IoT connections market update—May 2022
The chip shortage continues to slow the Internet of Things (IoT) market recovery, according to our latest State of IoT—Spring 2022 report, released in May 2022. The number of global IoT connections grew by 8% in 2021 to 12.2 billion active endpoints, representing significantly lower growth than in previous years.
Despite a booming demand for IoT solutions and positive sentiment in the IoT community as well as in most IoT end markets, IoT Analytics expects the chip shortage’s impact to the number of connected IoT devices to last well beyond 2023. Other headwinds for IoT markets include the ongoing COVID-19 pandemic and general supply chain disruptions. In 2022, the market for the Internet of Things is expected to grow 18% to 14.4 billion active connections. It is expected that by 2025, as supply constraints ease and growth further accelerates, there will be approximately 27 billion connected IoT devices.
Both the 2021 actuals and the current 2025 forecast for IoT devices are lower than previously estimated. (The previous estimate for 2021 was 12.3 billion connected IoT devices; the previous forecast for 2025 was 27.1 billion connected IoT devices).
Here is what impacted IoT connections in 2021, where we stand in 2022, and where we may be headed beyond 2022:
IoT in 2021: Selected IoT connection growth highlights
These are some key trends that impacted the growth of the number of connected IoT devices in 2021:
- LPWA networks expanded, especially those using NB-IoT technology. NB-IoT adoption (finally) took off, with connections growing by 61% YoY, driven by a wide variety of implementations, most notably in the areas of water and gas metering.
- Users are moving away from legacy 2G/3G toward 4G/5G IoT. 4G IoT connections grew by 24% due to higher adoption of LTE Cat 1-, Cat 4-, and Cat 6-based chipsets. For many implementations, LTE Cat 1 bis is becoming an alternative to the aforementioned LPWA technologies.
- The chip shortage continued to slow the market recovery (see above).
- COVID-19 continued to impact products and supply chains. In 2021, ongoing (local) COVID-19 restrictions resulted in many new and severe supply chain issues, such as a lack of vessels, trucks, and shipping containers and port congestion.
IoT in 2022: Current market sentiment
The current business sentiment for companies in digital and IoT remains predominantly positive although coming down from Q4 2021 highs. There is widespread acknowledgment that Covid-19 had an overall positive effect on the accelerated adoption of IoT technologies. This is confirmed by quotes from CEOs of IoT vendors and a sentiment analysis of earnings calls. The highest sentiments are found in companies offering connectivity services (sentiment score of 117), general software (115), cybersecurity (113), and cloud (113).
“Robust demand was again widespread across our end markets [in Q1 2022].  Overall, we continue to forecast favorable demand conditions to hold throughout the second half of this calendar year.“Phil Gallagher, CEO at Avnet – April 27, 2022
“We are seeing continued momentum in key IoT markets, including industrial, enterprise, energy and first responder as more companies are collecting business-critical data from the edge of the network. The COVID-19 pandemic has accelerated Industry 4.0.”Phil Brace, CEO at Sierra Wireless – May 12, 2022
From a regional point of view, sentiment in North America is leading (116), with APAC (103) lagging, specifically China, where fresh COVID-19 lockdowns are seen as a key threat to business growth in the region.
IoT beyond 2022: Key macro themes affecting the IoT device forecast going forward
In our latest research, we highlight and discuss eight key macro themes to watch, many of which are interrelated. Here is a selection:
- Inflation. Global growth forecasts are declining as inflation intensifies to >5% p.a. in most major economies of the world, raising expectations of increasing interest rates and a subsequent cooling down of the economy.
- The ongoing war in Ukraine. The war in Ukraine is adding to supply disruptions and inflation concerns. The Minister of State for Electronics and Information Technology in India, Rajeev Chandrasekhar, for example, stated: “The Russia-Ukraine conflict has impacted supply chains in numerous sectors, including the semiconductor industry. The conflict may have particular impact on the supply of Neon and Hexafluorobutadiene gases, which are essential element[s] to manufacture semiconductor chips, as these are used in the lithography processes for chip production.”
- The war for digital talent. Many companies are facing a massive challenge finding skilled labor to move ahead full force with digital transformation, AI, IoT, and cloud projects. IoT Analytics tracks online job ads on an ongoing basis. The number of job ads that included “IoT” grew by +32% between July 2021 and April 2022. Job ads including “AI” (+48%), “Edge Computing” (+53%), and “5G” (+52%) were in even higher demand.
