Why did Semtech buy Sierra Wireless?

As we reported on IoT-Now.com, the US-based semiconductor, IoT systems and Cloud connectivity service provider, Semtech recently completed its acquisition of Sierra Wireless. To find out what lay behind the US$1.2 billion purchase of Canada’s specialist in cellular IoT and device-to-cloud IoT solutions, we sat down with Julie McGee, Semtech’s Senior Vice President, Chief Marketing Officer and Chief Environmental, Social and Governance (ESG) Officer. 
 
 By way of background, Julie joined Semtech last year and has more than 30 years’ experience in semiconductors, including as an executive at Intel Corp., where she held positions in finance, marketing, business strategy, and supply chain. She also served as Chief of Staff to Intel’s chairman of the board and led several corporate transformation projects, taking Intel through its first Olympic Games. In doing that she brought 5G, artificial intelligence, drones and e-sports technologies together onto a global stage. Julie holds an MBA from the University of Oregon, she completed the Kellogg School of Management CMO program and the Harvard Women on Boards program. So her experience is broad, high level and topical. 

Transcript

Jeremy Cowan  00:01

Yeah, it's very kind of you to give me the opportunity Julie, to just to have a chat. I did enjoy talking to Alistair (Fulton, former Semtech SVP & General Manager) when the first announcement was made, but obviously that was some time ago and things move on.

Julie McGee  00:15

Yes they do. And yeah, now happy to talk to you as well. 

Jeremy Cowan  00:20

And I What I really wanted to do was to sort of try and get a handle on the motivation behind the acquisition because I talked a little bit about that to Alastair, but not for very long. I mean clearly there's a number of benefits that have been identified by analysts and others. Talking about adding high margin IoT cloud services and recurring revenues. Obviously, there are operational synergies, I guess there maybe OPEX savings but you can correct me if that's wrong. What was the motivation behind the acquisition of Sierra?

Julie McGee  01:00

The motivation behind the acquisition was the fundamental belief that connectivity is an essential part of IoT. Sensors are also an essential part of IoT. And LoRa* is really a sensing technology. (* The LoRa Alliance® is an open, non-profit association with the mission to support and promote the global adoption of the LoRaWAN® standard. Ed.) We at Semtech, our goal is to really expand sensing technology's capability. If you think about it as sort of the digital fingertips. The digitization process that IoT really brings, and when you look at the deployment of a sensor network, it needs really strong connectivity and then cellular connectivity that is continuing to advance in the IoT space. Also, it doesn't have the benefit of working hand-in-hand with a sensing network. And so our CEO's idea was one of the things that's holding IoT back is the ability to make connectivity much easier. The ability to make, the sensing network work more effectively, and also the ability to make cellular more useful in the IoT environment. As you know, cellular is pretty expensive. It isn't, it isn't immediately extending the benefits of sensing. It's bringing sort of broadband connectivity and so when you put these two technologies together, you get the best of the sensor network and you get the best of cellular, and by putting them together, Jeremy, the idea is that we will do quite a bit of the work to ensure that they work well together. Otherwise, it's in the hands of system integrators and device makers and it's not necessarily their expertise.

Jeremy Cowan  01:07

No. 

Julie McGee  01:16

And then if you and then if you think about it, then you need to be able to manage these sensors, you need to be able to manage connectivity and the devices, and Sierra Wireless was pretty far along in terms of developing their cloud services, a connectivity management and device management. But what they didn't have is sensor management at all. So, they were also missing that. When I use the word 'sensor', you can also say 'sensing', they didn't necessarily have the ability to manage, they could manage connectivity very well and manage devices fairly well. And now they will be able to add into them the ability to extend that. And so it will strengthen their cloud services. It'll bring cloud services to sensing and so it sort of ends up being this one plus one equals three. Now it certainly requires us to do the engineering work which we are 1,000% committed to do to ensure that you know, by bringing these two technologies together makes it easier for anybody who wants to implement them at a system integration level, associate architect level, and they will be able to have a little bit more plug-and-play solutions that will make it easier for them to take the best of LoRa. And LoRa really is extremely low cost, extremely low power. Many new power saving technologies are being applied to LoRa sensors. At CES we were looking at a company called Dracula that is able to harvest ambient light within a room and power a sensor.

Jeremy Cowan  05:26

Really? That's amazing!

