Just three months ago, Ericsson was boasting that it had created the world’s smallest LTE-Advanced modem, the M7450, setting the stage for a push into modules for the internet of things. Now it has decided to exit the modem business, which has been the scene of many technology breakthroughs over the years, and was reclaimed by the Swedish giant after the break-up of its ST-Ericsson joint venture with STMicro. That could see one of the major chip players seeking to acquire the M7450 technology as a weapon in the battle brewing for the embedded modem space.
Despite the M7450, which will be still be supplied to customers, Ericsson clearly sees modems as non-core now that it is entirely focused on infrastructure, not devices, and is expanding its revenues in new ways, into the cloud, media and managed services. It said it needs more resources for its radio network R&D activities, which are vital to its core business in cellular networks. To afford the extra 500 staff it aims to hire in that area, it will close the modem unit, and also believes some of the staff can be transferred to radio R&D.
When ST-Ericsson broke up, Ericsson unexpectedly took back parts of its former Ericsson Mobile Platforms baseband chip division, because it saw LTE ‘thin modems’ as an important area where it could steal a march on the powerhouses of smartphone modems, like Qualcomm, and tap into the rise of IoT devices with their need for ultra-small, ultra-low cost embedded connectivity. The M7450 costs only $17.
However, other players have caught up in thin modems and price erosion, coupled with an accelerating pace of innovation, makes this a market which requires deep pockets to lead. While Ericsson has those pockets, it needs to concentrate its R&D and product resources on the areas of most impact for its business, notably networks and software.
The modem business is still expected to account for SEK2.6bn in R&D costs this year while the closure of the business will start in the fourth quarter and will take about three quarters to complete. The division employs 1,582 staff in Sweden, India, Germany, China and Finland.
When ST-Ericsson broke apart in 2013, Ericsson still had 11% share of TD-SCDMA modems, according to Forward Concepts, and 9% of GSM/EDGE, but only 2% in 3G, hence the need to shift quickly to 4G, something the firm achieved by building on its pre-STMicro developments in embedded modules for ereaders, gateways and other connected products – the first precursor of the full IoT.
This may prove to be a wasted opportunity, but it takes a fully focused company to achieve the scale required to make profits from $17 units (Ericsson would need to sell 45m units in the first year to break even, calculated Strategy Analytics). Modems are a sideline for the firm, but we may still see the M7450 technology acquired by a vendor with a more urgent interest in leading the IoT modem space.