Broadcom (NASDAQ:BRCM) is a strong competitor in the semiconductor business, but lately the company has been diving further into its Internet of Things, or IoT, ambitions. While investors should not expect huge revenue from Broadcom's IoT pursuits anytime soon, they should keep an eye on what the company does in the space in 2015 -- because it will likely affect Broadcom years down the road.
An IoT year in brief review
In August, Broadcom made a splash in the IoT industry with its $20 WICED software developer kit, or SDK, and device. WICED Sense comes with Broadcom's BCM20737 chip and a host of sensors, including an electric compass, barometer and altimeter, humidity and temperature sensors, and motion-sensing gyroscope and accelerometer.
The point of WICED isn't to immediately open a new line of revenue for Broadcom, but instead to encourage developers to create IoT applications with the company's platform and chip, without them having to pay for expensive device prototypes.
The WICED system-on-chip, or SoC, supports Apple's iBeacon technology, the A4WP wireless charging standard, and even has its own on-chip encryption and decryption security.
And it's just the beginning.
A 2015 preview
Earlier this month, Broadcom expanded the capabilities of WICED by adding near-field communication, or NFC, capabilities to the SDK. The company claims it's the first to integrate Wi-FI, Bluetooth Smart, and NFC into a single SDK.
In addition, Broadcom released a new BCM43907 SoC that the company says is the industry's first dual-band Wi-Fi audio chip for embedded devices. Broadcom says the chip allows wireless HD audio streaming to multiple speakers without lag time or echo.
Just days ago, Broadcom showed off some tech partners' devices that feature its WICED technology, including the Harman Kardon Omni Wi-Fi portable speaker, LIFX smart lightbulb, and Homeboy security cameras.
This is all nice, but what's the real potential?
WICED and all of the partner products are just a small showcase of Broadcom's Internet of Things ambitions. They're about getting a big foot in the door now, as companies begin to make more connected devices.
Cisco Systems has estimated the Internet of Things value will top $19 trillion by 2020 , and Gartner says there will be 25 billion connected items by that time. All of those devices will need a platform for communicating, along with low-powered processors to keep them operating. This is Broadcom's angle right now: build a community of developers using the WICED platform for IoT devices and introduce them to the company's power-sipping Internet of Things chips. So if there's something investors should know about Broadcom for 2015, it's that the company is focusing on getting exposure for its platform and chips.
Fortunately for Broadcom and its investors, the company makes the vast majority of its revenue from its semiconductors and wireless connectivity chips. For example, Broadcom's Wi-Fi, Bluetooth, and GPS combo chip is in Samsung's new Galaxy Note 4 and its Wi-Fi and Bluetooth combo chip is in the Galaxy S5.
Broadcom doesn't break out its Internet of Things revenue, and at this point there's probably no reason to do so. The company is setting itself up for the future of IoT, and likely isn't making much from the segment right now. But that will likely change in the coming years. Piper Jaffray estimates silicon content for IoT nodes will grow to $17.8 billion by 2020 -- up from just $640 million two years ago. It also noted that, "In 20 years, we believe the IoT silicon market could rival the market for PCs or smartphones." Read that again if you have to. The Internet of things silicon market could be larger than PCs and smartphones, and it's already well on its way.
That's why Broadcom faces increasing competition from Intel and Qualcomm. Both of those chipmakers are making big IoT moves as well, though no one yet has a foothold in the space.
Heading into 2015, I'll be keeping tabs on how many more devices start using Broadcom's WICED platform and its chips. While companies big and small can already use the SDK, I'll focus on which major players adopt Broadcom's tech. Broadcom wants to make the Internet of Things a major part of its business, so we'll have to see if it continues to back that up over the next 12 months with new partnerships.
Chris Neiger has no position in any stocks mentioned. The Motley Fool recommends Apple, Cisco Systems, Gartner, and Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. 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.