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Cisco Investors Shouldn't Miss This Critical Growth Driver

By Harsh Chauhan – Dec 17, 2018 at 10:50PM

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The networking giant stands to win big from this fast-growing Internet of Things niche.

Cisco (CSCO 0.51%) is one of the obvious choices for anyone looking to make money from the Internet of Things (IoT). The company created a lot of hype surrounding a projected increase in the number of connected devices worldwide, and why Cisco is well placed to take advantage of this revolution thanks to its expertise in networking infrastructure.

Cisco doesn't spell out exactly how much money it is making from its IoT endeavor , but it looks like this tech trend is positively impacting the company's financials by offsetting the weakness in its traditional business. Its top-line growth has accelerated recently, and the company should be able to sustain its impressive momentum in the future because it is going after lucrative IoT niches -- such as connected cars -- to boost growth.

Different components of the Internet of Things.

Image Source: Getty Images.

Cisco and connected cars

IHS Markit predicts that connected car sales will triple to 72.5 million units by 2023 as compared with 24 million in 2015. Cisco has already made a dent in this market thanks to the Jasper acquisition that was completed in 2016.

Jasper is a cloud-based IoT services platform that covers several verticals ranging from jet engines to connected cars with its Control Center offering. The service has grown rapidly since it came under Cisco's umbrella, and connected cars seem to be playing an important role in its growth. For instance, the likes of General Motors, Nissan, Ford, Hyundai, and Honda are already using Jasper to power their connected car services.

Hyundai, for instance, struck a partnership with Cisco in January 2018 to make a next-generation hyper-connected car platform that's expected to feature in the carmaker's premium vehicles starting in 2019. The platform aims to bring secure and high-speed connectivity to Hyundai vehicles that will allow the two companies to deploy a host of connected car services.

Japanese automaker Honda has already been using Jasper to manage its MyHonda connected car platform to provide real-time information. Drivers can know about vehicle health, maintenance schedule, and speed alerts; make service appointments; and even find empty parking spaces using the app.

In fact, Cisco claims that 23 large automotive manufacturers use Jasper's Control Center in their fleets. This is a solid position to be in, as Cisco will be at the heart of the growth in connected cars because of its focus on building an end-to-end, unified communications platform. More importantly, Cisco is looking to push the envelope further in the connected car space by entering new markets with lots of growth potential.

Cisco's latest play

Cisco recently announced that it is making a play on the connected car market in India by partnering with British automotive company MG Motor, which is about to enter India in 2019. MG plans to launch an SUV in India in the first half of the New Year, and it is looking to make quite an impression by focusing on connected mobility.

MG Motor estimates that India's connected mobility market will be worth $3 billion by 2020, but there's a lot of potential, as just 2% of Indian cars can be considered "connected." In fact, the white paper released by MG Motor and Cisco predicts that demand for connected cars in India will grow exponentially to match global trends. For comparison, the global connected mobility market is estimated to be worth $175 billion in 2020 as compared with $44 billion in 2015.

That could open up a big opportunity for Cisco, as it will have an early mover advantage in the Indian connected car space. What's more, as Cisco counts several major carmakers as clients, it is likely that they will jump onto the bandwagon to capitalize on the untapped opportunity in India.

In all, demand for Cisco's connected car platform looks set to increase in the long run thanks to the market's secular growth. Of course, the company has other notable catalysts, such as the upcoming 5G deployment and its growing clout in cybersecurity, but there's a massive opportunity in the connected car space that could give its top line a nice shot in the arm.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool recommends Ford. The Motley Fool has a disclosure policy.

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