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Intel’s IoT Segment Continued to Grow in Fiscal 2Q15

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Jul. 27 2015, Updated 10:07 a.m. ET

IoT continued its growth in fiscal 2Q15

Previously in this series, we discussed how Intel’s (INTC) CCG (Client Computing Group) and DCG (Data Center Group) segments performed. IoT (Internet of Things) is another one of Intel’s segments. Along with the DCG segment, it managed to offset the fall in the other operating segments in 2Q15. Fiscal 2Q15 wasn’t any different.

In its recent earnings release, the IoT segment posted $559 million in revenue. Its revenue grew 4% and 5% on a sequential and YoY (year-over-year) basis, respectively. However, its contribution to the overall revenue is still very minimal at ~5%.

According to Intel’s CEO Brian Krzanich, memory or NAND, DCG, and IoT were the three segments that together accounted for over 70% of the operating profits in 2Q15.

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Intel is aggressively pushing itself in the IoT space to drive growth

Intel expects more than 800 million households worldwide to be connected by broadband by 2018. During the company’s conference call regarding Altera’s acquisition, Krzanich stated that he expects ~60% of Altera’s value to come from “product synergies” in the DCG and the IoT spaces.

In 2015, Intel acquired Lantiq. This will expand its reach in the cable residential gateway market and broaden its offerings in the IoT smart routers space. It developed its IoT platform. Intel invested $740 million in Cloudera—a Hadoop vendor—to strengthen its presence in the IoT space.

Intel is also part of an IoT group—the Industrial Internet Consortium. The group is focused on the connectivity of industrial machinery. The other founding members include Cisco (CSCO), General Electric (GE), and IBM (IBM). In 2014, IoT contributed $2.1 billion in revenue to the company’s overall revenue.

IoT will witness explosive growth in the future

According to the IDC (International Data Corporation), the IoT market is expected to reach $7.1 trillion in sales by 2020—up from $1.9 trillion in 2014. The above chart shows that IoT devices are expected to see a 57% CAGR (compound annual growth rate) from 2014 to 2019.

If you’re bullish about Intel, you can invest in the VanEck Vectors Semiconductor ETF (SMH) to gain exposure to Intel. Intel accounts for about 19% of SMH.

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