A recent spate of mergers between big silicon companies in the IT and wireless communications sectors has one end goal in sight, the fast emerging Internet of Things (IoT) arena.
This is seen as the next big market for wireless chip makers at a time when shipments of PCs are slumping, tablets are levelling off and even smartphones are entering a mature phase of slow growth. Meanwhile the market for other connected things from wristwatches to heating controls is set for dramatic growth, with IDC forecasting that IoT solutions will generate $7.1 trillion in 2020 up from $1.9 trillion in 2013. Cisco’s CEO John Chambers reckons that the total economic value created by the IoT will be almost three times that at $19 trillion in 2020.
With all this hype and expectation it is little wonder the chip makers are getting excited and also anxious to be ready for IoT take off. They sense the time is coming, with Apple’s launch of its Watch available in stores this month is seen as a catalyst for take-off.
Given the small size of many IoT devices integration will be a major challenge for silicon makers, since they will have to pack all the component parts, including microcontrollers, radios and sensors, into a single chip. This means they need all that expertise in house, which is one motive for the mergers given the sense of urgency they have. The other factor is scale in order to bring the price down, for it is no use having the best integrated IoT chip in the world if device makers can acquire even a slightly inferior one a few cents cheaper somewhere else. The IoT chip market will be highly price sensitive.
Indeed scale was the principle reason for Dutch chipmaker NXP Semiconductors moving to buy smaller U.S rival Freescale Semiconductor for about $11.8 billion in cash and stock. With both companies focusing strongly on the same connected car market there was little synergy and lots of overlap. But it cuts manufacturing costs and creates the world’s eighth-largest chipmaker with $10 billion annual sales and a more substantial rival to Texas Instruments in the market for analog chips in general.
Intel on the other hand was motivated more by IoT skills in its decision to buy German network chipmaker Lantiq for an undisclosed sum. The greatest interest though has surrounded the $37 billion purchase of Broadcom by Avago, a major semiconductor maker with operations split between California and Singapore. This was for both scale and skillsets, creating the world’s sixth largest silicon company with 20,000 staff and annual revenues of $15 billion. Broadcom is one of the leading suppliers of critical components for the smart home, including chips for Wi-Fi, Bluetooth Low Energy (BLE), Near Field Communications (NFC) and other wireless protocols relevant for IoT. Avago is coming from the analog chip set side with a sizeable presence in the data center, having benefited from growth driven by Big Data in the enterprise. This is a well matched merger, reflected in the shares of both companies soaring on the news, which does not usually happen because deals tend not to look equally rosy from both sides of the fence at once.
So chipset makers are now engaged in a frantic race for scale, which will galvanize the IoT market since it will standardize key components and drive down prices to the point at which mass deployments become feasible. Integration between different islands of IoT will also be critical in creating synergy and added value for consumers. This will stimulate competition between service providers as well as hardware vendors, who will fall back as they have always done on benefits and functions to differentiate themselves. This comes down to software, which will become an even more strategic competitive asset than it is already.
For this reason we believe that SoftAtHome as a leading provider of enabling software for the digital home is in a great place having already developed a dedicated package for IoT called CloudAtHome. We think this will be a huge beneficiary of the consolidation now taking place among the major IoT chipset makers.