M2M communications one of only 3 ICT areas creating new VC investment opportunities, says Frost & Sullivan

London, UK. October 29, 2012 — A volatile global economy is making investors increasingly cautious and risk-averse about their portfolio investments. This is translating into a restraint for start-ups in ICT (information & communications technology) industry that require sizeable amounts of funding.

In contrast, the limited amounts of funding required by companies in the internet arena are prompting investors to focus on this space. Similarly, new growth opportunities such as machine-to-machine (M2M) communication are providing investment opportunities for venture capital (VC) investors.

A recent Frost & Sullivan study entitled Analysis of Venture Capital Investment Trends in European Application Software, Systems Software, Technology Hardware, and Equipment Industries, finds that convergence, M2M communication and online solutions are creating interesting opportunities for VC investors.

“M2M communication is expected to provide an explosive opportunity for VC investors across different verticals including automotive, utilities, healthcare and security,” said Frost & Sullivan senior research analyst, Renganathan K. “It is expected that by 2017, the automotive industry would be consuming M2M SIM cards worth US$66.6 million per year while utilities would be consuming M2M SIM cards worth $24.8 million.”

The availability of broadband and accompanying communication technologies is also expected to increase communication between machines. With the advent of internet protocol version 6 (IPv6), the possibility of identifying every device uniquely has become commercially more viable across industries.

On the telecom front, telecom operators and content providers have suffered because of the global economic downturn on the one hand, and the accelerating demand for data-based services on the other. However, Tier 1 telecom operators are actually increasing spending in new growth areas, even though they may have reduced spending in aggregate levels. M2M is a growth area and telecom operators have significant financial and human investments in this opportunity.

“While the global economic downturn forces telecom operators and content providers to cut costs and operate efficiently, the accelerating demand for data-based services forces them to boost network capacity and connectivity,” explained Renganathan. “This twin challenge is forcing companies in this segment to cut back on investments in technology infrastructure, including additional equipment.”

From an overall perspective, the VC deal value has been declining in ICT due to the uncertain economic environment and the increased risk aversion of VC investors. The reduced availability of debt as a source of funding has also contributed to reduced deal value.

“Nevertheless, the cyclical pattern followed by VC funds over the years indicates that the current downtrend in deal value will reverse,” remarked Renganathan. “There is no doubt, however, that the current economic uncertainty will have an impact on the pace and direction of the reversal.”

Analysis of Venture Capital Investment Trends in European Application Software, Systems Software, Technology Hardware, and Equipment Industries (M7EC-F1) is part of the Financial Benchmarking in the Business and Financial Services Industry subscription, which also includes research services in the following markets: Private Equity and Venture Capital Investment Trends in Financial Services Industry in Europe, M&A in Renewable Energy in North America and European Solar Photovoltaic Market.

Frost & Sullivan’s Business and Financial Services group serves clients around the world in all aspects of financial analysis, market research and monitoring, due diligence, idea generation, opportunity analysis, investment valuation, and other proprietary research. www.financialservices.frost.com

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