Why did the world's second most profitable wireless communication module manufacturer sell itself?

On December 17, French aerospace company Thales SA and Gemalto SA jointly announced that the two parties have reached an agreement for the former to acquire the latter at a price of 51 euros per share, with a purchase price of 4.76 billion euros (about 5.6 billion US dollars). The transaction is the largest technology transaction in Europe this year.

1

Famous

Gemalto was established in June 2006 by the merger of Axalto and Gemplus, the world's two largest smart card manufacturers. It is currently the world's largest SIM card manufacturer and the world's second most profitable wireless module manufacturer . It has more than 15,000 employees worldwide, offices in 48 countries, and more than 2 billion users are using Gemalto's products .

Company Diversification Development History

The specific business content can correspond to the colors in the following figure

At the beginning, the company focused on SIM card business. After diversified development, it has formed six major businesses, including: banking and payment, government business, enterprise security, Internet of Things, mobile communications, and software monetization.

Gemalto's major customers are concentrated in three major areas. First, 450 operators around the world are Gemalto's customers (including the three major domestic operators). Gemalto provides SIM cards for mobile phones and is the world's largest smart card supplier.

The second industry is banking. More than 3,000 financial institutions around the world are using Gemalto's bank IC cards. NFC, which is familiar to everyone, is also Gemalto's home field. In 2013, Gemalto reached a cooperation with China UnionPay and announced to build an NFC mobile payment ecosystem. The third is the government. Gemalto provides products such as identity cards, electronic passports, and transportation cards to more than 100 countries.

At the same time, there are a large number of corporate users using Gemalto's products, including car manufacturers Audi, BMW, etc. In 2010, Gemalto established a new Internet of Things division, but the overall business scale is not large, and the company's main business is still smart cards and bank IC cards.

Gemalto's revenue last year was 3.1 billion euros, but due to the decline in demand for credit card chips, Gemalto has issued performance warnings four times in a row in the past year. The company had previously planned to release a strategic development plan for the next few years, but due to business setbacks, the plan has been postponed to March next year. Gemalto's stock price has fallen 38% this year.

For Gemalto, which is stuck in a quagmire, "selling itself" has become a good option. French aerospace company Thales offered 51 euros per share, exceeding the 46 euros per share offered by Atos less than a week ago, but Atos was rejected by Gemalto because the price was too low. In contrast, Thales Group received unanimous support from Gemalto's board of directors. It seems that Gemalto is also relatively satisfied with this result.

2

IoT Business History

As mentioned above, Gemalto has been making smart cards for more than 30 years, providing people with a secure ID card solution. In 2008, when the Gemalto board of directors was making a 10-year plan, they saw that the Internet of Things would explode in the future, and all connected customers and devices also needed a complete set of secure ID card solutions.

In 2010, Gemalto made a capital move by acquiring German Cinterion, a leading supplier of industrial machine-to-machine (M2M) wireless communication modules. In 2009, its M2M business had operating income of 145 million euros, accounting for about 20% of the market share. Cinterion was formerly the wireless module business established by Siemens in 1995. In 2008, this department received support from the consortium and spun off the business into an independent company.

After acquiring Siemens Wireless Module Company, Gemalto established a new Internet of Things business unit ( the Cinterion trademark is still used today) .

From Siemens to Gemalto's IoT division, Gemalto has created many firsts. In 1996, it made the world's first cellular module, followed by the first module with secondary development capabilities and the first automotive IoT module. As of this year, Gemalto's cellular module shipments have exceeded 100 million pieces, which took a long time.

Global Cellular IoT Module Market Share by Revenue in the First Half of 2017

Data source: Counterpoint

Therefore, Gemalto is not dominant in terms of shipments, and its market share ranks fourth in the world. However, its revenue is gratifying, and its ability to make money is second only to the leader Sierra Wireless. With the fierce price war today, how does Gemalto earn excess profits?

At present, most module manufacturers are still selling modules and earning profits by making a profit from the price difference. The emergence of the Internet of Things will lead to more changes in business models. The change that can be seen now is that in the near future, a large number of equipment manufacturers will transform into service providers.

