Please ensure Javascript is enabled for purposes of website accessibility

2 Chip Companies Set to Benefit From the Technology of Tomorrow

By Harsh Chauhan – Feb 18, 2014 at 11:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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

Cisco (CSCO 0.42%) 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 (SWKS -1.06%) 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 (GE 0.22%) 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.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems. The Motley Fool owns shares of General Electric Company. 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cisco Systems Stock Quote
Cisco Systems
CSCO
$48.28 (0.42%) $0.20
General Electric Stock Quote
General Electric
GE
$85.66 (0.22%) $0.19
Skyworks Solutions Stock Quote
Skyworks Solutions
SWKS
$90.27 (-1.06%) $0.97

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.