When we think of smart homes, devices running with Amazon's (AMZN 0.91%) Alexa or Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Assistant are some of the first pieces of hardware that come to mind. This isn't surprising as these two companies have built a tremendous lead in smart speakers, which are the control centers of a smart home.
But there are other ways for investors to take advantage of the fast-growing smart-home market. Chipmakers Synaptics (SYNA 3.69%) and Skyworks Solutions (SWKS 0.71%), for example, play a crucial role in the functioning of smart-home devices like speakers and security systems. In fact, they could be better smart-home plays when compared to hardware manufacturers, since they can supply their chips to multiple platforms.
Let's look at how these two chipmakers approach the smart-home market, which is expected to almost double in revenue over the next five years.
Synaptics is going after smart speakers
Synaptics made a big bet on smart speakers last year when it acquired voice and audio processing specialist Conexant for $300 million. Conexant was an established name in audio technology given its collection of 480 patents, either granted or pending. In fact, its voice processing solutions are already used in more than 60 products, including home automation devices.
Synaptics claimed in June last year that Conexant's far-field voice technology had been shipped in more than 27 million devices, which isn't surprising since it develops solutions for Amazon's Alexa devices. Amazon collaborated with Conexant last year on an audio development kit that allows third-party speaker manufacturers to make Alexa-enabled devices while keeping associated costs low.
The e-commerce giant now sells this AudioSmart development kit on its developer website for $349. This endorsement from Amazon has turned out to be a catalyst for Synaptics, as it recently landed a new contract thanks to the AudioSmart development kit.
Earlier this month, Synaptics announced that Harman International has selected AudioSmart to power its Allure family of smart speakers. These speakers will be based on Amazon's Alexa voice assistant, with Synaptics' solution allowing the speakers to activate the assistant in noisy surroundings.
So Synaptics looks well-placed to take advantage of the booming smart-speaker market, which saw sales triple in 2017 to almost 25 million units in just the U.S. Sales of smart speakers are expected to rise at least 44% in 2018.
Synaptics also has other things going for it, such as its freshly minted relationship with Microsoft. The two companies are collaborating on a development kit using Synaptics' AudioSmart technology to allow voice-enabled solutions based on the Cortana voice assistant.
This partnership could help Synaptics find its way into Microsoft's popular Skype platform that uses Cortana to offer artificial-intelligence-based suggestions. The software giant has made it clear that it will leverage Synaptics' technology to improve the Skype experience, opening up another area of growth for Synaptics.
Skyworks is enabling connectivity in smart homes
Skyworks Solutions makes radio-frequency chips that enable connectivity in mobile devices, but now the company is leveraging its technology in the Internet of Things (IoT). The good news is that Skyworks' IoT business has taken off impressively, as its revenue from the "broad markets" segment (which excludes mobile) was up 22% year over year during the last reported quarter.
This business now has an annualized revenue run rate of $1 billion. And it could get even better as Skyworks recently announced that its chips are being used by Amazon, Google, GE, Netgear, and Sonos, among others, to bolster wireless connectivity in connected homes.
Skyworks claims that these companies are using its chips to help various devices such as voice assistants, home security systems, wireless speakers, and smart TVs to seamlessly access and extend wireless connectivity in a smart-home setting. This wide adoption of Skyworks' chips could be a big deal in the long run, as Cisco forecasts that the consumer home segment will account for almost half of the 5.8 billion machine-to-machine connections by 2020.
Skyworks is well-prepared to tap this segment thanks to the versatility of its connectivity modules. More specifically, its modules can link to all the important smart-home connectivity standards such as Wi-Fi, Bluetooth, and ZigBee, so an original equipment manufacturer won't have to use separate chips for each platform.
The Foolish takeaway
Skyworks and Synaptics have started making inroads into the smart-home space in different ways. Investors, however, shouldn't expect quick gains as the market for smart speakers and connected homes is still growing. But those with patience could be handsomely rewarded in the long run.