2 Chip Companies Set to Benefit From the Technology of Tomorrow

The Internet of Things means big opportunity for these two chipmakers.

Feb 18, 2014 at 11:30AM

Cisco (NASDAQ:CSCO) has a big, big opportunity in the Internet of Things -- $19 billion to be precise. As mentioned in a previous article, Cisco believes that there will be 50 billion connected objects by 2020, generating a huge volume of data that would require better infrastructure to maintain the Internet of Things. Being a bellwether in networking equipment, this is great news for Cisco.

However, at the ground level, there are a bunch of companies that look set to benefit from the evolution of the Internet. For devices to communicate with each other, they will need to have connectivity radios, sensors, and controllers built into them. Such solutions are provided by the likes of Skyworks Solutions (NASDAQ:SWKS) and Broadcom (NASDAQ:BRCM).

Skyworks: Preparing for the boom
As a manufacturer of radio frequency and mobile communications chips, Skyworks is in a prime position to benefit from the Internet of Things. Its analog and mixed-signal semiconductors enable wireless connectivity. The company's power amplifiers, front-end modules, integrated radio frequency solutions, and other components help various mobile chips communicate by eliminating interference in a multi-band architecture.

Also, Skyworks offers a range of solutions for wireless infrastructure, such as base-station products and point-to-point radio links, which should help it tap the growing need for networking equipment. Skyworks management sees strong opportunity for its connectivity and power-management solutions going forward, due to growth in the Internet of Things. The company already has strong links with some prominent players in this arena, showcasing its progress in the Internet of Things. 

For example, Skyworks has an "extremely strong relationship and high content" at Nest,  the company that was recently acquired by Google for $3.2 billion. During the last quarter, Skyworks had landed design wins across Nest's suite of smart home products. After the acquisition by Google, Nest might be ramping up production and innovation, leading to more demand for Skyworks' integrated circuits.  

In addition, Skyworks is already counting on General Electric's (NYSE:GE) Industrial Internet, which is an extension of the Internet of Things for industrial products. As GE integrates machine-to-machine communications across its industrial portfolio that includes jet engines, turbines, locomotives, medical devices, etc., Skyworks' addressable market should get bigger. In fact, technology spending on the Industrial Internet is expected to hit $514 billion in 2020, according to Wikibon, signifying a big market ahead for Skyworks.  

Skyworks has already forayed into GE's universe by providing solutions to GE Medical. In addition, Skyworks also counts Boston Scientific and Medtronic as clients for medical connectivity solutions, apart from landing design wins for remote lighting, in-home monitoring security platforms, communications hubs, in-home displays, etc.  

Skyworks says its addressable content in connectivity platforms is twice that of what it saw a few years back. Going forward, the company believes that addressable content will continue growing, as more devices come online and the applications of the Internet expands.

Broadcom: Specializing in IoT
Like Skyworks, Broadcom also specializes in connectivity chips. But the company has gotten deeper into the Internet of Things by producing specialized chips for this platform. Last year, Broadcom had unveiled a couple of chips aimed at the IoT.

The BCM20732 Bluetooth Smart system-on-a-chip was meant for low-cost, low-power devices compatible with Android. The chip enabled equipment manufacturers to connect various devices such as heart-rate monitors, pedometers, door locks, and lighting and proximity alarms, which are standard issue in a smart home.

The other solution, BCM4390 Wi-Fi system-on-a-chip, is similar to BCM20732, but allows for connectivity without the requirement of Android and Bluetooth. This chip allows for broader use for basic applications such as lights and cookers, and it's already seeing good traction in the market.

Chips based on Broadcom's Wireless Internet Connectivity for Embedded Devices, or WICED, platform are being adopted by multiple customers across various end markets. Broadcom has customers that deal in home appliances, health-monitoring devices, fitness companies (14 of them), thermostat makers, and smartwatch suppliers. 

Also, the Internet of Things should prove to be a catalyst for Broadcom's data-center business, which is already going quite strong. In the quarter that ended in December, Broadcom's data-center business was up 50%, year over year. The company expects this robust momentum to continue in the future, and the long-term prospects also look quite bright.

Broadcom is seeing an increase in data-center spending as a result of the growth of the cloud. This growth should increase in the future, as more data is generated and required to be stored because of the Internet of Things.

Final words
Cisco is looking to get the world connected through the Internet of Things. GE is extending this concept to industrial applications and has created the Industrial Internet. Now, it is quite evident that we are going to live in a connected world in the future, and these two behemoths are among the leaders of this evolution.

However, without the likes of Skyworks and Broadcom, the Internet of Things won't be a possibility. Without them, devices won't be able to communicate with one another. These two could become big gainers from the Internet of Things in the future.

Looking for ways to profit from the IoT?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in late 1990s, when they were nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play", and then watch as it grows in EXPLOSIVE lock-step with it's industry. Our expert team of equity analysts has identified 1 stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers