Telit to Lead the Second Largest Cellular Module Business in Merger with Thales

At the end of July 2022, the Thales Group and Telit Communications announced the merger of their Internet of Things (IoT) cellular modules businesses. Telit will acquire Thales’ 4G, 5G, and Low Power Wide Area (LPWA) IoT modules, gateway, and data cards. The new company, Telit Cinterion, will come into being once the transaction is finalized during 4Q 2022. Telit will be the majority partner and will assume leadership of the new company. Telit was acquired by a consortium managed by DBAY Advisors Limited in 2021, which took the company private, as Telit Cinterion will now also be. However, Telit Cinterion will not assume Thales’ automotive products, which will be divested. Telit sold its own automotive module product portfolio to TUS International, now Titan Invo, in 2018. Telit has no desire to reenter the automotive market.

Thales Group does more than sell cellular modules for the IoT. Its turnover in 2021 was US$16.2 billion, with its Cinterion brand of modules generating approximately US$350 million, just 2% of the Group’s total business. Thales acquired its IoT module competency in 2019 with its purchase of Gemalto. Gemalto’s sale price was US$5.43 billion, yet it, too, did far more than just sell modules, which accounted for US$435 million in 2019, or 8% of Gemalto’s value. Cinterion is the longest-standing cellular module brand name in the IoT, originating with Siemens in the 1990s, before being spun out as an independent company in a management buyout. Cinterion’s success saw it traverse a succession of acquisitions, each time adding a strategic string to its new owner’s bow; yet each time being diluted in its importance within ever larger companies, with increasingly diverse business interests.

Until now, that is, when Thales will hand off its Cinterion assets to the equally renowned IoT module expert Telit, in return for a 25% stake in the new Telit Cinterion company. Throughout the years, the Cinterion brand name has always been retained, thanks to its hard-earned reputation for quality, and the trust it engenders with module buyers; changing the name would lose those valuable associations. Thales’ Cinterion portfolio consists of eight module families, each with its own regional variations, that will now be incorporated into Telit’s own product line. The Cinterion name will survive in the name of the new business, with all the company’s products being branded Telit Cinterion. Telit is the fourth largest cellular IoT module vendor, with hardware sales of approximately US$380 million in 2021. Telit Cinterion may sell US$750 million worth of modules, for a probable 15% market share.

With its IoT-only specialization, something Thales does not have, Telit has been able to develop adjacent IoT platform and service competencies to complement its module hardware and to generate subscription-based revenue streams, constructing a comprehensive device-to-cloud stack. Specifically, these include Telit’s IoT Connectivity Portal connectivity management platform (CMP), deviceWISE device management platform, secureWISE IoT security platform, simWISE Integrated Subscriber Identity Module (iSIM), and OneEdge embedded connectivity; and Telit became a Mobile Virtual Network Operator (MVNO) in 2019. This was not to diversify away from modules, but to cement its mission statement as an embedded systems specialist, a role that today requires more than just hardware competency. Thales’ Cinterion products will now benefit from and become part of the same, with Thales valuing Telit’s Embedded Subscriber Identity Module (eSIM) competency and the ability to remotely download subscriptions, in particular.

However, Thales’ involvement will not come to an end. Even though Telit will lead the growth and development of the new company with a 75% stake, Thales is a power player in industrial manufacturing, and will be a vital lead-generator and development partner. Thales seeks to combine Telit Cinterion’s core competencies with its own for mutual benefit, employing 90,000 people and owning many factories for manufacturing equipment. Thales is working on 5G private network-connected factory equipment, which it will apply to its own operations first, and which Telit Cinterion can then market to an expanded customer base. This work is a proof-of-concept for now and will not generate a high volume of module shipments, but will create high-value endpoints requiring specific Quality of Service (QoS) and Service-Level Agreements (SLAs), reliant on a full-stack end-to-end IoT system for support. The lifetime management of industrial equipment is especially important to Thales, as is network security.

The coming together of Thales’ and Telit’s IoT assets is not just a merger for the sake of survival in the face of growing competition from Chinese module vendors like Quectel, Sunsea AIoT, Fibocom, and MeiG Smart. But it is good business sense, and legitimately combines different, but complementary competencies. Thales is strong in Long Term Evolution (LTE) Cat.1, with specific plans for developing Cat.1bis products. Cat.1 is a powerful driver for the growth of the IoT module market, accounting for 25% of all module hardware sales worldwide in 2021. Thales’ single Stock Keeping Unit (SKU) global Cat.1 module is also its best-selling product. Meanwhile, Telit is strong in LTE-M, which, while slower to ramp up, is now growing well as 2G and 3G networks are sunsetting. LTE-M is also a fundamental component of massive Machine Type Communication (mMTC) in the 5G standards, thus securing its future relevance.

The creation of Telit Cinterion gives birth to a company that will lead the market among the Western module vendors in both the breakout IoT technology of the current cellular generation, Cat.1, and the emerging technology of the next generation, LTE-M. Telit Cinterion will also be a stronger competitor to the ever-growing Chinese vendors, and one that picks its battles more carefully with a focus on products that will maximize profit margin. Narrowband IoT (NB-IoT) is of less interest, as it remains a primarily Chinese opportunity. Similarly, automotive is of no interest, due to the time-consuming and costly custom development required, and the lack of synergy between Original Equipment Manufacturers (OEMs) that wish to personally specify every step of a product design process versus Software-as-a-Service (SaaS) vendors seeking to supply a complete device-to-cloud managed service. Telit Cinterion will be the world’s largest private IoT module vendor, and the second largest, period.

It is possible that Telit Communications’ and Sierra Wireless’ now independent automotive divisions, Titan Invo and Rolling Wireless, respectively, may be interested in Thales’ for-sale automotive line of business. Quectel is growing strongly in automotive, too, and may value the cache of the established brand’s business, but would not be able to use the Cinterion name on any module products it would inherit—just as all of Titan and Rolling’s ex-Telit and ex-Sierra Wireless modules have since had to be rebranded. Intriguingly, u-blox has only ever been active in commercial fleet tracking within the automotive telematics sector and may value expanding its interests into the passenger vehicle market, too. u-blox did seek to purchase Telit back in 2018, and to merge with it in 2020; u-blox enjoys controlling its own intellectual property and is no stranger to making bids.

Telit and Thales posted comparable module sales turnover figures for 2021, both in excess of US$300 million. And yet, Thales will only receive a 25% stake in Telit Cinterion for its contribution. This may raise some eyebrows as to the validity of the merger: is Thales looking to shed something that is a burden? But the truth is that the relative share reflects the fact that value within technology enablement for the IoT resides in more than just the provision of physical equipment. Hardware is a fundamental enabler, a literal platform for the layering on of connectivity, which, in turn, enables the addition of cloud-based value-added platforms and services. Modules will always be crucial as the starting point for the modular or full stack addition of managed services, and increasingly the value of that hardware will be determined by the value of the software that is integrated with it.