Internet of Things – finding one’s way

660 330 Justin Jenk

Internet of Things – finding one’s way

Implications for citizens and investors.

 

The Internet of Things (IoT) is merely the latest manifestation of the belief that everything is connected, or connectable. It is setting the pace for our development as a society. It may provide investment opportunities.

 

IoT defined

The ongoing digital revolution means that there are now billions of devices (75 billion at Morgan Stanley’s estimate ) that already infuse how we live and work).  Cisco’s CEO, John Chambers, estimates that the IoT market is worth USD 14 trillion. IoT’s development will now set the pace and standard for our economic, social and political development.

IoT is the interconnected combination of: (on the hardware side) chips, sensors, actuators, distributed computing power, wireless and; (on the software side) software, applications, cloud, big data and analytics. Staring in the 1900s with RFIDs there are now over 5 billion connected hubs (mainly smartphones but also tablets and wearables) that through WiFi, Bluetooth and Smart allow for continuous connectivity and activity. These hubs are the backbone to a vast addressable network, that is growing. One of a number of IoT trends.

 

IoT – the skynet of our world?

IoT is invasive and fast becoming pervasive. The smartphone is a “pioneer platform”; able to connect through “invisible buttons”, allowing for continuous monitoring and activity. It is the future accordng to some observers.   (http://thenextweb.com/ins

IoT has profound implications. While smartphones and tablets are functional handheld hubs, the advent of active and passive wearable devices makes an individual’s connectivity to the web ubiquitous. In a sense we are now no longer alone. Big data, if not Big brother, is with us constantly as we will be monitored, analyzed and tracked constantly. Security, Personal confidentiality and Individual rights will remain central to the debate.

 

IoT still lacks cohesion

The software side is more Darwinian in nature, helped by the growing acceptance of open source practices.  The Internet has a common set of standards for creating, transporting, and rendering content such as IP, HTTP, and HTML. It is a relevant question to wonder if the Internet standards themselves are not set for a next generation development. Regardless, at present, these common web standards do not exist in the IoT. Instead there are many fairly complete and incompatible IoT software stacks, such as ANT to Zigbee and Z-Wave. MIT are discussing an “Industrial Ethernet” and IEEE are attempting to set coherent protocols.

Yet the IoT has not arrived as such. It still lacks an organizing glue. Google is perhaps best positioned to lead this development; but there are others. Also many of the proferred services are not valuable- such a restocking texts from refrigerators or the whimsical problem posited by Oxford.

 

Investment opportunities –  a huge range

From the narrow perspective of an investor wishing t participate in the IoT revolution the market is vast and complex. There are the established industry leading giants 9such as Apple, Cisco, IBM and Samsung  to name a few) as well as current start ups that may herald the next step.

IoT is the future now: so providing the definite list of investment opportunities is perilous. We are at a similar point to just as the emerging railway companies were in the 1850s, automotive manufactures prior to 1914 aircraft companies post World War II and mobile phone manufactures just prior to the dot.com bubble of the millennium. A handful have made the journey (ie IBM) through it all.

If one were to develop an investment list it would probably include the following 19 publicly traded stocks (abbreviations provided):

Table 1: A possible investment portfolio (publicly quoted only)

AAPL, HON, RAX, AMZN, GOOG, IBM, CSCO, S, AVT, LLTC, MXIM, STM, ATML, TXN, FSL, MCHP, ARMH, TSM, SSYS

 

The above list is hardware centric. As one observer put it: “the money lies in the silicon and services that use that silicon”. The software market, is as competitive as any other is further complicated by the developments associated with ‘open source’. IPOs could change the list.

The table below offers a disaggregation of the seven relevant sectors and key players.

Table 2: IoT sectors and companies

Sector Comments & Companies
 

Sensing and Control

 

TSMC (TSM, the silicon arms dealer to the world, they make a large % of the world’s chips).ARM (ARMH, probably the best direct proxy for IoT)

Microchip (MCHP; for a broad portfolio of micro’s and an emerging wireless and analog business)

Freescale (FSL; for portfolio, free software and new leadership)

Texas Instruments (TXN; triple winner for MCU’s, wireless and analog/sensors)

Atmel (ATML; one word, arduino)

ST (STM; in ARM micro’s but the leader in MEMS)

Maxim (MXIM; the world needs analog chips)

Linear (LLTC; analog leader and now in mesh networks, best run semiconductor company)

Avnet (AVT; biggest distributor of hardware in the world, the IoT infrastructure and devices need to get built and a lot of the chips will pass through them)

 

 

Connectivity

 

Sprint/Nextel (S, long been a proponent of M2M, owns 50% of Clearwire and is in the middle of a takeover battle but a good representative for the IoT carrier play)

Cisco (CSCO; has to be in the mix since they power the web and are touting the Internet of Everything which is IoT)

 

 

Analytics and the Cloud

 

IBM (IBM; plays in much of big data and software so despite its size and variety of businesses a part of the portfolio

Google (GOOG, Android, Cloud, Google Glass, Google Fiber, Google Now, the list is endless)

Amazon (AMZN), for web services and it will sell a lot of IoT devices

Rackspace (RAX); a vapour leader for the Cloud

 

 

Security

 

Security is a difficult category.Most of the major players are private or pre-IPO (Green Hills Software and Bromium for example).

Symantec could be a candidate

 

Applications/ROI (OEM’s fit here)

 

Apple (AAPL); given its installed base, size and that many IoT apps will run on iOS devices)

Honeywell (HON; all those building and HVAC systems can benefit mightily from IoT)

SSYS (because the 3D printing aspect relies so much in connectivity)

(Siemens, GE, Johnson Controls, Bosch and Schneider Electric are all major industrial players but a small % of their business is really IoT).

 

 

Standards and Regulations

 

Not a lot of investment opportunity here unless one standard wins out over another and a manufacturer dominates (eg, Qualcomm with CDMA).

In IoT many players support Open Source hardware and software.

IEEE will have a major influence, but as an association.

 

 

Ecosystems and Communities

 

Many communities have not reached critical mass yetKickstarter has been a driver of interesting hardware.

The IPSO alliance (http://www.ipso-alliance.org/)

ARM’s connected community.

 

 

Summary

IoT is building a head of steam. This development is more than just a technology bet but a play in the forces that are shaping rapidly the world we live in.

 

Disclaimer: No recommendation is provided in this memo. Anyone making an investment should take due care, seek professional assistance and does so at their own risk. The author is not invested in any of the companies listed