This was inevitable and predicted six years ago: smartphone penetration has reached its peak and smartphone growth is stalling, and mobile networks are essentially built out on this planet. Last year, 2015, was actually the LTE rollout peak year. For those of you who have been following me over the past six years, you probably remember my famous “after 2015, fasten your seat belt” bottom line slide of my Mobile Infrastructure quarterly tracker. Well, the fall is vertiginous with double-digit year-over-year revenue decline expected this year; look at Ericsson’s and Nokia’s financial reports. Now look at Qualcomm, the company that has been riding the smartphone wave by pioneering much of the technologies that power our mobile devices. Qualcomm’s revenue fell nearly 5% last year and is forecast to fall even further for this fiscal year. And finally, it looks like only the Chinese smartphone manufacturers are the only one left with some revenue growth—it’s no longer Apple and Samsung.
As a result, the entire mobile ecosystem is suffering and working on reinventing itself by focusing on the potential next big thing within the Internet of Things (IoT) domain: cars. Nowadays, everyone is obsessed with connected self-driving cars, like if it’s going to be the next Eldorado! For example, in the last episode of this dramatic shift away from smartphones, BMW, Audi and Mercedes-Benz launched on September 27 an alliance with mobile telecoms network equipment firms Ericsson, Huawei, Intel, Nokia and Qualcomm to accelerate the development of the infrastructure needed for self-driving cars. Named the 5G Automotive Association (5GAA), this new alliance has the chief objective of developing, testing and promoting car communications systems, supporting standardization, and accelerating commercial availability and global market penetration of those systems.Now service providers are also joining the party: on October 17, Vodafone was to the first to take the plunge. In this era of flat—if not declining—telecom service revenues, service providers too have to identify new potential revenue streams and are eyeing cars as a major one.
This alliance is another illustration of Germany's premium carmakers collaborating to build the technology expertise necessary to take on new rivals like Uber and Google, which are also working on autonomous driving technology. It’s worth noting that last year, BMW, Mercedes and Audi joined forces to buy digital mapmaker Here for 2.8 billion euros ($3.15 billion) from Nokia, and in early October 2016 introduced a service that allows drivers to see for themselves what road conditions are like miles ahead using live data collected by other vehicles.
Another example is Qualcomm’s acquisition of NXP announced just recently on October 27. Watching its fortunes entirely tied to smartphones falling apart, Qualcomm had to make a bold move and agreed to pay $39 billion for the world’s largest developer of chips for automobiles, a major growth area for chip and software companies. With cars being NXP’s largest revenue contributor, all of a sudden Qualcomm gains full exposure to the automotive industry.
Bottom Line: No question, the bet is on cars!
We are witnessing the realignment of several ecosystems that bring automakers, semiconductor companies and mobile infrastructure vendors together to place a huge bet on cars becoming the next smartphone success story. What all this means is that cars will become platforms that handle a large variety of communications and services currently handled by many dedicated devices.
The 5GAA is rock-solid because it combines the world’s three largest mobile infrastructure vendors along with a new car-focused Qualcomm and with the three largest luxury automakers in the world. In other words, expect to see self-driving and 5G network technologies moving at a steady pace from this club. And lastly, luxury automakers typically tend to be recession-proof, which reinforces the solidity of the 5GAA; remember Detroit’s Big 3 bailout, among others, like France’s Peugeot during the financial crisis.
Stéphane Téral is Senior Research Director, Mobile Infrastructure & Carrier Economics, for IHS Markit