IoT & Embedded Technology Blog

Semtech’s Acquisition of Sierra Wireless: What Happens Next?

by Steve Hoffenberg | 8/5/2022

Semtech has been a US-based supplier of semiconductors and related technology since Dwight Eisenhower was the President (1960). But it wasn’t until 2012 that the company acquired a small French firm called Cycleo for the price of $5M, in what we at VDC said “might be viewed years from now as one of the greatest bargains ever for a tech acquisition." Cycleo had developed the intellectual property for a new long-range wireless network technology which Semtech dubbed LoRa, and began to supply LoRa chipsets and license the IP to other chipmakers. (The company does not build or operate LoRa networks.) As VDC readers undoubtedly know, LoRa and its network protocol LoRaWAN have gone on to become leading technologies for low-power wide-area networks (LPWANs) used for IoT wireless communications, often competing with cellular-based LPWANs such as LTE-M and NB-IoT.

Thus, we noted with great interest on August 2, 2022, when Semtech announced it was acquiring Sierra Wireless, a leading supplier of cellular IoT modules, gateways, and IoT cloud services, in an all-cash deal for $1.2 billion. You can see Semtech’s press release here, and a PDF of its investor presentation here. We won’t delve too far into the details, but note a few points:

  1. The two companies each generated nearly $800M in revenue over the past 12 months, so the acquisition will effectively double the size of Semtech’s business.
  2. About $100M of Sierra Wireless’s business is from recurring services revenue, nearly all of which is from its AirVantage IoT cloud platform. Semtech has no cloud services business today, and in a call with financial analysts, Semtech’s CEO Mohan Maheswaran and CFO Emeka Chukwu clearly stated that revenue growth from such services is a strategic objective of the acquisition.
  3. In a call with industry analysts, Alistair Fulton, Semtech’s GM and Senior VP for IoT/LoRa & Consumer Sensing Businesses, noted that three-quarters of the devices connected to the AirVantage cloud platform are not using Sierra Wireless hardware, which bodes well for future growth. (VDC presumes that most of the companies using the platform are Sierra Wireless customers for at least some of their hardware, even if they connect many devices using other vendors’ hardware.)
  4. Semtech currently has no hardware product lines comparable to Sierra Wireless’s cellular modules and gateways, so those also represents net new business for Semtech without cannibalization.
  5. Semtech claimed that, overall, the acquisition would expand the company’s accessible market by approximately 10X compared to its existing LoRa-centric business, through the addition of Sierra’s cellular-based products and IoT cloud services, as well as through multi-radio products that would encompass both cellular and LoRa, and other potential new offerings, including for IoT devices that would not necessarily be constrained to LoRa’s low bandwidth applications.

VDC’s Questions
Beyond the direct financial implications of taking on over a billion dollars in debt, the acquisition raises a few market-oriented questions for us about what happens next:

  1. Given that Semtech is at the core of the LoRa/LoRaWAN ecosystem, and it was essentially all in on the technology, how will Semtech’s newly broadened horizons impact that ecosystem? Will existing LoRa/LoRaWAN vendors and customers feel slighted by divided loyalties at Semtech, or will they embrace the potential to expand their own businesses via Semtech’s efforts to simplify the implementation of IoT wireless for other types of communications? We expect to see some of both occur, but we don’t see a need for vendors and customers to jump off the LoRa ship. Indeed, access to hardware and services that support both LoRa/LoRaWAN and cellular may ultimately encourage more vendors and customers to adopt LoRa/LoRaWAN.
  2. Will Semtech move into development and manufacturing of chipsets that support cellular and potentially local area wireless technologies (e.g. Bluetooth, Wi-Fi)? Those markets are already quite competitive and commoditized. Entering them would seem contrary to Semtech’s intention with the acquisition to increase its gross margins through emphasis on recurring services revenues, and would involve considerable investment in development and production. On the other hand, the sales path for such products into several large vertical markets and use cases (e.g. utilities metering, asset tracking) would already be paved. Perhaps a partnership with an existing chip vendor in those technologies would be in order.
  3. In what ways might this acquisition trigger additional consolidation among competing IoT wireless hardware and services vendors? Just the week before this announcement, cellular IoT module and services vendor Telit announced it was acquiring Thales’s IoT module business (which Thales had acquired with its purchase of Gemalto in 2019, and Gemalto had acquired in its purchase of Cinterion back in 2010). Although both Telit’s and Thales’s IoT business units compete with Sierra Wireless’s, they are more alike each other than different, and therefore that acquisition is qualitatively different than the Semtech/Sierra Wireless deal. Perhaps a better analogy is from November 2021, when Digi International, a leading provider of IoT communications products, software, and services, acquired Ventus Holdings, a managed network-as-a-service provider, for $347M. That deal demonstrated how synergies between IoT vendors in adjacent businesses can be leveraged. (See VDC blog post about that acquisition here.) The question now is: Who’s next? We see Swiss-based IoT wireless chip, module, and services vendor u-blox as a candidate to get snapped up by a larger player in the IoT market. We are not aware of any such talks underway for u-blox. But as they say in the broadcast radio world, stay tuned.