When I entered college, the laundry machines in the basement of my dorm building would send you an email when your laundry was done. The system was pretty slick, and cut down on the waiting time in a building packed with hundreds of students and only about 16 washing machines.
This was just the beginning of the “Internet of Things” whereby everyday devices are connected to the internet, and send data back and forth to one another to tell them information or instructions. This industry has accelerated with the wide adoption of smartphones – which allow us to easily send data signals – and cloud computing which allows data to be stored and retrieved through any internet connected device.
John Chambers, CEO of Cisco Systems, Inc. (NASDAQ:CSCO), expects the Internet of Things to produce $14 trillion in profits over the next decade. The McKinsey Global Institute expects the industry to have the third largest economic impact of any technology through 2025 (after mobile internet and automation of knowledge work).
So, how can you invest in the future today?
The chip designers
With the number of internet connected devices expected to triple by the end of the decade, that means more silicon chips being manufactured. All the usual suspects from the mobile chips market stand-out – ARM Holdings plc (ADR) (NASDAQ:ARMH), Qualcomm, Broadcom Corporation (NASDAQ:BRCM) – but I especially like Intel Corporation (NASDAQ:INTC).
After falling behind in mobile chip technology, Intel is finally starting to produce chips are that are more energy efficient than ARM designs. Its foundry’s 22nm chips are 62% smaller than Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM)’s 28nm fabrication capabilities. Even as Taiwan Semiconductor makes the transition to a 20nm process, Intel Corporation (NASDAQ:INTC) will roll out its 14nm chips. The company is also working on 10nm chips.
Smaller chips use less energy. That’s going to be key as many Internet of Things devices will never get plugged in – think door lock or thermostat. The company has stepped up its R&D spending significantly in the last two years to pursue the goal of energy efficiency, and it looks like it has arrived this year.
Intel Corporation (NASDAQ:INTC) plans to release an integrated LTE chipset by the first quarter of 2014. While targeted toward smartphones, the chipset can be adapted for any embedded system requiring a mobile data connection – say, a car. In a head-to-head comparison with market-leader Qualcomm, Intel captured top honors for its standalone LTE chipset. The prospects are good that Intel Corporation (NASDAQ:INTC) finds its chips in more devices going forward.
Broadcom Corporation (NASDAQ:BRCM), not to be left behind, introduced two new chips at the end of May for use in simple embedded systems. One is bluetooth based, the other WiFi based that will allow devices like watches, heart rate monitors, and lamps communicate with other bluetooth or internet connected devices. The bluetooth chip is rated to last “more than a year” on a coin cell battery.
Networking, servers, and storage
Cisco Systems, Inc. (NASDAQ:CSCO) is one of the companies paving the path for the Internet of Things. The path includes huge datacenters to crunch numbers, cloud storage to allow things to gather, send, and store data, and networking for things to communicate with other things.
Cisco Systems, Inc. (NASDAQ:CSCO)’s Unified Computing System, or UCS, combines all of these services into one system that can streamline operations for companies deploying smart devices. As a leader in networking equipment, it has a great position in an industry that’s still growing exponentially. Furthermore, Cisco Systems, Inc. (NASDAQ:CSCO) can leverage its position in networking to sell its UCS platform, and fortify its other business solutions.
The increasing need for servers is another reason to like Intel Corporation (NASDAQ:INTC). The company currently controls 95.6% of the market. But both AMD and ARM have designs (pun intended) on the market as well. ARM Holdings plc (ADR) (NASDAQ:ARMH) is working with Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) to produce new 64-bit designs at 20nm and moving toward 15nm in the near future. Intel will need to stay one step ahead, and it looks prepared to do so with its 14nm and 10nm processes.
Getting the message
International Business Machines Corp. (NYSE:IBM) may be in talks to ditch its server business, but it plans to play an integral part in the Internet of Things. The company released a new device in April optimized to deliver messages between sensors called MessageSight.
MessageSight is optimized to process the small messages billions of smart devices send in real-time. It uses a new protocol adopted by Cisco Systems, Inc. (NASDAQ:CSCO) among other networking elites. The idea is to make smart devices respond more quickly to the data their sensors are gathering and more power efficient.
With MessageSight, International Business Machines Corp. (NYSE:IBM) is going after a market that has yet to take form. I believe the need for real-time feedback will only grow. A quick example of how this can be used is traffic condition sensors (in the roads or in cars) rerouting GPS devices in real-time or setting an alarm off earlier to wake a commuter.
Invest in the future
The Internet of Things is more than just a few cute experiments like emailing laundry machines. It’s the next wave of the internet. The growth in connected devices and sensors will only continue to accelerate, creating a deluge of data ready for processing, analyzing, and storing. The above listed companies are just a few investing ideas to take advantage of a growing trend.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, Inc. (NASDAQ:CSCO) and Intel Corporation (NASDAQ:INTC). The Motley Fool owns shares of Intel and International Business Machines Corp. (NYSE:IBM). Adam is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article How to Invest in (the Internet of) Things originally appeared on Fool.com and is written by Adam Levy.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
