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Intel Corporation Primed for the Internet of Things

By Tim Brugger – Mar 18, 2014 at 9:00AM

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The chip giant has tremendous opportunities in mobile, but don't discount its upside in data centers and big data.

Trying to find a single, conclusive definition of the so-called Internet of Things (IoT) is nearly impossible, but in general terms it involves marrying technology with our day-to-day lives in ways unimagined even a few years ago. Smart houses, cars, and clothes, in addition to phones and other mobile devices should, if IoT takes hold as planned, make our lives safer and easier.

The Internet of things will also result in unprecedented amounts of data that savvy businesses will utilize in a multitude of ways. According to new research from Gartner, IoT will have a, "transformational effect on the data center market, its customers, technology providers, technologies, and sales and marketing models." Gartner also suggests the IoT market could generate incremental revenue of $300 billion by 2020, much of it in data centers, an often overlooked strength of Intel (INTC 1.81%).

With great power, comes great responsibility
If knowledge is power, IoT has the potential to change the business world if, and Gartner's research indicates this is a big if, there are adequate data centers and analytic tools available to process all that information. How many data centers? By 2020, IoT "will include 26 billion units" used to collect, assimilate, and ultimately utilize, in real time, all that data.

Like today, collecting and using that much information brings with it significant challenges. First and foremost is security of the enterprise information (big data) and customer data. There are already examples of major security breaches, like Target's infamous snafu.

Data storage, enhancing server technologies, and syncing a growing data center network are also cited by Gartner as key challenges facing companies that want to play in the IoT ballpark.

Intel's getting its IoT ducks in a row
When Intel CEO Brian Krzanich took the helm last May, he made it clear from day one that Intel needed to shift its focus to new, cutting edge technologies like mobile and, "more novel fields," including wearable devices. It was Krzanich's definitive strategy to move Intel away from its reliance on the dying PC market that was, in large part, responsible for him getting the top job.

In fact, Intel Chairman Andy Bryant alluded to Krzanich's plans to move Intel from "the very low end of computing to the very top end of computing" as the impetus for the board's decision. And strides are being made in the mobile market, including the recent unveiling of the 64-bit Atom processor and new LTE platforms. Though, joining the party as late as it did, Intel has a ways to go in mobile.

But IoT is still in the early stages of its adoption, and Intel is laying the foundation for snaring a piece of that $300 billion in incremental revenue. Advances on the big data front, including Intel's new Xeon processor which, according to Intel, not only delivers 80% better computing performance, it does so at a total cost-of-ownership that's 80% less than the prior iteration.

An expanded relationship with Alcatel Lucent and networking giant Cisco (CSCO 1.64%) to, "accelerate network function virtualization (NFV) and software defined network (SDN) technologies" is another significant step in capturing IoT market share. The alignment with Cisco in particular, with its large, existing networking client base and commitment to IoT and big data, should really help Intel jump-start its own growth efforts. The two IT behemoths have partnered for years, and it's not hard to see why expanding that relationship to gain market share makes sense: their technologies and services dovetail perfectly for delivering end-to-end IoT solutions.

Final Foolish thoughts
The day of Intel's last earnings release on Jan. 16, its stock was trading at $26.54 a share. After an initial drop to close at $25.85 a share the following day, Intel shares have hovered in the mid-$24 range, largely because of concerns about its shift to new markets taking hold. But investors seemed to have glossed over an important aspect of Intel's 2013 earnings : while PC Group revenues were down 4% compared to 2012, its Data Center unit – the area that will benefit from the expected surge in IoT revenues – is already growing, up 7% to $11.2 billion last year, and 8% in Q4 2013.

In the near-term, Intel stock is likely to meander until shareholders see signs of mobile growth, and therein lies the opportunity for longer-term Fools. Mobile's coming, and IoT offers Intel an almost unlimited upside in the coming years, and that's where the opportunity is. Enjoying Intel's 3.6% dividend yield along the way should help make the wait a little easier to tolerate, too.


Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems, Gartner, and Intel. The Motley Fool owns shares of Intel. 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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