We may initially think of the "Internet of Things" as a consumer driven, smart wireless device, market phenomenon, but what we are actually seeing is the initial steps into a next generation of component and device cycles. These new cycles are driven by the feature demands of IoT and the Big Data sets that are created out of the M2M connectivity that is IoT. These growth pushes will increase both volume and penetration rates for components, end-products, and the rise of new solutions to support the increasing M2M demands.
We keep hearing all of these phrases, "The Internet of Things," "Connected Life," "Connected Home," "Big Data," and so forth. Some terms, like "The Internet of Things," have been around for a while now (see this cnet interview with Vint Cerf, Internet co-creator), while others such as "Connected Home" seem to harken back to 1960s futuristic visions as depicted in the Hannah-Barbara cartoon, The Jetsons, where everything needed was available through single device portals and was entirely customized for the user. Curious as that connection may be, how does a retro-futuristic vision and the latest tech-speak relate to the semiconductor and electronics industry supply chain?
Quite simply, demand for increasingly integrated and interconnected devices is opening a new competitive marketplace that will push end-products and their components in new directions to meet the next generation of feature and connectivity demands. With tablet growth set to double this year, reaching roughly 119 million units, the traditional PC market is only expecting a meager 2.7% growth for the same period, according to a recent Gartner forecasts cited by WSJ. Simultaneously, as a result of diminishing average selling price (ASP) for smartphones globally, Citi Global Markets reports that smartphone growth should continue in the double digit range for the next few years, minimally, particularly as emerging market consumers favor smartphones over feature phones, particularly as lower pricing continues during 2H12: "[s]martphone shipments could hit 736M units in 2012 (10-15% ahead of consensus) and 1Bn units in 2013 (+20-25% vs [sic] consensus), on our forecasts." ("Asia Pacific Technology Hardware," 5 June 2012, Citi Global Markets, pp.1, 3-4)
How we talk about devices, now as part of an interconnected web, reflects the shift in how technology is being adapted to meet users' needs and, therefore, how devices and their components are evolving. The present shift toward intelligent, interconnected decision-making is an essential driver for new growth and healthy competition across a wider set of markets. This growth will both increase volume as well as penetration rates for existing and for new components, end-products, and the rise of new cellular, wireless, or Wi-Fi networks and base stations to support the higher rate of machine-to-machine (M2M) connectivity and then on to machine-to-person (M2P) data transmission.
At the core
The Internet of Things (IoT) is exactly what it purports to be, the point at which "Things," that is, devices, are connected and are able to transmit and/or receive data either in a M2M or M2P/P2M situation, as discussed recently by ElectronicDesign. Connectivity is enabled through chipsets that have now fallen in price to a point that an IoT is not only a possibility, but is now an encroaching reality. Regardless of the "Things" being connected, or the purpose for them being connected (business, personal or both), at the core of this connectivity is exactly that, a core processor with RF and MEMS components.
As more "Things" are connected, more of the chipsets containing core processors, MEMS and RF components come into demand. Economies of scale and maturation points have set in for many components, as smarter, cheaper, and faster requirements dominate demanded features. These feature capabilities have been furthered by ever-smaller microelectromechanical systems (MEMS) sensors and actuators that have taken the consumer electronics sector by storm. These powerful MEMS components now dominate conventional consumer products across the board, as explored in this ElectronicsDesign article. The prevalence of MEMS and other powerful components occurred because of average selling price (ASP) decline, coupled with increased demand. This market situation produced a watershed moment where now significant volume increases are being seen and a further proliferation of connected devices, or "Things," ensues and we take large steps closer to an IoT reality.
The growth cycle promoting this market situation is rather simple and is well in hand as witnessed, for example, by falling prices and increased proliferation of smartphones to the detriment of feature phones. Smartphones are the devices that open the door to increased connectivity and data manipulation. In turn, the user finds herself increasingly demanding more connectivity options to further her interactions or improve the intelligence of tasks that can be handled by the smartphone and by leveraging M2M connectivity. In parallel with the smartphone over feature phone shift, we see a significant increase in tablet PC adoption as traditional laptop PCs decline: "Research firm Gartner Inc. is forecasting unit PC sales will increase just 2.7% in 2012, while tablet sales are predicted to nearly double this year to nearly 119 million units," as reported recently by WSJ.
Obviously, the Internet of Things and a Connected Life hinges on M2M, since M2M is the point of inter-connectivity. On June 6, 2012, IPv6 was launched (see the cnet interview, this CNN report) increasing the number of Internet Protocol (IP) addresses from 4.3 billion to 340 undecillion (340 trillion trillion trillion). The move to IPv6 underscores the growth in connectivity; the growth in the number of networked devices that need network addresses in order to connect and to be connected. As discussed above, in order for IoT to be fully realized, the connection between the "Things" must occur. Presently we see this happening, the M2M market is growing at the rapid pace of 15-30% annually, according to a recent Berg Insight report, as summarized by MobileMarketing Magazine.
