Intel Corp. is the company to beat in the market for Internet of Things (IoT). Some in the semiconductor world see it differently, believing ARM Holdings Plc has already upstaged the world’s biggest chipmaker in the connectivity market. Even if that view happened to be right once, ARM and its Japanese suitor SoftBank Group Corp. may have just muddled the outlook for the world’s biggest semiconductor intellectual property vendor.
Rather than solidify ARM’s position, SoftBank’s $32 billion acquisition offer will more likely raise concerns among its customers and OEM vendors. But, first, let’s start with the numbers. For all the hoopla about ARM, Intel generates more revenue from the connectivity market than the Cambridge-based rival. In 2015, Intel reported sales of $2.3 billion for its internet of Things division while ARM’s total sales during the same period were $1.5 billion.
Of course, the comparisons aren’t quite apple-to-apple. They’re more like apples-to-oranges. Intel is a chipmaker whereas ARM supplies IP to semiconductor companies, meaning its sales come from royalty payments rather than from the sale of chips. As a result, the total revenue generated by all chipmakers from the sale of ARM licensed-chips far exceeds Intel’s receipts in the sector. That’s quite obvious.
If this dichotomy exists why then are analysts and observers so keen to stack Intel’s performance in the connectivity market against the results of an IP vendor? The answer both shows why Intel has been less successful in this sector than it could have been and, interestingly, also why it will eventually become the top company in the segment.
Some analysts and executives at SoftBank believe the Japanese company’s acquisition of ARM and its promise to increase investments in the company will strengthen it and improve its competitive position. I beg to differ. Any additional investment in the company by SoftBank will, of course, be advantageous for ARM but I don’t see a surge of capital into the IP vendor from the buyer, which is itself reeling from a boatload of debts.
Intel, on a long-term basis, is in a stronger position than ARM. The company has numerous advantages that it is currently trying to harness to ensure it can become a leading vendor of products for the IoT market. It is also known to be actively working on reducing or eliminating the challenges it has faced in the sector. The advantages that Intel brings to the competition, include: an enormous trove of internally developed connectivity IP; continued dominance of the computing sector, which guarantees ongoing profitability and gives it room to focus on cutting down on opposition to its products; strong enterprise computing position; a really deep cash position and access to a vast pool of credits and; solid relationships with OEMs in multiple markets.
“As far as competition, there's always going to be competition in this market,” Brian Krzanich, Intel’s CEO said, during a conference call to discuss the company’s second quarter results. “I expect it. We think of ourselves as competition. In fact, we are built on a model that says we have to build a continuous improvement of our products such that we are replacing ourselves with a better cost-per-performance model over time. And so the competition is welcome. It keeps us better.”
Despite the obvious advantages, Intel has not gained as much traction as the executives were expecting in the IoT market. This is partly because rivals – and even some OEM customers – do not want it to dominate sales of connectivity products as much as it has in the PC and enterprise computing sectors where the company has upward of 90 percent market share. The concept of “Intel Inside” the anticipated wave of billions of connected devices frightens rivals and manufacturers alike.
While semiconductor vendors want to curb Intel’s presence in the IoT market, OEMs are giving the company a second look after years of initially ignoring the chipmaker. It is winning design sockets in the automotive, consumer electronics, medical, industrial, transportation and other markets. It will keep racking up more of these deals unless it trips up badly. Even if Intel fails to gain traction, though, it has the resources to quickly identify challenges, pivot, rectify the situation and continue its charge.
If I was an investor and I have to pick a company to bet on in the IoT market, it won’t be ARM, which with the SoftBank deal is even now off the table. But even if the SoftBank-ARM deal fails, my money will still be on Intel. That’s as an investor. If I was running an OEM that needs connectivity chips for my company’s products, assuring the availability of a second source for parts will be critical. I would split my investment between the strongest and most viable suppliers in that segment. That group will still include Intel.
As CEO Krzanich noted, Intel only has itself to beat in the IoT market.
Bolaji Ojo is editor-in-chief and publisher of EPSNews. The views expressed in this blog are those of the author alone who promises to base his sometimes biased, possibly ignorant, occasionally irrelevant but absolutely stimulating thoughts on the subjective interpretation of verifiable facts alone. Any comments should be sent to the author at email@example.com.