Julie McGee  05:28

Absolutely amazing and so if you think about the cost of adding sensing capability, it's it's dropping, and also the utility of it is increasing. The ability to apply and extend sensing is growing, but you still need to connect it to a gateway. You still need to be able to move that data, and the data is for analytics. The data is information that will help, you, know consumers manage their consumption help building managers manage their assets, help anybody who is in a position of managing data and information get at greater access to data and information and make it easier for them to be more efficient, be more cost-effective, and be more sustainable with all of our scarce assets. Which LoRa has found its home so well in conservation scenarios, management of scarce resources, precious resources. You see so much utilisation and application of LoRa today.

Jeremy Cowan  06:45

Yeah. Obviously, the acquisition has changed, it's a step change in the growth of Semtech and puts you in a slightly different bracket. Who do you see now as your direct rivals?

Julie McGee  07:01

Great question. Mohan (Maheswaran, president and CEO) was very sad, and and I mean that. He thinks our biggest competition really is ourselves, our ability to get this integration done and effectively integrate the technology and bring new use cases. There isn't anybody that currently is bringing cellular and LoRa together in quite the same way. They're there if you segment each of the technologies you would certainly see competitors but there isn't anybody that's sort of putting it all together. So if you look at the router and the module, or the router and gateway competitors they have areas of specialisation. You know those areas of specialisation, one of them is really good in enterprise and one of them is really good in private networks or community networks. But you don't see someone that is really trying to more broadly tackle all of those use cases. And we're not going to tackle every use case to begin. We think some of the places where LoRa has been very, very successful in things like metering, extending that into what we're calling connected spaces, smart cities, smart buildings where people need to do in-boundary asset management, especially where you need sensors for things like building management systems, etc. And on the LoRa side, or there isn't really there. There are other technologies of course that are doing sensing, but they are being sold uniquely as 'Hey, here's a sensing capability, go figure out how to integrate it and put it together.' And there are a lot of small companies that are doing system integration that are very successful, that have adopted LoRa, we don't see those as competitors at all. We see it as they're who we aren't going to feel so, I think, you know, our mantra internally is, let's make our customers be very, very focused on what our customers need, be very focused on solving a problem and be very focused on getting the integration work and releasing innovation to this community and ecosystem of innovators.

Jeremy Cowan  09:46

We've talked a little bit about who's in the market. Where do you think the market is going? Uh, where do you expect to see the most growth in technology terms in IoT services? Is it going to be in device-to-cloud IoT solutions or LoRa-enabled end nodes, or somewhere else entirely?

Julie McGee  10:08

Yeah, that's a great question. I would say we see 2023 and 2024 as definitely the growth of LoRa end nodes. I think that growth of connectivity and cloud services will be second and combined. The growth of these connectivity and cloud services, that Sensing-as-a-Service, if you will, will really expand the utility of sensors, and that will help them grow. But I think right now, people are going to start expanding on set sensors. There is enough now gateways out there, infrastructure out there, that I think, we're starting to see more and more people. And then we're also starting to see people that have already installed a single use gateway, a private network, saying, 'Okay, now that it's up and running, and now that it's working, I want to apply other sensors to this network, and I want to see what else I can manage.' What else I can extend them. So you're sort of moving past those sorts of single use case scenarios, and people are expanding into multi-sensor, multi-utility environments. And I think they're gonna grow equally with the adoption of cloud services. I think the cloud services really have to extend to manage more than connectivity. They have to get to the point where they can manage sensing and that is engineering work. So it's it's going to start happening, but it's probably going to be later in the year.

Jeremy Cowan  11:46

As part of your growth you've obviously needed to restructure slightly and I see that you created two new business groups. What are they and what are their different functions?

Julie McGee  11:59

Yeah, so we see two of the leaders from Sierra Wireless are leading two of our biggest growth business units. Tom Mueller is leading the IoT systems products system products. He will have all all LoRa chip, innovation, all module innovation and all router and gateway innovation, and he will also be the one that's looking at end-to-end. So he will look at what are the things we can really do when we look chip to cloud. How can we think about not only how do we bring the capability of sensors and sensing to gateways and routers and ultimately use cases, but by having, even higher bandwidth, routing and gateway capability, what does that even do this to sensing capability? How would that expand the way that we've thought about sensing? And then Ross Gray is leading the IoT connected services group. He, he has the wonderful mantle of looking at how do we utilise the cloud? How do we utilise connectivity to bring all of that information into the hands of innovators, decision makers' insights, and how do we simplify cloud services? And I would say one of his biggest opportunities, is really sensing and how do we make sensing a service and it's never really been a service before. So we looked at it and we say, we previously might have thought of that as device management. But if you think about it differently, not thinking about it exclusively as 'Oh, I'm managing that sensor to note whether it's working or it's not working'. Instead, you're thinking about what am I sensing? What is it telling me? What type of real insights about utilisation of assets and to be able to bring in true AI (artificial intelligence) and analytics and look at our environments? I think that there's a sort of step function opportunity that can significantly enhance the type of cloud services that are available in the IoT environment today. Okay. You know, today you can do sort of basic connectivity and basic device health, device up, device down. I think the in terms of the insights that you will be able to add and the type of intelligence that that sensor network will really add and bring I think will be a step function.

