The Silicon Labs' Z-Wave Deal May Herald New Dawn for Smart Homes

2018 could bring a breakthrough in smart home device interoperability. Silicon Labs - a Texas based manufacturer of ZigBee, Wi-Fi and Bluetooth chips - is set to buy the Z-Wave operations of Sigma Designs for $240 million. The deal could boost the $6 billion Smart Home industry*, which is already expected to grow strongly in the coming years. 

Silicon Labs originally hoped to acquire Sigma Designs in its entirety for $282 million or $7.05 per share. Those plans fell through at the end of last week, when Sigma failed to divest its Smart TV and Set-Top Box business.

Assuming the revised deal goes through, this is good news for the smart home industry. The list of standard protocols used in the industry is long: ZigBee, Z-Wave, Thread, DECT-ULE. In addition, Wi-Fi and Bluetooth are present in everyone’s pockets and on wrists via smartphones and smartwatches, but increasingly also in smart home devices. One of the obstacles that the industry has faced on its path to becoming mainstream, is the lack of interoperability that results from this proliferation of standard protocols. No protocol has managed to stand above the rest because each has strengths in particular use cases.

Integration and multifunctionality have become increasingly key in home-automation. For example, lighting and even audio might be used as part of the home security system to simulate presence. This type of seamless configuration of multiple devices though has been impeded by the protocol issue.

Both Z-Wave and ZigBee are low power and low range chips. Z-Wave technology is easier to install but comes at higher price points. It has established itself as the main standard protocol of security and monitoring systems and is used by manufacturers and service providers such as Yale and ADT. The protocol has also been adopted by telcos and pay-TV providers that bundle smart home services/devices with their services (e.g. Comcast’s xFi, previously Xfinity).

ZigBee, meanwhile, is a lower cost technology, but can present more technical challenges. It is prevalent in other areas of home automation such as lighting and can be found in brands including Philips Hue and Sengled.

The trend towards linking devices to maximise use cases or even create new ones is the main reason the acquisition of Z-Wave by Silicon Labs may be a defining moment for the smart home industry. Silicon Labs is already one of the leading ZigBee manufacturers, albeit not the only one, as ZigBee is - unlike Z-Wave - an open source standard. If Silicon Labs starts churning out Z-Wave chips along with the ZigBee systems that it already produces, a few interesting possibilities emerge.

The most exciting scenario is for Silicon Labs to invest in the production of chips combining both Z-Wave and ZigBee. This is not unlikely, as Silicon Labs already produces multiple protocol chips (e.g. chips that come with Bluetooth, Thread and ZigBee). A combined Z-Wave and ZigBee chip would shake the industry, as the two protocols have a combined share in the smart home industry of over 60%. Such a move could also bring closer together areas such as monitoring, lighting and climate control; substantially increasing interoperability in the smart home industry. Security and monitoring are currently Z-Wave’s turf, whilst ZigBee is commonly used in lighting. Climate control is shared territory with important brands on both sides of the Z-Wave/ZigBee divide. A combined chip could end turf wars to the benefit of the whole industry.

Another possible, but less likely, scenario is for Silicon Labs to scale down activity in one of the two protocols and then leverage its presence as a large chip manufacturer to persuade its clients to adopt the other one. This would potentially mean convincing OEMs that currently use Z-Wave to switch to ZigBee. In this scenario, ZigBee would be an improved protocol. By acquiring Z-Wave, Silicon Labs will be taking in Sigma’s Z-Wave workforce and expertise. If these resources were used on ZigBee, a much-improved standard protocol could result.

Assuming Silicon Labs maintains research and development in both protocols after the acquisition of the Z-Wave assets from Sigma, (a more likely scenario) the result would be the concentration of resources focused upon improving the two market leading protocols, potentially to the benefit of the whole industry.

It’s worth bearing in mind that a growing number of smart home start-ups use Bluetooth or even Wi-Fi connectivity in their devices. These two forms of connectivity are present everywhere, and Bluetooth Mesh and 5G can address challenges such as range and overcrowding. Bluetooth and especially Wi-Fi involve high power consumption when compared to Z-Wave and ZigBee, but future improvements in this field could ultimately challenge the relevance of low data transmission protocols such as Z-Wave and ZigBee.

For the foreseeable future, though, low power chips such as Z-Wave and ZigBee remain the best solutions for most of the smart home use cases and any movements to bring them closer - as the Silicon Labs/Sigma deal can do - will benefit the industry.

*See Smart Home Market update, issued by Futuresource Consulting in Sept 2017, for more details. This figure relates to worldwide trade value of Smart Home devices in 2017.