Tuesday, 9 October 2012

Telit Developers Conference - Ian Paice's drums and a bucket of hubris

I spent yesterday at the Telit Developers Conference in San Diego*. It was an interesting day and I thought I'd put out a quick blog post on my views on Telit.

During the introductory keynotes from CEO Oozi Cats and the rest of the senior management team the word that came to mind more than any other was 'hubris'. I recognise, of course, that Telit has done a great job in the M2M modules market. In particular I'd applaud a strong portfolio and I think the way they've embraced a wide range of different technologies (e.g. Zigbee, GPS) is to be applauded.

But I was surprised by the lack of concern about the threats posed in their market.

Their legacy modules business is heavily threatened by cheaper rivals. The fact that the sector has consolidated massively recently points to a lot of competitive pressure, as does a constant pressure on ASPs. At one point Mr Cats put up a chart showing growth in their module sales from 2007 through to 2016. The historical numbers look good but the assumption presented in the chart that Telit will see growth tracking the market growth rate (as estimated by an analyst firm) of 24.1% is, I think, highly ambitious.

I'm put in mind of two things: the expression "historical performance is no indicator of future performance" (or words to that effect), and the experience of companies such as Option. They could have made a similar analysis in around 2006 of the datacard/modem mobile broadband market. Their growth had been good and market growth was set to explode, which they would have assumed would have benefited them. Actually it didn't, all the growth went to Huawei and ZTE. Ditto Nokia with the Smartphone market. They were Johnny-On-The-Spot to take advantage of the boom in smartphone sales but all of the growth went in the direction of Apple and Samsung.

I also see no guarantees at all that their move into the services market will pay dividends. That is a very competitive market too and one that our research indicates will soon turn into a bit of a bloodbath.

So in conclusion, Telit is a company that is very pleased with itself. I would prefer to see a little bit of humility if they aren't going to encounter hubris's old friend nemesis.

*At the Hard Rock Hotel, I got to see a signed set of Ian Paice's old drums.

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