Jeremy Cowan  15:09

Does that mean that LoRaWAN is shifting its focus towards a sort of wide area and hybrid networking?

Julie McGee  15:17

No, I mean, we wouldn't, LoRa Alliance and the direction that they're taking LoRaWAN and I would never speak on their behalf, but I would say from our perspective, we see the merger of LoRa is very much expanding its utility in sensing. Being able to work hand in hand with a wide area network is definitely the way that we see broader expansion and adoption for sure. So, from Semtech's perspective, we wouldn't we will never turn away from LoRa's roots. But I think LoRa and cellular working in a wide area capacity for sure is definitely the marriage that we see with Sierra, for sure.

Jeremy Cowan  16:08

When I interviewed Alistair Fulton (Semtech's former Senior Vice President & General Manager, IoT / LoRa & Consumer Sensing Businesses) after the announcement of the merger at the end of last year, he was keen to stress one of the goals being to resolve the inherent complexity of IoT collecting data - ingesting it, analysing it, and also integrating diverse solutions and technologies. Do you feel now that you are closer to being able to achieve that with this integration and what evidence can you give?

Julie McGee  16:44

I mean, I think that's the goal, Jeremy. I think you know, the acquisition, we've had a lot of planning in terms of roadmaps, etc. And I think, are we closer to that? For sure, because now we're one team, one engineering and product and business leader that will be able to prioritise simplification, integration, making it easier. But, those teams now have to work together. They have to prioritise use cases. The boundaries are what you can do pre-acquisition versus what you can do when you're one team. So, we're definitely closer. But you know, the months that it took to get the acquisition done, now it's show time, and the goals have not shifted at all.

Jeremy Cowan  17:34

Can you give me an idea of any metrics that would help people see how you're progressing over this year? What are your targets for '23?

Julie McGee  17:43

Oh, that's a great question. I mean, I would say, we, we definitely, need to, we will be delivering a roadmap that will I don't want to put an exact timeframe on it. But I would say in the in the very near future, in the first half of the year, delivering a roadmap that would be one of our first milestones from an integration perspective of showing what are the products and services that are going to be brought to market in the next 12 to 18 months. And that's the longer term. I think in the shorter term, we will be able to do things like ensure that cellular and LoRa are working together more effectively, inside routers and gateways for everybody in the ecosystem. Just because we now will have shared labs, we will now have shared teams that will be able to even debug together, improve our developer tools, and I think you'll see some of those things that will come immediately. I would also expect in terms of the LoRa existing LoRa gateway manufacturers, being able to partner with them more effectively on where they do use cellular backhaul. The Sierra Wireless team has an MVNO (mobile virtual network operator) being able to extend and expand into that LoRa ecosystem that's already using cellular backhaul and strengthen what they're doing. I think those are real milestones that you'll see from us this year that the ecosystem will benefit from.

Jeremy Cowan  19:35

Very interesting. So if I'm pressed to sum up, I would ask and this is a question rather than a statement, to some extent, this is about creating a broader toolkit for developers to build their own applications? So they're not distracted by areas of expertise that aren't theirs, like choosing connectivity - that the connectivity is enabled for them.

Julie McGee  20:03

The connectivity will be much easier for them to implement. Sensors will be able will be much easier for them to be able to implement. And it'll get to the point where solution integrators have much more, plug and play, fully debugged environments that they can get back to the business of IoT extension and expansion. And, doing what the promise of IoT is really there for, which is to digitise non-digital assets and provide all the tools and information to make it operate more effectively and efficiently.

Jeremy Cowan  20:45

Julie, that's really helpful. Thank you. I think our audience is going to find it instructive to see where you're headed with this and I'm very grateful for your time.

Julie McGee  20:56

Thank you so much, Jeremy for taking the time. And we hopefully we'll have more news to share. As we get closer to Mobile World Congress as well, where we're working on, what type of previews, can we give into roadmaps, so I'm sure we'll get an opportunity to talk again,

Jeremy Cowan  21:14

That would be great. I look forward to it. All right. Thank you.