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What Is Intel’s Strategy to Increase Its IoT Exposure?

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Apr. 15 2016, Updated 11:07 a.m. ET

Intel’s IoTG has potential to drive growth

In the previous part of the series, we learned that Intel (INTC) will face competition in the data center market as IBM (IBM) and Advanced Micro Devices (AMD) launch competitive server chips.

However, this is unlikely to affect Intel in fiscal 2016, indicating a strong year for its Data Center Group (or DCG). Another segment that will drive growth for Intel is its IoTG (Internet of Things Group).

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Intel resorts to acquisitions to boost IoT growth

Intel has been looking to grow in the IoT (Internet of Things) space, but it has had little success in increasing its overall revenue share to above 4%. To speed up IoT growth, especially in the connected car segment, Intel recently acquired Arynga and Yogitech.

Arynga supplies OTA (over-the-air) software updates for connected cars. This will pave the way for continuous improvement in the user experience, improved automotive security, and the reduced cost of software-related warranties.

Yogitech provides functional safety where autonomous machines are used, such as in automotive, biomedical, and industrial automation. Yogitech works with Intel’s IoT competitors, including Texas Instruments (TXN) and Toshiba (TOSBF). Intel will integrate Yogitech’s technology into its chips for autonomous driving systems.

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Role of Altera in IoT

Altera’s FPGA (field-programmable gate array) chips are programmable after manufacturing, making them ideal for specific consumer applications. Intel plans to integrate this technology into its IoT chips to improve performance.

Competition

Intel’s IoT product portfolio is broad and will face tough competition from IoT players specializing in particular segments. For instance, it will face tough competition from NXP Semiconductors (NXPI) and NVIDIA (NVDA) in the automotive segment and Texas Instruments in the industrial segment. Rival Qualcomm (QCOM), which beat Intel in the mobile segment, is also looking to tap into the IoT market with its ARM chips.

IoT industry forecast

The World Economic Forum forecast the number of embedded devices to grow at a CAGR (compound annual growth rate) of 21.6%, from 22.9 billion in 2016 to 50.1 billion by 2020. According to CB Insights, Intel Capital and Qualcomm Ventures were the top two IoT investors in 2015. Intel Capital is investing in IoT technologies such as 3D body-scanning, biometric sensors, wearables, and IoT infrastructure startups.

In the coming few parts of the series, we’ll look at Intel’s four new segments. The PowerShares QQQ Trust, Series 1 ETF (QQQ) invests in the technology supply chain and has 8% exposure to semiconductor stocks. It has 2.9% exposure to INTC and 1.1% to TXN.

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