The reason for the recent upgrade to IPv6 to expand the number of network addresses was not to drive IoT, rather, it was in response to the growth. In the industry, we understand the move toward IoT as organic, or stemming from a grassroots demand base. Simultaneously, and pushing demand for increased networking, is the proliferation of devices capable of being network. These devices are at the center of the recent wave of both volume and revenue growth in the semiconductor and electronics industry. The continued expansion and the next growth wave of our industry can also be glimpsed when we consider the end-to-end impact and eventual realization of the IoT and what such a Connected Life will demand of not only service providers, but also of the connected devices and, in turn, how the components comprising those Bill of Materials (BoMs) will have changed.
Finally, there is the hardware question of how service providers, both cloud storage and network will address the phenomenal growth of both new connected users and the growing number of Big Data sets that require new enterprise server and software solutions (for more on Big Data and the component impact, see the Big Data companion article in this MarketWatch Quarterly). Leveraging the growth opportunities afforded by IoT and the data generated is the journey on which the entire tech industry, from component designers and manufacturers to service providers, as well as users are currently embarking.
Bridging the device and the data storage divide is a very important discussion that is underway and that may pave one of the many roads propelling new growth for the semiconductor industry, new mobile storage standards. OEMs are currently exploring a move away from the current mobile storage standard, e.MMC, and this year adopting "a faster and next-generation interface technology called Universal Flash Storage (UFS). The UFS electrical interface is a serial communication bus that can be used in smartphones, cameras, digital recorders, MP3 players, tablets and even electronic toys," as discussed in a recent report by Semiconductor Manufacturing & Design Community(SMDC). The adoption time for UFS is not imminent, and given economies of scale, the initial roll-out will mean that UFS solutions are more costly than e.MMC solutions, making a switch to UFS a longer-term venture and will hold with it some of the future fate of the mobile memory sector (see the same SMDC article):
UFS will provide a change in architecture to increase performance. UFS will initially offer three times the interface speed of the prevalent e.MMC interface, which is comparable to serial ATA-2. Moreover, UFS will offer the promise for reductions in device power consumption due to a low active power level and a near-zero idle power level.
As the SMDC article underscores, e.MMC is nowhere near on the decline currently, rather it is worth noting that the move to more robust standards that can handle the next wave of mobile storage demands is squarely on the minds of the major OEMs in the mobile and memory sectors:
Despite the push for UFS, the e.MMC standard is expected to retain its dominance in many cellphones and tablets, with shipments rising by a robust 37 percent for 2012, according to the firm. Shipments of e.MMC solutions in 2013 are forecast to reach 711.1 million units, up from 520.3 million in 2012, according to IHS iSuppli.
Other hardware changes for the next generation of connected devices further underscore changes in the semiconductor industry. We are moving into a next design phase with the proliferation of complex System on Chips (SoCs) and new IC stacking designs with lower power demands, slimmer footprints, and the increased move to design customized off-the-shelf (COTS) chipsets based on set hardware configurations that are customized to specific end-products through software changes rather than subcomponent changes. Considering the connectivity side, there are important changes in the cellular-network infrastructure as new basestation solutions are being adopted, which is driving new hardware demand cycles.
The cellular-network sector continues to grow and with it the competition for the US $40.3 billion basestation market is heating up, as this EETimes Confidential report reminds us:
Over the next two years, the relatively staid market for cellular basestations will see a disruption equivalent to the advent of the tablet computer. That’s when a new wave of small-cell basestations sporting hybrid cellular/Wi-Fi radios will emerge, giving operators new ways to build out their networks and consumers new ways to remain connected.
The new, "second tier of the wireless network" is the domain of this growth, according to EETimes Confidential, where small-cell basestations provide the coverage extension between the traditional basestations and femtocells. The forecast for the small-cell market is significant: "Total small-cell shipments by unit [are forecasted at] 3.2 million in 2012 [and growing to] 62.4 million by 2016 (small cells become 88% of all basestations)." The pertinence of this basestation discussion is not only part of the next growth wave for the semiconductor and electronics industry, it is also directly linked to the IoT and the current, high growth rates for the smart wireless device sector. At the center of the drivers for these basestation changes is the current deployment of 4G and LTE networks by service providers. While the roll-out of 4G and LTE has been somewhat slow, the demand and strain placed on service providers is increasing in pace as these providers struggle to meet the heavy data loads of their customers, as they utilize and leverage the IoT and realize a Connected Life.
IoT introduces us to the next growth cycle
IoT is not only at our doorstep, it is underway. This next wave of growth for devices, their components, and the service sector is bringing important and interesting challenges and opportunities for the entire industry. Noting that at the core of IoT is, necessarily, M2M, aides in understanding the importance of new growth for components that support this connectivity. A byproduct of this device component growth is the incredible data growth resulting from the device connectivity. This full suite of interconnected devices is generating Big Data sets which, in turn, demand a set of hardware and middleware solutions to provide intelligent decision support, features, and increased productivity, (see the Big Data companion piece in this issue of MarketWatch Quarterly). Big Data, in turn, require additional M2M connectivity at a B2B level, in order to leverage business intelligence and capitalize on market opportunities.
In short, while we may initially think of the "Internet of Things" as a consumer driven, smart wireless device, market phenomenon, what we are actually seeing is the initial steps into a next generation of component and device cycles. These new cycles are driven by the feature demands of IoT and the Big Data sets that are created out of the M2M connectivity that is IoT.