other reasons explain the multiple mergers and acquisitions occurred in the latest months:
- End-to-end solutions. This phase is reinforced by the eagerness of the leaders to provide end-to-end solutions as fast as possible. This willingness is translated into the form of acquisitions rather than R&D expenditure. Telit, for example, strengthened its positioning on short-range technologies by acquiring a specialist player called One RF Technologies, including its R&D centre. One RF Technologies provides its own proprietary mesh network solution. For the same reason, Gemalto acquired Sensor Logic, a platform provider.
- Global economic situation. Multiple acquisitions have already been made and the economic downturn could accelerate this phenomenon. When a downturn is to be long-lasting, small companies could probably either disappear or be acquired. Actually, small players do not have the financial reserves of the larger ones; their deep pockets allow the latter to resist the downturn for longer.
- New geographical positions. Acquisitions are also made in order to conquer a new geographical market. For instance, Telit acquired BellWave in South Korea. Now, the BellWave R&D centre is the Asian technological point of presence of Telit, supporting CDMA technology. In early 2011, Telit also acquired Motorola Solutions' m2m modules line of products and Motorola Solutions' associated employees joined Telit. This acquisition was an important step to substantially enhance Telit’s global position, including the USA.
- Enter the emerging M2M market. Acquisition could be the way to open doors to the promising M2M market. Gemalto, for instance, became a leading M2M player when it purchased Cinterion, the Number One modules manufacturer, in June 2010. Indeed, Gemalto benefited from Cinterion’s fragility caused by recurring revenue drops, being thus able to enter the M2M market whereas it was only somewhat involved through SIM cards and security expertise, but not to any great extent. Two years earlier, Sierra Wireless had acquired Wavecom for similar reasons. Finally, in November 2010, Enfora was acquired by Novatel Wireless for about 64.5 million USD. The goal is to expand the Novatel product portfolio (based on end-user modules, not an M2M expert).
Senior Consultant at DigiWorld IDATE
> Visit our website for more information on this topic - a new edition of our yearly M2M market report will be published in September!
Head of Satellite Practice at DigiWorld IDATE
The global market is forecast to reach 2.3 billion EUR in 2016
IDATE just releases the first edition of its market report providing its readers with an analysis of the M2M market that is currently changing shape, assessing the key technologies to accelerate such a development of this promising market, along with an examination of the positioning of the top players, the key issues to be addressed and market forecasts up to 2015 by geographical area and by type of market.
M2M is a growing segment for the satellite industry, although satellite still has only a small share of the machine-to-machine market which is largely dominated by cellular systems: around 2% in terms of volume and 6% of revenue in 2011.
For most operators, M2M is still very much a niche market, but everything points to real growth potential for these applications.
“While it is sectors like fleet management and maritime security that have driven the sector’s development up to now, new markets have been emerging over the past several years, especially in the area of energy, but also in the homeland security/military arena.” insists Maxime BAUDRY, project manager of this study and IDATE’s head of the satellite practice.
Satellite M2M market growth/disruptive factors
There are several factors driving the growth of satellite M2M applications, starting with:
• Clear assets in terms of coverage: once classic and low-cost wireless solutions (chiefly GSM and 3G) are no longer available, satellite becomes the only possible solution for M2M applications. This is especially true of vast desert areas, and of oceans where demand for M2M solutions is high: for tracking fishing vessels, dangerous cargo, monitoring offshore wind farms, etc.
• Tremendous increase in applications requiring M2M. Examples here include smarts grids in the area of energy, tracking shipments – whether on land, sea or in the air – and for the military which are heavy users of M2M applications for tracking combat assets, in addition to having the means to pay for very high-end and so very expensive products.
• Complementary nature of terrestrial and satellite networks to deliver M2M links end-to-end. Manufacturers have been innovating over the past several years by rolling out hybrid equipment which is being used more and more by operators. Orbcomm was a pioneer in this field, and was then followed by players such as Iridium and Inmarsat.
• Stricter regulation. Recent developments in maritime regulation, notably the adoption of stricter regulations over monitoring commercial vessels, have been beneficial to satellite which is the only possible solution for this type of application outside of coastal areas.
Current satellite M2M market estimates
The satellite M2M market still represents only a small fraction of satellite services revenue. In the satellite M2M market came to 1.5 billion USD while the Satellite Industry Association (SIA) puts the entire satellite services market at an estimated 101 billion USD – giving M2M a 1.5% share of the market. IDATE estimates for 2011 indicate that this share will increase to 1.6%. The number of M2M modules in services stood at 1.3 million units in 2010.
The global satellite M2M market is forecast to reach 2.3 billion EUR in 2016. The highest rate of increase will be in the Asia-Pacific region thanks to developments in countries such as China, Indonesia, Vietnam and India.
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Worldwide M2M market revenues passed 18 billion EUR in 2011
IDATE publishes every year a market report providing its readers with an analysis of the M2M market that is currently changing shape, assessing the key technologies to accelerate such a development of this promising market, along with an examination of the positioning of the top players, the key issues to be addressed and market forecasts up to 2015 by geographical area and by type of market.
“The volume of connections and M2M SIM card shipments has attained a new level of significance with regulatory bodies starting to take them into account. For instance, the French ARCEP and Spanish CMT telecoms regulators now register the number of active M2M lines (M2M SIM cards). The Japanese regulator, TCA, is also providing estimates of active use on a regular basis.”
M2M cellular market
The M2M cellular market currently accounts for 90 million modules, in late 2011. It must be borne in mind that the number of communicating modules (also called ‘concentrators’ or ‘hubs’) is significantly lower than the total number of machines. The ratio depends on the type of application, but it can reach up to 50:1 in energy and more than 200:1 for other utilities. In 2010, North America had already overtaken Europe with the consumer electronics M2M segment, growing strongly.
Cellular M2M modules or SIM cards, by region (Million units)
The rapid growth rate of connectivity revenues is still holding firm, thanks to the soaring volume of modules, in particular consumer electronics devices. In fact, it is largely compensating the drop in ARPU. Cellular M2M connectivity revenues are over 1.5 billion EUR in Europe in 2011, slightly more than 1.1% of mobile operator revenues in 2011.
Connectivity revenues in Europe, North America and Asia-Pacific (Million EUR)
Market by geographical zone
The worldwide market for cellular M2M will reach 18 billion EUR by year-end, despite a lower growth rate in 2011 (20% vs. 32% in 2010). North America is the leading market in terms of volume but Europe is still the leader in value.
Overall cellular M2M market, by region (Million EUR)