As a result of some of these macro factors, particularly inflation, companies are forced to focus more on operational efficiency to neutralize cost pressures and ensure supply to customers.
Other State of IoT (Spring 2022) research highlights
- Record levels of VC investments for IoT firms. Based on our research, Global VC funding for IoT-focused companies increased to a record of $1.2 billion in Q1 2022 compared to just $266 million in Q1 2021, with fewer deals in total but a number of very large funding rounds. Most recent investments centered around AI and analytics, cybersecurity, and IoT connectivity.
- Several large IoT-focused acquisitions. IoT firms specializing in AI and analytics, IoT software, and semiconductors/chips collectively accounted for approximately 45% of all major IoT-related acquisitions between Q3 2021 and Q1 2022. Many of these deals were driven by the acquirer’s desire to create a more complete technology stack or product portfolio and reduce external dependency. Notable announcements include Panasonic’s acquisition of Blue Yonder ($8.5 billion) and Generac Power Systems’ acquisition of Ecobee ($770 million).
Growth in the number of connected devices slowed in 2021 but is expected to re-accelerate in 2022 and beyond. While new headwinds, such as inflation and prolonged supply disruptions, have emerged for the IoT market, the overall sentiment continues to be relatively positive, with the number of connected IoT devices expected to reach 14.4 billion by the end of 2022.
More information and further reading
Are you interested in learning more about the state of IoT?
State of IoT—Spring 2022
A comprehensive 114-page report on the current state of the Internet of Things, incl. market update & forecast, latest trends, IT spending update, and more.
Download the sample to learn more about the report structure, companies included, and see additional data points.
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Note: This article was updated in May 2022 to include the latest market data and insights from IoT Analytics. A previous version, published in September 2021, included updated data from mid 2021. That article was titled “State of IoT 2021: Number of connected IoT devices growing 9% to 12.3 billion globally, cellular IoT now surpassing 2 billion” and can be read below:Click to read the old article
Article written by Satyajit Sinha on September 22, 2021.
Despite the chip shortage and COVID-19’s extended impact on the supply chain, the market for the Internet of Things continues to grow. In 2021, IoT Analytics expects the global number of connected IoT devices to grow 9%, to 12.3 billion active endpoints. By 2025, there will likely be more than 27 billion IoT connections.
This is one of many findings in IoT Analytics’ latest reports: State of IoT—Summer 2021 and the updated Cellular IoT & Low-Power Wide-Area (LPWA) Market Tracker (Q3 2021).
The 2020 actuals for the number of connected IoT devices came in slightly lower than the mid-year 2020 forecast (11.7 billion connected IoT devices forecasted for 2020 vs. actual of 11.3 billion). The forecast for the total number of connected IoT devices in 2025 has also been lowered to 27.1 billion (compared to 30.9 billion forecasted in 2020). Two critical factors are leading to the dent in the growth curve:
- The COVID-19 pandemic: COVID-19 has impacted both demand and supply. Supply was reduced, as production was halted at times, and supply chains and access to raw materials were not intact. In the first half of 2020, budgets were frozen. In the second half of 2020, demand came back, but supply was often disrupted. Many IoT initiatives were halted or, in some cases, canceled in 2020. In 2021, COVID-19 effects have continued to significantly impact some regions, resulting in additional supply chain issues, such as a lack of vessels and shipping containers and port congestion.
- The chip shortage: Initially, the chip shortage was a by-product of the COVID-19 impact on the supply chain. However, it has become its own issue; the supply capacity is not available to meet global chip demand. The chip shortage first impacted the automotive industry and then extended to other segments, such as smartphones, televisions, gaming, and IoT. In 2021, the chip shortage is expected to be a factor for up to two more years before enough additional production capacity becomes available. The current shortage is so pervasive that, of 3,000+ analyzed public companies, 11% mentioned “chip shortage” in their conference calls in the second quarter (Q2) of 2021.
These two factors are expected to have a negative impact for several years.
From a connectivity point of view, new technology standards, such as fifth-generation (5G), Wi-Fi 6, and LPWA, are driving device connections. A wildcard in the mix is satellite IoT, which could make a bigger impact toward the latter part of the forecast period.
