Manufacturers of the cellular modules at the heart of machine-to-machine (M2M) communications are currently facing an extremely difficult market characterized by increasing commoditization and shrinking gross margins. A new study of this market from ABI Research reports that nearly 18 million cellular modules shipped into M2M applications in 2006, including telematics, telemetry, and Wireless Local Loop, and suggests that this number should grow to roughly 90 million in 2012. Telematics shipments are expected to increase at moderate double-digit growth rates, while both telemetry and WLL shipments should see strong growth in excess of 30% CAGR.
According to principal analyst Sam Lucero, “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.”
Vendors are responding to these conditions with a variety of strategies designed to preserve or recover their financial viability.
Lucero says, “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. 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 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.”
Still others are trying to stick to their game plan and provide an effective business “wrapper” around the module. This provides value by removing the burden of developing RF expertise and an RF supply chain from the application developer.
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. A key vendor in this area is SIM Technology, based in Shanghai.
Lucero adds that ABI Research’s latest study, “The Cellular M2M Module Market” is a departure from the company’s previous M2M reports. “They were global in scope, covering all aspects of M2M as a concept,” he notes. “This report focuses specifically on M2M module makers, their markets, their challenges and opportunities.”
Founded in 1990 and headquartered in New York, ABI Research maintains global operations supporting annual research programs, intelligence services and market reports in broadband and multimedia, RFID & contactless, M2M, wireless connectivity, mobile wireless, transportation and emerging technologies. For information, call +1.516.624.2500.