The Internet of Things (IoT) space in North America appears poised for a furious period of consolidation, just as the US government prepares to hand over billions of dollars in incentives for US-based chipmaking.
Telit, based in California, kicked off the trend late last month with its plan to acquire the cellular IoT business of Thales, based in Paris. That transaction drove plenty of speculation that the market for IoT modems and related equipment is poised for reshuffling.
"The IoT industry is highly fragmented and ripe for a period of industry consolidation, which we believe could result in more rational price discipline across the western wireless module industry and potentially limit market share gains of lower value foreign competitors (Quectel and Fibocom)," wrote the financial analysts at B. Riley Securities in a recent note to investors.
"Consolidation starts in the IoT module industry," wrote analyst Neil Shah, with Counterpoint Research, on LinkedIn. He noted that the combination of Telit and Thales "helps USA get back on the map to compete head on with Chinese vendors," and that he expects the merger to receive swift approvals from the Biden administration.
According to Counterpoint, Telit commands 4.6% of the global cellular IoT module market, while Thales commands 3.7%. Quectel and Fibocom are the two behemoths in the sector; the Chinese companies combined own around 40% of the market, according to Counterpoint.
That's noteworthy considering the Biden administration appears poised to inject up to $280 billion into the US chipmaking industry via the CHIPS and Science Act.
Semtech plus Sierra
But Telit isn't the only vendor in the space eyeing growth. Bloomberg reported earlier this week that California's Semtech is in "advanced talks" to buy Canada's Sierra Wireless, which also makes IoT modems. According to Counterpoint, Sierra commands around 3.2% of the cellular IoT module market.
"Sierra Wireless today confirmed that it has engaged in advanced discussions regarding a potential transaction with Semtech," Sierra wrote in a release Tuesday morning. The company suggested the value of the deal could exceed $1 billion.
However, "no assurance can be given that the company will determine to continue such discussions or enter into any definitive agreement regarding any transaction or, if executed, whether any such transaction would be consummated," Sierra warned.
Sierra, for its part, commands deep relationships with US wireless network operators including T-Mobile and Verizon. Semtech, meantime, makes a variety of semiconductors, and has been a leading vendor for the LoRa IoT networking standard. Thus, a Semtech purchase of Sierra would indicate Semtech's interest in combining its LoRa efforts with those based on cellular standards.
Broadly, cellular IoT modules represent a key element of 5G operators' business ambitions. Such modems sit inside of gadgets ranging from drones to automobiles, and help those devices connect to cellular networks worldwide. Although these IoT connections continue to represent a relatively small part of the overall cellular market, network operators continue to hope to grow the space in order to ultimately connect a much wider array of gadgets to their networks.
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