u-blox’s recent decision to exit out of the cellular market was explained by the company in an announcement as a re-orienting of its focus on GNSS and positioning solutions, but it also reflects a wider trend towards a two-fold challenge some cellular module vendors are facing: more intense competition in cellular, coupled with a dip in revenues generated by IoT connectivity.
u-blox made the formal announcement on 14th January, where it said it would focus on its locate business, phase out cellular and position itself as a provider of GNSS semiconductor solutions.
“This strategic shift will enable us to unlock even greater potential within the positioning technology market and accelerate the development of cutting-edge solutions for our customers,” said Stephan Zizala, CEO of u-blox in the announcement. “Our efforts to find a viable path forward for the cellular business did not pan out, including exploring a potential sale, leading us to the decision to phase out this business. We will do our utmost to support our employees, customers and partners impacted by this decision.”
End of journey in cellular
This signifies the end of an almost 16-year journey for the company, which entered into cellular following its acquisition of NeonSeven in 2009, with its ambition to bring its expertise into GNSS in cellular modules and distinguish itself that way.
“u-blox believed backward integration (developing its own cellular chipset) would be crucial, given the chipset makes up a higher share of a module’s bill of materials,” explained Fredrik Stålbrand, Principal Analyst, Berg Insight. “However, the overall market growth and u-blox’s share within it did not provide the necessary returns on these investments.”
Stålbrand added that u-blox scaled back chipset development efforts last year but uncertainty around achieving higher margins were uncertain, and explains the company’s reason for exiting.
Further investigation into the factors motivating u-blox’s decision show a cellular market characterised by stiff competition. In fact, u-blox themselves reported that by exiting out of cellular, they expect to eliminate approximately CHF 30 million in EBIT annual losses (around $33 million). This is no small amount of money.
Counterpoint Research reported that competition from Chinese vendors such as Quectel and Fibocom and a softening in IoT market where u-blox had market share was a significant contributing factor towards u-blox’s decision to ditch cellular, for lack of a better word.
“Margins are wafer-thin, competition is fierce and channels to market are challenging,” said Matt Hatton, Founder, Transforma Insights. “u-blox was always a relatively small volume vendor and hadn’t been able to secure a big enough market share to be sustainable.”
Although there has been a decline in global cellular module shipments – reported by Counterpoint in March 2024 – China’s own cellular market has been buoyed by increased demand for 4G Cat 1 bis, viewed as an affordable and energy-efficient technology able to be applied to applications such as smart meters, POS, telematics and asset tracking.
“The global cellular module industry is becoming a game about scale,” noted Stålbrand. “With China accounting for more than half of all cellular module shipments worldwide, leading Chinese vendors benefit massively from their dominant home-market positions and can undercut competitors on price in international markets.” In doing so, said Stålbrand, it has increased pressure on Western suppliers who can’t achieve the same scale and cost cutting.
In March 2024 for the first time ever, global cellular IoT module shipments declined in 2023, falling 2% YoY. It attributed this to inventory adjustments and reduced demand in industrial and enterprise, although it noted that India and China experienced positive growth due to demand in smart meters, POS and asset tracking markets.
Although estimates of IoT subscribers and connections place them on a growing trajectory – Berg Insight reported that the global number of cellular IoT subscribers increased by 22% in 2021 and that it expected this to grow at 15.6% CAGR between 2021-2026 – IoT connectivity revenues are growing at a far slower rate.
In addition, research published by Berg Insight shows that monthly average revenue per user (ARPU) dropped by 2% in 2021. There is an ongoing trend towards operators shifting to offering additional, value-added services such as Cloud and security services; man cannot live on revenue from connectivity alone.
What’s next?
Hatton partly expressed his own surprise that u-blox closed the cellular part of its business in the same vein that he acknowledged the difficulty vendors can experience in trying to find a buyer. u-blox said that it had tried to find a buyer, but had failed.
“The major dynamic in the modules business at the moment is that the US, and to a lesser extent Europe, is becoming a less accessible market for Chinese module vendors due to various regulations,” he said. “That means non-Chinese module vendors such as u-blox should have had an easier time of it in the coming few years, but that hasn’t translated into greater confidence in the opportunity.”
However, it’s not all bad news per se: some have speculated u-blox’s exit from the market presents greater opportunity for European and US vendors, who could be well-placed to address the gap created by u-blox’s exit. Only time will tell how this pans out.
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