The overall market for SIM cards is large and relatively stable. In fact, the number of SIM cards shipped globally is forecast to increase from 5.4 billion in 2015 to 5.6 billion in 2020, according to IHS Inc. (NYSE: IHS), the leading global source of critical information and insight.
“There is an interesting move toward wearable devices as companions to smartphones and other mobile devices, such as smartwatches, health bands, glasses and smart clothes, which present a growth area for smart-card suppliers and mobile network operators,” said Don Tait, senior analyst, IHS Technology.
“The rising number of these devices in the market is an opportunity for operators and card suppliers to increase SIM penetration for both pluggable and embedded form factors.”
Companion devices can have an additional SIM card inserted (e.g., nano SIM) or an embedded SIM (i.e., eUICC). Wearable devices with SIM cards incorporated into them have the potential to increase mobile network operator (MNO) subscribers, leading to more addressable devices for SIM management and increased revenue streams. Companion devices are expected to spur growth in the SIM card market from 2015 to 2020, according to the IHS Digital Security Intelligence Service
Business model and sales-channel dynamics
Apart from Apple, most other handset suppliers are more dependent on MNOs when it comes to sales channels. In fact, MNOs represent 60 percent of the sales channels utilized by handset manufacturers.
“Handset suppliers need to be mindful of any changes in this business model," Tait said. "In contrast, Apple has its own retail outlets and can sell a major percentage of its products through the company's Apple Stores.”
Sales channels and products are expected to evolve and change from 2015 to 2020 as Apple, Samsung and other companies change their business dynamics and models. “The traditional SIM card market is not likely to implode any time soon, because there are still a lot of legacy solutions that need to be catered to; however, if and when manufacturers start changing their business models, we can expect a greater impact on the market,” Tait said.
eSIM card trends
There has been a lot of hype around embedded SIM cards (eSIMs) incorporated into cellular handsets. In 2015, there were no eSIMs in smartphones with telecom functionality; however, eSIM will be driven by the Groupe Sp?ciale Mobile Association (GSMA) and will finally find their way into smartphones in the next couple of years. These new smartphone models are more likely to include dual-mode SIM, which is a phone with an eSIM card and a removable SIM card. Cellular handsets will not rely solely on embedded SIMs because of latency issues that need to be backward compatible.
The replacement rate of new handsets is much lower than the replacement rate of SIM cards. Should the market move toward an embedded model, the replacement rate of SIMs would trend toward that of handsets; reducing the SIM card market size. However, during the initial introduction of eSIM cards in handsets, companies are more likely to follow a dual SIM strategy (i.e. having an eSIM and a removable SIM card in a smartphone).
Including an eSIM and a removable SIM card in a smartphone is a way for companies to test the market, similar to what was done with the advent of mobile payments. At the time, it was not clear if the SIM or the embedded secure element would be the solution of choice for mobile payments, so Samsung and other OEMs went all-in with a dual strategy and offered both solutions. “This strategy demonstrates the opportunities that arise with targeting the largest total available market possible and not to vex potential customers with a strategy that is too rigid,” Tait said. “The SIM card industry will follow a dual SIM strategy.”