Although the product line will continue to exist, it will be provided to customers in the form of product leasing. For example, traditional businesses will sell POS machines to businesses at a price of 1,000 yuan per POS machine. With the emergence of the Internet of Things, the POS machine business will be changed to leasing to businesses, charging a monthly rental fee of 10 to 20 yuan. It will become a trend to transfer products to the Internet service model, and the service will be realized through the software on the terminal.

Competition in hardware products is homogeneous competition, which leads to no differentiation in products. However, differentiation can be achieved through different software and functions. For example, Tesla promotes product functions to car owners through the Internet of Vehicles solution. By purchasing services or software packages for $2,000 a month, it can realize monetization through new service forms.

Since profits are made through software, there is a possibility of piracy. How to protect software and provide safe and reliable solutions becomes a problem. In addition to basic hardware products, Gemalto also provides connectivity, applications, and lifecycle services. It can help software service providers provide a complete set of protection capabilities and embed management solutions to make software safe and controllable. It is this diversified solution that brings a premium to Gemalto's products.

3

Module Features

feature of product

As we all know, there must be a SIM card or SIM chip on the communication module board, and it is a one-to-one relationship. In addition, some applications also have security requirements, so a board usually has three important components: module, SIM card and chip.

Gemalto is a relatively special module manufacturer. In addition to module products, it also has a large number of security products, including SIM cards and security chips. For customers with requirements, Gemalto can provide them with unique services. Gemalto even hopes to integrate these three into a product and eventually launch an integrated module that includes both communication, SIM and security chips.

In November, Gemalto launched the world's first "all-in-one" IoT module PLS62-W, which can provide efficient LTE Cat.1 connection services based on 12 LTE bands, and can seamlessly connect to multi-band 3G or 2G networks when 4G is not available. It can help device manufacturers and integrators develop applications that can be connected anywhere in the world, and the solution can be flexibly deployed even if different cellular network standards are used in different regions.

At the same time, the module includes a powerful Java embedded system, which is also a unique feature of Gemalto.

Regarding edge computing capabilities, Gemalto is one of the earliest companies in the industry to develop smart modules, and has noticed the value of computing power on modules very early on. In 2003, Gemalto launched the world's first Java-based smart module, which is based on the Java operating system. Developers can take advantage of the computing and storage capabilities of Java modules.

In recent years, some high-end 4G modules, including Gemalto, can also open the Linux operating system to meet the needs of secondary development. With the increasingly powerful capabilities of the modules, they can take on the edge computing capabilities and process some applications and logic on the module side, greatly reducing the load on the cloud server side. In this way, the network support capabilities of the future Internet of Things are greatly enhanced .

Business Features

Gemalto has a wide range of module products, but most of them are used in the industry, mainly for customers in the automotive and industrial fields. For more than ten years, Gemalto has been a pioneer in automotive-grade M2M solutions . Initially, through cooperation with BMW, it became the world's first manufacturer to provide wireless module technology to automakers.

In 2014, the "Audi Connect" LTE infotainment system based on Gemalto technology won the 2014 Connected World Award . This award reflects the success of Gemalto's automotive-grade LTE M2M connectivity solution, which helped Audi launch the first 4G infotainment system in a car.

In the field of connected vehicles, in addition to Audi and BMW, many large Tier 1s are Gemalto's customers. Thanks to the long-term close cooperation with leading automakers, Gemalto currently provides a set of market-proven Cinterion M2M modules, eCall technology, machine identification modules (MIM) and remote configuration services, designed specifically for harsh automotive environments, to provide connectivity for infotainment/in-vehicle communication services.

Conclusion

In the field of wireless communication modules, Gemalto is a special module manufacturer with unique advantages in the professional field. In the first half of this year, the shipments of SIMCom and Sierra Wireless increased by 122% and 23% respectively. In comparison, Gemalto's growth rate of 3% seems to be a bit behind the pace. However, Gemalto's buyer Thales seems to look down on this business.

According to official introduction, Thales' acquisition of Gemalto is aimed at the company's digital security strategy. As a new business unit of Thales, the merged Gemalto will focus on developing security software, biometric technology, multi-factor authentication and issuing secure electronic identity credentials. The world's second most profitable communication module business has begun to become marginalized due to the influence of capital.

Exclusive compilation of Global Internet of Things Observation

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