Intel and Cisco Systems Set to Battle Over Internet of Things Standards

Two standards are emerging for the Internet of Things, which could slow adoption of new devices.

Jul 9, 2014 at 3:30PM
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The Federal Reserve this afternoon released the minutes from its June meeting, and while this may be dry data to the average consumer the minutes are watched closely by investors. According to the release, the Fed expects to end its bond-buying program in October with final $15 billion cut. That's larger than the $10 billion monthly reduction seen throughout the tapering process, but it prevents a last-gasp $5 billion purchase.

Rates are also expected to stay low well into next year, which isn't surprising given the Fed's previous comments. The Dow Jones Industrial Average (DJINDICES:^DJI) has responded positively to the news, climbing 0.4% after yesterday's triple-digit drop. Earnings season began in earnest last night with Alcoa's quarterly report, so the key for the next few weeks will be financial results that will pour from many of the Dow's components.

Cisco and Intel (and their friends) on a collision path
One of the biggest news items this week was that Dow component Intel (NASDAQ:INTC) is teaming up with Samsung, Dell, and Broadcom to form the Open Interconnect Consortium to create standards for how devices will work together in the Internet of Things. This will rival a group called the AllSeen Alliance that includes Qualcomm, Microsoft, and Cisco Systems (NASDAQ:CSCO), which has been most vocal about its vision for this connected world.  

Intc Wearable Image

Intel wants to lead the Internet of Things with a new standard, but will the strategy backfire? Source: Intel.

Reuters quoted Intel Vice President Doug Fisher as saying the group would focus on security and other matters that AllSeen is failing to address. The risk here is that Intel or Cisco are on the wrong side of a standards war. We've seen these before with VCR versus Betamax or HD-DVD versus Blu-ray, and standard wars can delay adoption by consumers, which would be bad for everyone.

It's interesting to look at the players here, because you could argue for both sides as being best positioned to set the standards for the Internet of Things . Qualcomm's chips are dominant in the smartphone business, but Samsung is the largest smartphone maker in the world. Intel's chips are in over 80% of PCs, but Microsoft sells the software those PCs run on. Then there's Cisco Systems, which builds the backbone of the Internet and could play a pivotal role in future network reliability.

Cisco likely has the most to lose here because it is reliant on other companies' devices to use its network, database, and cloud services. They could be left out of early adoption if the OIC becomes the standard.

Long term, I think it's likely the two groups eventually team up and create one standard for everyone to use. There's too much at stake, and consumers with devices that don't connect to each other could set off a backlash against connected systems. No one wants to see that happen, but there's some tension in Silicon Valley right now, so investors need to watch how this plays out.

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Travis Hoium manages an account that owns shares of Cisco Systems and Intel. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of Intel. 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.

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