Samsung (NASDAQOTH:SSNLF) recently unveiled ARTIK, a new family of tiny computing boards for connecting devices like light bulbs, fitness trackers, security cameras, and drones to the Internet of Things (IoT).
The three initial ARTIK boards are tiny, ranging from the size of a ladybug to two postage stamps. The smallest board, which offers Bluetooth connectivity and other features for less than $10, is designed for smartwatches and other wearable devices. The largest device -- which is equipped with an octa-core chip, 32GB of storage, and video capabilities -- will cost under $100 and be used in smart home hub devices. Samsung will also offer software and services to configure the modules and connect them to the Internet.
Prior to this push, each Samsung division selected its own chips and software for connectivity purposes. Under ARTIK, each division will now be on the same page. This unified move could help Samsung expand in the booming IoT market, which IDC expects to grow from $1.9 trillion in 2013 to $7.1 trillion in 2020. It could also affect other IoT chipmakers like Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM).
What the IoT means for Samsung
Last year, Samsung acquired SmartThings, an open platform for connecting smart home and IoT devices. At the time of the acquisition, SmartThings supported over 1,000 devices and 8,000 community-created apps. Those devices connect to the SmartThings Hub, which can be paired with mobile devices.
Samsung is also upgrading its consumer electronics -- which include smart TVs, refrigerators, washers, vacuums, and other appliances -- to connect to smart homes. In 2014, that business accounted for nearly a fourth of Samsung revenue.
Samsung has two ways to connect all its devices to the IoT. First, it can link them at the hardware level to the SmartThings Hub through various connectivity standards. Or it can install Tizen, its homegrown OS, across those devices to give them a unified software interface. Samsung has already installed Tizen on various wearables, a camera, and a smartphone, and will showcase it on upcoming smart TVs.
This IoT push will also strengthen its device solutions (components) business, which manufactures processors, memory chips, and displays. The division manufactures many components for its mobile devices and TVs, which keeps its in-house production costs low. It also manufactures chips for other mobile device manufacturers such as Apple. Manufacturing IoT chips could further diversify that business, which accounted for 32% of the top line last year.
What a Samsung IoT expansion means for everyone else
This push could affect Intel and Qualcomm, which are both depending on the fledgling IoT market to strengthen their chipmaking businesses.
Qualcomm, the largest mobile chipmaker in the world, is building its IoT business on the foundations of its mobile chip and baseband businesses. Last year, it announced plans to acquire CSR, which specializes in Bluetooth, wireless connections, and in-car infotainment systems, to expand that reach. Qualcomm also leads the AllSeen Alliance, an IoT project which uses its open source AllJoyn framework to let smart devices connect to each other.
Intel, the biggest PC and server chipmaker in the world, is leveraging that dominant market share to expand into the IoT market. Last year, it launched a dedicated business unit for IoT devices, which houses small modules like the button-sized Curie and the SD card-sized Edison. The IoT unit only accounted for about 4% of the top and bottom lines in 2014, yet both grew at double-digit rates annually. Intel leads the Open Internet Consortium, which promotes its own open communication standards for IoT devices.
But Samsung could become a formidable rival to Qualcomm and Intel in the IoT chipmaking market.
Like Intel, Samsung has its own foundry. Qualcomm outsources its chip manufacturing to other companies like Samsung and TSMC. Samsung also recently budgeted $14 billion to expand its chipmaking capabilities, which suggests that it plans to use growth in component sales to offset potential declines in its mobile division.
The key takeaway
Samsung's IoT push is not aimed directly at disrupting mobile ecosystem plays like the Google Nest and Apple HomeKit. SmartThings Hub might compete with those platforms, but many devices are cross-compatible with other platforms.
Instead, Samsung is expanding its presence in the IoT market to strengthen its chipmaking business against companies like Intel and Qualcomm. The continued growth of its components business could reduce the weight of its mobile business and lower manufacturing costs for wearables, mobile devices, and smart appliances across the company.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Intel. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), 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.