Intel’s Internet of Things Group

Intel (INTC) is facing competition from Advanced Micro Devices (AMD) in the PC (personal computer) and server processor markets, where it is a leader. Aiming to tap data-centric technologies, Intel has made efforts in the IoT (Internet of Things) market, which connects electronic devices to the Internet. The IoT market is broad and fragmented, including consumer electronics, factory automation, and automotive technology.

Intel’s IoTG (Internet of Things Group) largely caters to the industrial, retail, video, and automotive markets. The company has been looking at IoT to substitute its PC business, which churns out over $8 billion in quarterly revenue.

Intel Revamps Its Internet of Things Strategy

IoTG earnings

IoTG revenue rose 26% YoY (year-over-year) to $724 million in fiscal 2Q17. The segment’s operating profit rose 56% YoY to $139 million. Profits from higher ASPs (average selling prices) and volumes were slightly offset by increasing investment in the automotive space. Intel plans to spend $250 million on the development of an autonomous car platform.

Intel’s IoT strategy

Intel has realized that, at this pace, its IoT business cannot replace its PC business. Therefore, it has revamped its IoTG strategy by exiting the low-margin consumer market and focusing on the high-margin, high-growth industrial and automotive markets.

Intel has discontinued several products in the Quark line, which includes ultra-low power microcontrollers for low-cost IoT devices used in smart buildings and retail, industrial, energy, and other sectors. The discontinued processors include Joule, Galileo, Edison, the Arduino 101 maker board, and the Curie module.

In August 2017, Intel completed the acquisition of Mobileye to expand its exposure in automotive. The addition of Mobileye could increase IoTG revenue by $400 million and operating income by $100 million in fiscal 2H17. Intel also partnered with Fiat Chrysler (FCA) for an autonomous driving platform. It plans to test 100 Level 4 autonomous cars in the United States, Europe, and Israel, with the first cars hitting the test roads at the end of 2017.

Competition from NVIDIA

Intel will face strong competition from NVIDIA (NVDA) in the autonomous vehicle space. NVIDIA earns $142 million in revenue from the automotive space. This revenue largely comes from infotainment, as its autonomous car platform has not yet started contributing towards revenue.

NVIDIA has already secured orders for its DRIVE PX 2 platform from Tesla (TSLA) and Toyota (TM), meaning that the autonomous car platform could start generating revenue in calendar 2018. In contrast, Intel is still in the development stage and is unlikely to start commercial deployment of its autonomous car platform before 2021.

Although Intel may lose out to NVIDIA in the first wave of autonomous cars, it could still grab a large share of the market in the long term. It remains to be seen whether Intel’s revised strategy includes replacing its PC business with its IoT business. Next, we’ll look at Intel’s supplementary products.

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