Since yesterday, the microcosm of the IoT has been in turmoil, Sigfox, the Toulouse company, pioneer of the Internet of Objects, the one which had carried out remarkable fundraising for France: 100M then 150M is placed in receivership. But is it really a surprise? Is this the end of this technology?

First of all, this step is just one more in the slow descent of the company since 2019, in the background a new round of funding that should have been completed at the end of 2019 to continue to invest in development of the network and support the slow adoption of IoT by manufacturers. If you are French you will say to me, “how does it add another 100M without making the slightest profit!”. If you are American, you will say to me “why are you interested in a company with such a small capitalization?”. In essence, there is the problem: building a world leader in innovative technology with limited financial support may be the root cause. I will not talk more about our French ability to bashing our startups, nor that of our incumbent operators to create smokescreens to block our businesses, which I also documented at length at the time.

Sigfox has undertaken a number of transformations to deal with this lack of funding, starting in 2019. The most important being to focus on its technology creation and supply activity. To understand this you must understand how the Sigfox system works.

Sigfox at the global level provides the R&D and the hardware allowing the deployment of the network. It’s the hardware and the cloud to collect the data globally. This equipment is sold to SO (Sigfox Operators) who sell connectivity locally, on their territory, to manufacturers who have IoT use cases.

In this model, Sigfox’s operating costs are reduced, adaptable and the levy of part of the subscriptions brought by the SO makes the model scalable.

The SO bear the costs of deploying the network and maintaining it, which represents significant investments and longer-term but very high profitability if the subscription density is suitable.

For its first deployments, Sigfox could not count on investments from SO when the technology was not known. Sigfox therefore went in search of funds, in part, to develop the network itself in the first countries: France, Germany, USA…

In lack of funds, in 2018-2019, Sigfox therefore decided to refocus on its core activity as a technology provider by reselling its networks, this is the case in Germany, but the sale of France and the USA did not succeed. .

At the same time, it should be considered that the projects on these networks do not seem sufficient, in low growth and in low volume, even if there are large deployments with Free, Coyote, Securitas Direct which must add up, no doubt, between 1 and 2M subscriptions. Sigfox runs 20M objects in the world which, for subscriptions of around €1 to €15 per year, could represent revenues of around €100M ARR. The big projects are generally in Japan, Germany, Spain… In France, the CAC40 mainly does POC, deploys a few thousand objects, and exhausts the rather numerous sales teams; Sigfox’s very closed pricing model prevents the growth of smaller, more dynamic players. In the USA, the territory is poorly covered due to lack of sufficient funds, getting known is expensive. “French technology”, economical, simple must make you smile, the dynamics do not make you dream.

Sigfox, in France, therefore bears the costs of the FR, USA networks, the sluggish development of the business and the central activity with revenues of around €80 million before the pandemic. Most of its revenue comes from selling hardware to SOs to deploy their network locally.

Sigfox providing the technology is the only one providing local operators with the hardware to make the magic work. This captive market is profitable and provides part of the necessary cash. This works as long as the company is growing and until the pandemic the number of countries covered doubles every 18 months. But in 2020, two effects are cumulative:

• The first is the pandemic: no one leaves their homes anymore, there is no question of deploying equipment in the field.
  
• The second is a crisis of growth, when reaching 75 countries it becomes difficult to add new significant countries to the list: Europe, Americas, Asia are globally covered, the other countries are either complicated to reach from a political point of view , or with a weak economic objective.
  

Almost 80% of revenues disappear in a period that is not conducive to innovative projects, which is also in the midst of a crisis of availability of electronic components. The debt is increasing.

Having failed to find a buyer for its historical networks, the sword of Damocles is now falling on the company, which is entering the protective regime.

Is this the end though?

While it is difficult to predict the future, the fact remains that Sigfox technology is unique and has demonstrated its qualities and viability in many countries. Let’s take Unabiz, in Taiwan, which operates the network for several countries, this company which has deployed nearly 1M Sigfox objects in Japan has just achieved a very good fundraising, a sign that its operator model and solution provider for the industry is viable. Not all SNOs will be viable immediately, but as I said before, an investment in a telecom network is measured in scale and not in the short term. Buyers are therefore needed who can not only support this investment but also deploy the business locally. I am personally curious to see who will position themselves, there is undoubtedly a good deal to be made in the current situation. We could even think that a sale desired for 2 years has not been concluded before the sales that have just been launched.

This separation done, the group could come back afloat, probably at the cost of an internal restructuring, and lead to a more viable model. It remains to find additional growth engines, Sigfox announced in 2020 a shift towards the valuation of data, about which I remain quite skeptical as you can find in an article written at that time (while being convinced by the data business model in absolute terms).

The main risk, in my opinion, is neither on the economic model nor on the technology, but on the image, in particular in France where the economic place is in turmoil as soon as misfortune prowls around one of those who could have been successful. Our companies are already extremely wait-and-see and here is one more argument for doing nothing, postponing projects, deciding later or waiting for the next wave. How to grow the underwriting portfolio? This is the whole challenge of SO France for the years to come and all that this entails in terms of promotion during a session.

Then the group could not draw the necessary income to repay its debts or carry out the necessary restructuring and investments.

Since 2019, the IoT landscape has evolved, if the competing LoRaWan offer on many use cases has not developed on the telecom side, the Helium offer could finally become sexy in 2 to 3 years. At the same time, the maturity on LTE-M, NB-IoT could reassure the big players although technologically they do not adapt to as many use cases.

Nevertheless, Sigfox still has a whole section of the IoT that no one else knows how to cover, ultra low-cost and ultra low-power, ultra-innovative sectors of the future. But innovating and pioneering without the support of recurring revenues in a more mature market remains a headlong rush that costs technical and commercial energy.

The future is therefore uncertain, but there are still many elements ensuring that the adventure is far from over for the technology and the entire ecosystem. The question is therefore for me: to what extent will this episode restructure the French and American component of the network?