In my rough framework of IoT I describe 7 categories that make the up the market with an 8th category of investment which as a believer in the opportunity I will explore in this post. Here are those categories again:
1. Sensing and Control
3. Analytics (big data) and the cloud
5. Applications, ROI and 2nd/3rd order effects
6. Standards and Regulation
7. Ecosystems and Communities
8. Investment Opportunities as I see them
I have decided to put my own money where my mouth is on the investment opportunity and create an IoT portfolio that can act as an Index for this emerging market. There aren’t any public pure play IoT companies out there today so I need to pick companies who are in the best position to profit from the growth. Some companies are so large that even though they are major players in technology the amount of revenue they generate from IoT today is so small its not really material to this index (think Intel and Microsoft for example).
Here are my first pass candidates by category:
1. Sensing and Control:
a. TSMC (TSM, the silicon arms dealer to the world, they make a large % of the worlds chips and my first pick as an IoT investment)
b. ARM (ARMH, probably the best direct proxy for IoT)
c. Microchip (MCHP; for a broad portfolio of micro’s and an emerging wireless and analog business)
d. Freescale (FSL; for portfolio, free software and new leadership)
e. Texas Instruments (TXN; triple winner for MCU’s, wireless and analog/sensors)
f. Atmel (ATML; one word, arduino)
g. ST (STM; in ARM micro’s but the leader in MEMS)
h. Maxim (MXIM; the world needs analog chips, these guys deliver)
i. Linear (LLTC; analog leader and now in mesh networks, best run semiconductor company)
j. Avnet (AVT; biggest distributor of hardware in the world, the IoT infrastructure and devices need to get built and a lot of the chips will pass through them)
a. Sprint/Nextel (S, long been a proponent of M2M, owns 50% of Clearwire and is in the middle of a takeover battle but a good representative for the IoT carrier play)
b. Cisco (CSCO; has to be in the mix since they power the web and are touting the Internet of Everything which is IoT)
3. Analytics and the Cloud
a. IBM ( IBM; plays in much of big data and software so despite its size and variety of businesses I decided to add it
b. Google (GOOG, Android, Cloud, Google Glass, Google Fiber, Google Now, the list is endless)
c. Amazon AMZN, for web services and the fact they will sell a lot of IoT devices)
d. Rackspace (RAX; we all need a Cloud and these guys sell the vapor!)
Security is a tough category; most of the major players are private or pre-IPO (Green Hills Software and Bromium for example). Symantec could be a candidate but they are silent on IoT so far.
5. Applications/ROI (OEM’s fit here)
Which OEM’s will benefit the most from IoT? This is the end product category so here are my picks:
a. Apple (AAPL; seems obvious, especially with the watch coming but also the fact that many IoT apps will run on iOS devices)
b. Honeywell (HON; all those building and HVAC systems can benefit mightily from IoT)
c. Siemens, GE, Johnson Controls, Bosch and Schneider Electric are all major industrial players but a small % of their business is really IoT so I passed.
6. Standards and Regulations
Not a lot of investment opportunity here unless one standard wins out over another and a manufacturer holds all the cards (Qualcomm with CDMA for example) and I don’t see that in IoT where a lot of the players support Open Source hardware and software. The IEEE will have a major influence here but are an association.
7. Ecosystems and Communities
In IoT we haven’t seen many communities reach critical mass yet, Kickstarter has been a driver of interesting hardware. I bought a Pebble watch and a Twine via Kickstarter and have the Dash/Lynk OBD (I hope) and SparkCore arduino Wi-Fi kit coming.
The IPSO alliance (http://www.ipso-alliance.org/) seems the purest IoT ecosystem so far although ARM’s connected community is up there. Unfortunately I don’t see an investment play yet.
Conclusion; I have created an IoT investment portfolio from these 18 public companies and will buy the stocks myself in my 401k to show how much I believe in the concept. It may appear to be very hardware centric but my view is that software is a tough market in an open source world and the money lies in the silicon and services that use that silicon. I realize that there are any companies who could be on the list and when some of the emerging players IPO they could be candidates but this is the beat I can find that you can buy today. If you want to track this index yourself here are the symbols so you can copy and paste:
AAPL, HON, RAX, AMZN, GOOG, IBM, CSCO, S, AVT, LLTC, MXIM, STM, ATML, TXN, FSL, MCHP, ARMH, TSM
I will update progress every week. Today was a rough market day (Thursday June 20th) so bear with me on the progress!