Intel (NASDAQ:INTC) and Hewlett-Packard Enterprise (NYSE:HPE) recently teamed up to expand into the Internet of Things (IoT) market, which includes connected devices like wearables, smart appliances, and connected cars. The two tech giants will work together to create open standards for IoT devices. They will also create three global "solutions labs" to help customers accelerate the deployment of IoT applications, as well as three "discovery labs" where companies can test IoT applications and devices.
The partnership will combine HPE's IoT and IT solutions with Intel's IoT platform and processors to create new products that "sit at the edge" of networks (outside of traditional data centers) to "collect, process, as well as analyze data from sensors and devices." These new systems will be powered by Intel's Core i5 and Atom processors. In a press release, Intel IoT Senior VP Doug Davis called the partnership "the latest example" of the company's "growing IoT ecosystem."
What this deal means for Intel
Intel, the largest PC and data center chipmaker in the world, is currently fighting Qualcomm (NASDAQ:QCOM), the biggest mobile chipmaker, to control IoT communication standards with rival consortiums. Intel leads the Open Internet Consortium (OIC), while Qualcomm leads the AllSeen Alliance. Both alliances have major backers, but Qualcomm's list of partners is about twice as long as Intel's.
This summer, Qualcomm started working with Thread Group, a communication standard backed by Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) that has a comparable number of partners as AllSeen. Thread Group President Chris Boross stated that AllSeen's AllJoyn open source software framework will be compatible with Thread, which would create the largest IoT communication standard in the world. Boross also stated that Thread could also be integrated with Intel's IoTivity framework, but a similar partnership hasn't been announced yet.
Intel is relying on its growing IoT business to diversify away from its weaker PC and mobile chip businesses. Last quarter, Intel's IoT revenue rose 10% annually to $581 million and accounted for 4% of its top line. That growth was fueled by rising demand for Atom chips, tiny IoT modules like Curie and Edison, and progress in the wearables market.
Intel's partnership with HPE will further strengthen its IoT presence against Qualcomm on the edge of networks. To ensure that it keeps pace with Qualcomm, Intel recently hired Dr. Venkata Renduchintala, the former executive VP of Qualcomm Technologies, as the president of its newly formed client and IoT business and systems architecture group.
What this deal means for HPE
After splitting with HP, HPE now sells commercial computer systems, software, and business support services. In its final quarter before the split, HP's enterprise revenue fell 11% annually as demand for IT services, apps, and business services all declined. IT hardware revenue rose 2% as demand for x86 servers and networking equipment offset weaker demand for high-end servers, data storage solutions, and tech services.
HP shuttered its cloud platform in October and decided to focus HPE's postsplit efforts on "hybrid cloud" installations instead. Hybrid cloud installations combine private and public clouds for larger companies that aren't ready to move all their data to the public cloud yet. Research firm Gartner estimates that around half of all large enterprises will use hybrid cloud installations by 2017.
HPE's IoT partnership with Intel will likely cast a "halo effect" across many of HPE's businesses. HP's services and apps can gather and analyze more data from the network edge. Hybrid cloud installations can also reach further by tethering more IoT devices to private and public clouds.
A new market for aging tech titans
Research firm IDC expects the IoT market to grow from $656 billion in 2014 to $1.7 trillion in 2020. That's why "mature" tech companies like Intel, HPE, and Qualcomm are all aggressively expanding into the IoT market on multiple fronts. Intel and HPE's partnership is promising for both companies, but the conflict in communication standards with Qualcomm won't likely end anytime soon. That conflict could delay the adoption of a "universal" standard for IoT communications while throttling the growth of the overall market.
Leo Sun owns shares of Qualcomm. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Qualcomm. The Motley Fool recommends Gartner and Intel. 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.