Coopetition in the IoT as Qualcomm Puts Its Trust in Sequans’ IP to Secure the Future of Both Companies

After disappointment on the part of Sequans Communications when its potential acquisition by Japan’s Renesas Electronics Corporation fell through in February 2024, on August 23, the French semiconductor manufacturer announced the purchase of its 4G Internet of Things (IoT) Intellectual Property (IP) by Qualcomm Incorporated, for US$200 million. Sequans is an IoT specialist with four cellular chipset product families: Monarch (Cat-M and NB-IoT), Calliope (LTE Cat-1 and Cat-1bis), Cassiopeia (LTE Cat-4 and Cat-6), and Taurus (5G). Qualcomm is the largest supplier of cellular modem chipsets for the IoT, but has sometimes faced criticism of being an “IP warehouse,” obsessed with maximal integration, and less skilled at simplifying and optimizing its designs—all of which makes the agreement a natural fit for both parties.

Sequans’ 5G chipsets are not part of its deal with Qualcomm, and is to be the focus of Sequans’ product development from now on. 5G is an open book in terms of the IoT, with much left to be decided: when will it take off, driven by which technology variants, by which applications, and whereabouts in the world? This is despite the fact it is inevitable that all cellular IoT connectivity will migrate to 5G eventually, just as is the case for Long Term Evolution (LTE) today. But for the time being, LTE is the IoT cellular power player, especially for Cat-1 and Cat-1bis, and Cat-4. Through the ubiquity of coverage of LTE, Cat-1 has managed to find its way into almost any conceivable IoT end market thanks to its affordability, while Cat-4 occupies a unique position in terms of price-performance trade-off, and despite shipping in lower volumes than Cat-1, constituting a vital profit center for many IoT module vendors.

Sequans’ development of new LTE chipsets is likely at an end now. This is not because the market opportunity for LTE in the IoT is over, but because further innovation at the chipset level is not needed. It takes time for a new IoT chipset design to mature: from launch, to sampling, to commercial shipments—typically for inclusion in cellular modules, although direct chipset integration is also possible—to the bulk shipment of modules, and the consequent deployment and connection of the end market IoT devices they are built into. This can easily be a 2 to 3-year process, and consequently, within the IoT, any chipset of that age is still considered “new.” The IoT does not thrive on the instant uptake of whatever technology is the latest and greatest; it is intrinsically risk-averse and thrives on ubiquity of availability and maximal commoditization.

Sequans’ most recent Cat-M & NB-IoT chip, the Monarch 2, was announced in 1Q 2019, and its most recent Cat-1(bis) chip, the Calliope 2, was announced in 1Q 2021. By contrast, Qualcomm’s Cat-M and NB-IoT work ended with the launch of the MDM9205 in 4Q 2018, and its only Cat-1 design was the MDM9207 from 1Q 2015. Since then, with regard to the IoT, Qualcomm has focused its efforts on 5G Reduced Capability (RedCap) development, and has sought to stay on point with legacy technologies via licensed and (now) acquired IP. Qualcomm’s purchase of Sequans’ IP categorically validates the quality of Sequans’ Research and Development (R&D). It is not merely about taking a competitor out of the market. And while Qualcomm has access to NB-IoT-only and Cat-1bis-only designs, until now, it had no next-generation Cat-M strategy, the 9205 being hampered in terms of size, power consumption, and cost due to the inclusion of soon-to-be irrelevant 2G fallback.

Cat-M sales grew markedly within Europe and North America during the last 2 to 3 years since the sunset of 2G networks began, and it is important for Qualcomm to retain its Cat-M market share. Plus, through Sequans, Qualcomm now has Cat-M and NB-IoT, as well as Cat-1bis IP that is unquestionably non-Chinese, assuaging any potential security concerns, especially within the United States. The acquisition confirms Qualcomm’s commitment to Low-Power Wide Area (LPWA), which had both waned and is effectively absent from all of its major modem semiconductor manufacturer competitors. US$200 million is a small price for such a large company to pay for mature, yet current designs. Cat-M and Cat-1bis both still have a lot of life left in them, Cat-M having been added to the 5G standards, and Cat-1bis likely being the final iteration of LTE to persist on cellular networks.

Despite the stated purchase of Sequans’ “4G IoT IP,” this deal does not include the designs powering Sequans’ Cat-4/6 Cassiopeia range. This is probably because Qualcomm is already confident in its Cat-4 market position, and does not deem that IP to exhibit significant design advantages over what has been already developed. For Sequans, in addition to the much-needed cash payment, it retains the perpetually-licensed right to manufacture chipsets, and to produce module products based on its old IP, as well to continue to develop new 4G designs. Sequans has already received US$15 million from Qualcomm in June 2024 as a pre-transaction manufacturing license fee, with US$175 million to be paid at the expected close of the agreement at the end of October 2024, with a final US$10 million due 1 year later at the expiration of a “warranty period.”

Financially speaking, the deal with Qualcomm is highly significant to the much smaller Sequans. The US$200 million fee is equivalent to more than a quarter of Sequans’ entire operational turnover since its founding in 2003, and matches everything Sequans has earned during its last four full financial years. The aborted Renesas acquisition was a big blow as it had offered Sequans financial stability, the funding to perfect existing products, and the ability to forge ahead confidently with next-generation 5G RedCap and Enhanced RedCap (eRedCap) chipsets. One area of criticism from IoT device Original Equipment Manufacturers (OEMs) about Sequans was that, while its designs were praised, extra work was required to fine-tune software performance and customer experience. This was rectified in recent years through Sequans’ ongoing Renesas partnership, but funding to optimize manufacturing to realize a more competitive price point would still have been valuable.

But if the missed opportunity by Renesas allowed Qualcomm to understand how best to reinforce its position, to lose no ground in the legacy domain of LTE, during the slow burn toward 5G in the IoT, then so much the better for Qualcomm and Sequans. Sequans can capitalize on its work to date, be acknowledged for the quality of its creations, and be unencumbered by the need to rely solely on winning OEM business directly in the intensely competitive 4G IoT market to fund its 5G ventures. At the same time, Sequans is able to continue with its existing 4G supplier relationships, and does not have to hand those customers off to a new owner. Meanwhile, Qualcomm has all the 4G IP it needs for the future, without having to redirect any internal resources. LTE has a strong hold on the IoT and an OEM’s trusted 4G suppliers will be the go-to choice for 5G in the future.