IoT Drives Big Investments in Sensors

Investors are keenly aware of the sensor’s role as a critical component of connected devices under the Internet of Things (IoT) umbrella. In fact, a huge portion of funding was channeled to sensor developers over the past decade.

Driven in part by new applications around wearables and the emerging IoT market, innovative sensor developers drew 80 percent, or $3.4 billion, of the $4.3 billion in funding for sensor modules over the past decade, according to Lux Research. Some of those investments included $620 million in funding for sensor processing-related technologies, about $200 million for packaging solutions, and about $100 million for energy harvesting.

Investments are from venture capitalists, private equity and investment banks, government entities, and large corporations. With a market size expectation of $1.7 trillion in 2020 for devices, connectivity, and IT services for IoT, according to IDC, it’s almost a sure bet for many investors. In addition, modules and sensors are expected to account for nearly 32 percent of the total, so it makes sense that investors would test the IoT market with investments in sensor technologies.

“Innovative sensor startups will continue to attract large amounts of venture investment as the Internet of Things emerges as the next major phase in computing, following on the heels of the PC and mobile eras,” said Pallavi Madakasira, Lux Research analyst and lead author of the report titled, Sensor Innovation: Analyzing Investment Trends Across the $4.3 Billion Spend, in a statement.

Today, the leaders in sensor modules include Bosch, Honeywell, Analog Devices, Texas Instruments, ST, and Infineon, said Madakasira.

Regionally, North America garnered the biggest share of investments with more than 340 companies in the Americas drawing $3.4 billion of the total investment in sensor technologies since 2006, said Lux. EMEA followed with about $950 million in funding, while Asia received $200 million in investments.

Investments in the form of acquisitions were quite high for sensor developers. Since 2006, 45 sensor developers were acquired for $1.5 billion. The majority of them focused on innovative sensors with less than a handful for either processing or packaging solutions, according to Lux.

Some of the biggest acquisitions cited by Madakasira include Google’s acquisition of Lumedyne for $85 million; Apple’s acquisition of Primesense for $360 million, and the acquisition of GasSecure for $65 million by Draegerwerk.

There are also big investments being made by large corporations, particularly for capacity expansion. One of the biggest challenges, particularly for newer MEMS sensors, has been ramping up to high-volume production. A report released by GSA and McKinsey last year indicated that MEMS are replacing most traditional sensors in IoT devices thanks to lower cost and better performance.

On the component side, Sony is raising $4 billion to ramp up sensor production and Samsung is investing $13 billion, according to the report. In other areas, IBM, for example, is investing $3 billion in sensor data and Ford opened a R&D center on sensors for transportation.

Madakasira told EPS News "the reason companies like Samsung, Panasonic, and Sony are all investing big in the space is because everyone is trying to find new revenue generation opportunities; the traditional semi business is not allowing companies to generate the kind of the growth they have previously seen."

"Besides these companies are in a position to leverage some of their existing core capabilities to target new business in the sensors/IoT space," she added.

2016 is expected to be the first year when accessories and sensor nodes will lead in total active connections, traditionally led by smartphones, PCs, and other “hub” devices, driven by improvements in the IoT infrastructure, according to ABI Research.

“A 24.1 percent CAGR through 2021 positions 2016 to be the first year that accessories and sensor nodes are in the majority, rising to more than 65% of total active connections by the end of the forecast period,” said Ryan Martin, senior analyst at ABI Research, in a statement. “Now the critical question for companies is how to create a strategic framework that optimizes IoT solution ROI in concert with connected endpoint growth. Growth will be driven by a massive uptick in contextually-aware IoT endpoints across retail, advertising and supply chain, smart home, and industrial IoT markets.”

The IoT, wearable systems and automated embedded control have been driving unit shipments of sensors in the double digits. The demand for low-cost sensors continues to be one of the biggest drivers. With more competition, coupled with demand for lower cost sensors in high-volume applications, average selling prices (ASPs) fell from $0.66 in 2010 to $0.40 in 2015, according to IC Insights.

The latest research shows the biggest markets exerting more price pressure include wearables, IoT-connected applications and multi-sensor packages. Although prices keep falling for sensors, it puts these critical components in a better position for market adoption in a wide range of IoT applications. Sensor ASPs are forecast to drop at a CAGR of 6.3 percent over the next five years, settling at $0.29, according to IC Insights. ASPs for MEMS-based sensors are expected to fall by a CAGR of 5.7 percent to $0.45 in 2020 from $0.61 in 2015.

While lower ASPs for devices such as accelerometers and gyroscopes is good news for buyers, revenue growth is shrinking for suppliers. Revenue for sensors is expected to rise by a CAGR of 5.3 percent between 2015 and 2020, compared to 8.9 percent over the past five years, according to IC Insights. Compared to units, shipments are expected to grow at a 12.4 percent CAGR over the same forecast period, but still down from a 20.5 percent rate of increase over 2010 to 2015.

The sensor market is expected to reach $8.3 billion in 2020, up from $6.4 billion in 2015, according to IC Insights. Record shipment growth is forecast for another five years, reaching 28.9 billion units in 2020. Sensor sales are expected to grow by about three percent in 2016, reaching $6.6 billion with worldwide shipments increasing by 13 percent to nearly 18.2 billion units.