Laptop modems morphing: Transitions in form and technology bring new competition


You’ve noticed that your father’s laptop card is giving way, in many cases, to sleeker-looking USB modems, with embedded modems increasingly popular as well.

That transition is merely emblematic of several changes sweeping the laptop modem space, according to analysts and the vendors themselves.

Despite continued growth in demand for laptop-based data services, that demand remains constrained somewhat by faster, more economical fixed-line alternatives, Wi-Fi connectivity, and the typical $60-per-month charge for mobile data, according to analyst Kitty Weldon at Current Analysis.

For now, however, it appears that the pros and cons of each choice will keep all them in the mix at carrier retail and B-to-B channels.

The anticipated impact of embedded modules, once thought by some to be immediate and pervasive, is likely to take some time, Weldon said. Phil Redman,

analyst at Gartner, pegged significant impacts by embedded modules for 2010.

Because external laptop cards and USB modems typically are subsidized by carriers, whose retail channels sell the vast majority of such units, they retain an advantage as embedded modems hit the market, according to Redman. Also, the ability to swap a card or USB modem from one laptop to another, or choose a carrier by dint of a card purchase rather than a laptop purchase, remains a key benefit of the older technologies, both analysts said. And external modems offer a less expensive way to keep up with the rising speed of networks, which changes faster than laptop replacement cycles, one vendor executive pointed out.

Meanwhile, the one-time mainstays of the laptop card business, at least in North America – Novatel Wireless and Sierra Wireless – are seeing that the ever-increasing demand for laptop-based data services has attracted formidable competition to the modem business. Both companies have seen what they characterize as short-term financial challenges as they adjust to the constantly shifting terrain. Both companies’ stocks are trading near their 52-week lows.

The international competition is particularly fierce in Europe as Huawei has claimed about 80% of the market by partnering with Vodafone Group plc, according to Brad Weinert, president of Novatel Wireless. (He spoke from London, hot on the trail of new customers.)

“That’s definitely a ‘bigger fish’ scenario,” Weinert said.

As the market’s size has jumped from under 5 million units globally in 2006 to an expected 10 million to 15 million units this year, more barracudas are in the water.

According to Greg Speakman, VP for marketing at Sierra Wireless’ laptop card and USB modem division, the competition falls into three categories.

The first category involves handset vendors that have developed a line of laptop modems, such as Pantech, which has made some inroads at Verizon Wireless, Speakman said. The second category includes companies that make both network infrastructure and handsets, such as Huawei, which have a possible pricing advantages based on scale and the breadth of their offerings. Then there are hundreds of small Korean and Chinese companies that focus on modems alone, such as Franklin Wireless in North America, according to Speakman.

“It’s challenging,” Speakman said. “We need to remain focused on our customers’ needs.”

That has meant following the trend from the stodgy-looking laptop card of old to the sleek and stylish USB modems that now dominate the market, according to Speakman. With companies roughly on par with each in terms of technology, Sierra Wireless, for instance, recognized that it had to focus as much energy on design and colors, materials and finishes to gain a differentiator at retail, not unlike in the handset business, Speakman said.

Sierra Wireless’ product mix is a good snapshot of the industry: its second-quarter revenue was based 62% on “adapters” – i.e., cards and USB modems, with the latter accounting for three-quarters of “adapter” revenue. Embedded modules accounted for 26% of revenue. (The remaining 5% came from the company’s new M2M business with its acquisition last year of AirLink Communications.)

Those proportions are roughly similar at Novatel Wireless, according to Weinert.

At some point in the next 12 to 18 months, the USB modem approach will clash with an increasing demand for embedded modules, Weinart said. And that will coincide with the advent of WiMAX- and LTE-based networks.

Meanwhile, Weinert said, Novatel Wireless’ focus is on executing its product rollouts during the next six months and preparing for battle down the road.


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