Vendors of cellular M2M (machine-to-machine) radio modules face a long-term threat to their business, according to ABI Research.
Even in the short-term, they are under increasing pressure in maintaining their profitability, ABI said in a report.
Paradoxically, however, ABI noted, several factors that inhibit the M2M market as a whole do in fact provide these vendors with a measure of temporary protection, and they do have several defensive countermeasures.
This puts M2M module vendors in a "precarious" position, according to ABI senior analyst Sam Lucero.
Lucero explained: "If their OEM customers bypass them to work directly with providers of cellular baseband ICs, who supply reference designs and related support, separate modules are no longer required and their reason for existing disappears."
This is already seen evident in OEM consumer telematics. Many application developers see M2M modules as commodities: Asia-Pacific module vendors drive prices down, and Qualcomm and NXP are already in the market directly providing reference designs.
However, the M2M market faces several conditions which inhibit growth generally but actually provide some level of protection to module vendors, ABI noted.
The market is seen highly fragmented, and characterized by complex applications. Moreover, most OEMs lack the radio design expertise required, ABI said.
For the M2M market as a whole, those factors limit volumes and growth. But for module vendors they afford some measure of protection: it's more economical for an application developer to purchase off-the-shelf modules than it is to hire radio design expertise, source chips directly, and undergo certification alone.
"The module vendors are well aware of the disintermediation threat they face, and they have several responses," says Lucero. "One is differentiation with software and services. A second is to become a more perfect "Ëœbusiness wrapper': that is, to perfect their R&D, pre-certification work, and assume a lot of the application developers' burden."