It is important to note that, while the forecast for the total number of IoT connections has been lowered due to the aforementioned reasons, IoT markets, in general, are accelerating post-COVID-19 (as previously reported). The IoT acceleration is driven by investments into additional software tools and applications and the required integration. Global enterprise IoT spending in 2020 grew 12.1%, reaching $128.9 billion as reported earlier in the year.
Cellular IoT market deep dive: two billion active connections by the end of Q2 2021
The number of connected IoT devices using cellular technology grew 18% year-over-year (YoY) to reach 2 billion by the end of the first half (1H) of 2021. China Mobile, China Telecom, and China Unicom account for almost three-quarters of the market. In the past 12 months, China Telecom grew 42% and increased its market share by more than two percentage points. Vodafone continues to lead the global market outside of China with a 6% global market share. US-based AT&T grew 22% YoY and held a 4% global market share in 1H 2021. IoT initiatives in China during the last 1.5 years were much less affected by COVID-19 and, in many cases, continued as planned after a short COVID-19 lockdown.
Regarding cellular technologies, the decline of 2G and 3G IoT connections continues, while the mass deployment of 5G connections is anticipated to start this year. Fourth-generation long-term evolution (4G LTE) connections grew 25% YoY due to higher adoption of the long-term evolution category 1 (LTE-Cat 1) and LTE-Cat 1 bis subsegments.
LPWA market deep dive: licensed LPWA market now larger than unlicensed LPWA
In 1H 2020, the share of connected IoT devices using unlicensed LPWA (e.g., long range (LoRa) and Sigfox) led with a 53% share, and licensed LPWA (i.e., narrow-band IoT (NB-IoT) and LTE-machine-type communication (LTE-M)) contributed 47% of global LPWA connections. A year later, licensed LPWA leads with a 54% share, while unlicensed LPWA has a 46% share of global LPWA connections. A key reason is that NB-IoT connections grew 75% YoY in 1H 2021. NB-IoT as a single technology now dominates the LPWA connection market with 44% market share, and LoRa has slipped to second place with a 37% share of global connections.
In the last 12 months, asset tracking and monitoring were the key applications driving unlicensed LPWA growth, while growth in NB-IoT was driven by smart meters and buildings and infrastructure industry verticals.
IoT Analytics expects that NB-IoT and LoRa/LoRaWAN will continue to dominate the market in the coming five years, with LTE-M and Sigfox in distant third and fourth places, respectively. While other technologies will continue to exist, at this point, it does not appear as though they will play a significant role in the overall global market, although they remain attractive for certain niche applications.
Look out for an updated 2021 low-power wide-area network (LPWAN) market report with plenty of detail on the LPWA market in Q4 2021.
More information and further reading
Are you interested in learning more about the Cellular IoT & LPWA Market?
The Cellular IoT & LPWA Market Tracker (Q3 2021) is a comprehensive excel market tracker, including the number of active IoT cellular connections and LPWA connections by technology (2G, 3G, 4G, 5G, NB-IoT, LTE-M, Lora, Sigfox, other LPWA), the number of active cellular IoT connections by top 20 operators and technology, as well as the number of active unlicensed and unlicensed LPWA connections. Everything is available for the timeframe 2010 – Q2 2021 with forecasts until 2026. It is part of IoT Analytics’ ongoing coverage of IoT Connectivity (IoT Connectivity Research Workstream).
The sample of the report gives you a holistic overview of the available analysis. You can download the sample here:
Are you interested in learning more about State of IoT?
The State of IoT – Summer 2021 is a comprehensive 148-page report assessing the current state of the Internet of Things, incl. market update & forecast, discussion of 36 latest trends, 129 recent IoT-related news, 100 largest recent IoT-related funding rounds, 90 IoT-related acquisitions, view on the top 20 IoT vendors and much more. This IoT Market Report is based on insights from the whole IoT Analytics Analyst Team and was compiled for IoT Analytics subscription customers. Become a Corporate Research Subscriber
The sample of the report gives you a holistic overview of the available analysis (outline, key slides). The sample also provides additional context on the topic and describes the methodology of the analysis. You can download the sample here:
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Are you interested in continued IoT coverage and updates?
Subscribe to our newsletter and follow us on LinkedIn and Twitter to stay up-to-date on the latest trends shaping the IoT markets. For complete enterprise IoT coverage with access to all of IoT Analytics’ paid content & reports including dedicated analyst time check out Enterprise subscription.