Telit Rides High as Internet of Things Takes Off

Maker of machine-to-machine technology sees shares jump 33% in two years.

Reuters

For most of its 10-year history on the London Stock Exchange, Telit Wireless Solutions didn’t make much of a splash. That is, until two years ago, when the shares of the Internet of things company suddenly began climbing.

Finishing Tuesday on the LSE’s AIM market at 351 pence ($5.48), Telit has racked up a gain of 330% in that time, lifting its market capitalization of 380 million pounds and turning its 53-year-old CEO and founder, Oozi Cats, into a multimillionaire. Cats has increased his stake over the last year to 20% from 13%, which makes his Telit holding worth $120 million these days.

Telit has been riding the Internet of things wave. IoT is the technology used to link various devices – everything from automobiles to water meters – gathering data from them in order to improve their service and performance.

IoT is just gaining momentum in the tech world, which makes Telit a pioneer and counts among its blue-chip collaborators Google, which is using Telit technology in a giant project to promote IoT.

Cats, who in an earlier incarnation founded the Auto Depot chain in Israel, formed Telit in 2000 as an importer of Korean cellphones. Three years later it changed direction and began to develop machine-to-machine, or M2M, technology, after acquiring an Italian research and development center.

For a long time the company treaded water until it began a series of acquisitions that amassed it a portfolio of technologies and customers. Among them is technology that enables utilities to control electricity meters remotely, letting them among other things cut off customers who haven’t paid their bills. Telit has a similar solution for water companies.

Today the company employs 800 people worldwide, including 120 in Israel working in R&D, mostly in Ramat Hahayal and the rest in the Jordan Valley. Its headquarters are in London.

Last year Telit had sales of $294 million, 85% from M2M. And the sector is poised for major growth: Machina Research, a market research firm specializing in M2M and the Internet of things, estimated in June that the number of M2M connections would go from five billion in 2014 to 27 billion in 2024, a compounded annual growth rate of 18%.

On Monday, the company reported that in the first half of this year revenues grew 13% from a year earlier to $156 million. Net profit climbed to $13.4 million, or 12 cents a share, from $10 million, or 9 cents. The company forecast sales of between $347 and $354 million for all of 2015, 20% higher than last year.

IoT is a hard business to penetrate because no agreed industry standards have yet been developed, which means that companies cannot switch suppliers easily. Another reason not to switch customers is that would involve changing the SIM cards inside all the devices covered, a costly and time-consuming process.

Telit’s biggest rivals are Gemalto, which bought Siemens’ M2M business in 2010 and is traded in Amsterdam, and Canada’s Sierra Wireless, which is traded on the Nasdaq at a $790 million market cap.

Telit has made several acquisitions over the past few years that complement its core business, such as technology for linking devices in the field to corporate networks through the Internet cloud. Another acquisition brought the company devices for automobiles that send an emergency signal from a car in the event of a crash.

“Our strategic acquisitions in the area of IoT connectivity and application enablement platform (AEP) in recent years have added a layer of recurring revenues to Telit’s traditional business, and we expect them to continue increasing their contribution over the coming years,” Cats said in a statement this week.

Indeed, automobiles are a key segment for Telit, which has relationships with top manufacturers like Mercedes, Volvo and Ford for technology that links vehicles to the Internet to gather transmitted data such as kilometerage. These are long-term agreements, lasting three or four years.

In the next month, Audi is due to bring a car to the market with a new Telis device, which will keep the network of company-authorized garages updated on the vehicles’ mechanical condition in real time, including the need for oil changes or air in their tires.

Another area Telit is pioneering is through it m2mAir division, which deals with cloud technology and is developing a universal SIM card. The segment, which Telit entered when it bought ILS Technology in 2013, brought in just $11.1 million in revenue in the first half, but grew by 20%.