Why Is Intel Betting High On The IoT Market?
Intel (NASDAQ:INTC) primarily manufactures and markets microprocessors used in servers, desktops and notebooks. As Intel’s PC sales have slowed, it has increased its focus on the IoT segment, which is considered to be the next big driver for the semiconductor industry. IoT accounts for less than 5% of Intel’s revenue at present, though we forecast the revenue contribution will almost double over the next five years. This scenario is quite likely considering that the company has been significantly expanding its IoT portfolio through acquisitions. Intel recently has made numerous acquisitions to build out this segment, including Basic Science, Recon Instruments, Vuzix, Yogitech, Itseez, Arynga, etc. The company has also introduced a new generation low-power microprocessors (e.g., Curie) and created a reference platform for easy & quick implementation of IoT solutions. In addition, Intel has established partnerships with different fashion, fitness and lifestyle brands that include: 1) Daqri Smart Helmet and Fossil; 2) TAG Heuer and Michael Kors for smart watches; 3) Opening Ceremony, TAG Heuer & Google to create a Swiss smartwatch; and, 4) Luxottica to manufacture Smart Sun Glasses.
Below we discuss the key reasons as to why the company is betting so heavily on this market:
A) Growth in The Internet-of-Things (IoT) Market: IoT includes all other computing devices apart from PCs, tablets and smartphones. IoT is still at a nascent stage, but it is expanding fast and is considered to be the next big growth driver in the semiconductor industry, after smartphones and tablets. McKinsey Global Institute estimates that the impact of IoT on the global economy can be as high as $6.2 trillion by 2025. The installed base for IoT devices is estimated to grow from around 10 billion connected devices today to as many as 30 billion devices (50 billion as per some estimates) by 2020.
B) PC Shipment decline has weighed heavy on Intel’s Growth: Intel’s PC processor revenues, which constituted around 55% of its overall revenues in 2015, declined by around 8% in the year. The decline in PC shipments is due to both slower upgrade cycles and consumers’ increased focus the mobile computing enabled by smartphones and tablets. In sum, we believe growth in the PC shipments will at best remain flat in coming years. For this reason, the company is looking for alternate sources of growth and IoT opens up huge opportunities for Intel.
B) Intel is determined to be an early entrant in IoT: Intel was a late entrant in the mobile computing space and for this reason does not (yet) have a very large presence in the market. However, the computing giant is keen not to miss the next big wave in computing – the Internet-of-Things. The company intends to build upon its core expertise of building microprocessors to deliver new products that offer greater utility and value to its customers in the IoT space. Because of this, Intel has been investing in a wide range of start-ups to gain a strong foothold in this market.
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