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Over the past year, as the smart meter market has hit the doldrums, we’ve seen a number of grid networking players start to look for opportunities in the “internet of things,” or IOT for short -- a broad term that can include everything from smart street lights and building controls to IT-enabled industrial equipment and medical devices.
For Echelon (ELON), the choice between the smart grid and IOT ended up being mutually exclusive. Earlier this month, the San Jose, Calif.-based company announced that it is discontinuing its more than decade-old smart grid business, to focus entirely on what it calls the industrial internet of things, or IIOT.
“After a lengthy and extensive process of pursuing strategic alternatives for our grid business, including the hiring of bankers, we plan to scale it back to meet existing customer commitments only, unless a buyer is found in the very near term,” CEO Ron Sege said during Echelon’s second-quarter 2014 earnings conference call.
That means that Echelon will cease seeking new smart meter tenders. It will continue to service the millions it has deployed for European customers like Italian utility Enel and others in Scandinavia and central and eastern Europe, as well as its partnership with Holley Metering in China and its deployment with Duke Energy in the United States. Echelon’s second-quarter results included a noncash impairment charge of $4.1 million against the goodwill and long-term assets of its grid business, reflecting its “modest expectations” for its value, Sege said.
Echelon reported a second-quarter GAAP loss of $8.6 million on revenues of $15 million, down 39 percent from revenues of $24.8 million in the same quarter last year, primarily driven by lower grid revenues of $6.1 million, compared to $13.4 million in the same quarter last year. Like many other smart-meter vendors, Echelon has struggled with a slowdown in projects in North America, while large-scale European smart meter deployment plans have been delayed or postponed.
“Throughout 2012 and 2013, we have taken a number of steps to effectively manage our cash and expenses in order to stretch out the runway we have to see the grid business through until market conditions improve and demand picks up again,” Sege said. “However, as we saw in Q2, our cash burn is now increasing, and we believe we have reached a pivotal point in the future of our IIOT business. Ultimately, we believe that if we continue to invest in both businesses, we may not succeed in either.”
On Tuesday, Echelon made its first step in this transition, announcing that it has acquired Lumewave, a Sacramento, Calif.-based maker of networked controls and software platforms for outdoor lighting. Terms of the deal were not disclosed. Lumewave now operates lighting systems at University of California campuses in Davis, Irvine and Santa Barbara, the city of San Francisco, and VacaValley Hospital in central California, among others.
Echelon itself has an extensive streetlight networking business using its powerline carrier (PLC) technology, with deployments in Europe and North America, and has seventeen manufacturer representatives signed up and doing pilots in South Africa, Malaysia, Brazil, China, France and the United States. With the Lumewave acquisition, Echelon now has a wireless networking technology, based on the IEEE 802.15.4 standard, to add to its mix.
Echelon isn’t the only smart meter networking company to expand to streetlights. Silver Spring Networks (SSNI) is networking streetlights in Paris and Copenhagen, and has expanded its smart meter network with Florida Power & Light to include streetlights as well. Sensus is networking streetlights for Chattanooga municipal utility EPB, and ABB’s Tropos Networks is doing the same for Santa Clara, Calif.
As we’ve noted in our coverage of these projects, streetlights are seen as a short-term opportunity for networked control, particularly when combined with LEDs, which drastically reduce energy use and also open up more functionality for digital controls. Echelon cited a report from Northeast Group that predicts the networked lighting market will grow from less than $250 million today to more than $10 billion by 2024, with 40 percent of that growth expected in North America.
Indoor lighting is also on Echelon’s roadmap. In March, it announced a partnership with Xicato, a high-end LED indoor lighting company. It has developed a central controller system to deliver low-voltage DC power to those lights, along with PLC controls, that it intends to bring to market by the first quarter of next year, Sanjay Manney, director of product management, said in an interview this week.
But Echelon’s indoor ambitions extend beyond LED lights to connect back to its core technology -- the LonWorks protocol for building automation controls, which is deployed by a variety of OEMs and channel partners. Over the past two decades, this technology, along with competing technologies Modbus and BACnet, have become the standards for building automation.
In October, Echelon announced its IZoT platform, meant to integrate these protocols in a way that allows both to carry internet protocol (IP) to a variety of end devices in buildings. Since then, it has made its FT 6000 chipset and its software development kits available to existing and prospective new customers at trade shows in Japan and Europe, and has demonstrated prototype applications running on computing platforms like the Raspberry Pi, which run on ARM-based processors.
Sege noted during Echelon’s earnings call that one customer has developed a line of HVAC, refrigeration, lighting and energy controls based on the new technology, allowing it to “mix and match best-of-breed devices from multiple manufacturers into their solution, with a path to a future all-IP network.”
Echelon sees a growing demand from building planners for a technology that can integrate lighting, HVAC, security systems and energy management controls into a common platform. This isn’t a new concept, and technologies like Honeywell’s Tridium Niagara framework have been making it possible for more than a decade, albeit in a point-to-point fashion that doesn’t incorporate IP into the mix.
“What we’re bringing to the table is a multi-protocol environment,” Manney said. “We need to get away from gateways, and move from gateways to routers, and allow the seamless interconnection of devices to the cloud.”
But the holy grail of an end-to-end, IP-enabled building control system still lies in the future, as Memoori’s Jim McHale noted in a May article published on the GTM website. Replacing siloed legacy systems with a single integrated system is expensive, and it will have to be done in a way that doesn’t threaten the smooth operation of each individual system that makes up the whole.
We’ve seen a number of contenders attempt this wholesale move to an IP-based building control network, only to scale back their ambitions in the face of these challenges. Cisco, the would-be kingpin of the internet of things, is a good example. It launched its EnergyWise platform in 2009, but has since refocused its attention on networking desktop PCs, IP telephones and other already networked devices -- and spent $100 million to buy startup JouleX to help it get there.
Echelon will also be looking for new acquisitions to expand its IIOT presence, though with only $51 million in cash as of the end of the second quarter, it doesn't have the deep pockets of a Cisco to achieve that move. But its current standing in the building controls market could help convince customers that its IIOT roadmap is more rooted in present-day capabilities than others promising an integrated platform of the future. As with so many aspects of the promised internet of things, differentiating winners from losers will take some time.