Intel May Not Benefit Much From IoT

Intel is betting big on the Internet of Things (IoT), but a report from Anchorite of Seeking Alpha argues IoT will not be a major contributor to the chip maker’s sales and profits. For the first-half of 2015, Intel IoT sales were up just 7% while profits were down 11%.

 IoT only offers Intel low profits

One major issue with the IoT, according to Anchorite, is most of IoT chips are low prices “probably less than a dollar each.” So, by selling the chips, Intel won’t be able to make much profit.

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Anchorite notes that majority of IoT profits will “come from data analytics and services, not chip sales.” This will benefit tech firms like IBM, who has a massive analytics group and Watson apps. Oracle, Microsoft and GE will also be on the winning side, the report said. But Intel does not have an analytics group. It may acquire one, but the failure demonstrated by the McAfee acquisition does not speak well for the firm.

Another point against Intel is that the IoT “has a large hype factor,” the report says. Gartner Group, who termed IoT as “Hype Cycle for Emerging Technologies,” believes IoT will pick up in 2020 and beyond, but until then, there is not much in it for IoT vendors.

Nothing like PC and server chips

That said, the growth of the IoT could push server sales, but as of now, they are not counted as IoT revenue, notes Anchorite. Since IoT involves huge data, many  more servers will be needed to analyze that data. This could be one of the primary reason Intel acquired Altera, says the report. Altera’s FPGA (Field Programmable Gate Arrays) products can be used to speed up processing, and possibly “allow lower cost server chips.” This way, Intel may add more revenues, but the problem is presently the chip maker does not include IoT server revenue in the IoT Group.

Desktop and server chips dominate Intel’s revenues. For 2014, the PC Client Group (PCCG) and Data Center Group (DCG) accounted for 88% of sales, while only 4% came from IoT. This has been the case for Intel for some time, in 2013 the PC and DCG group represented 89% of sales. This suggests that years of effort to move beyond the desktop and server markets did not have much success. Moreover, the future is now as Anchorite points out “new products will face competition that desktops never have and servers hardly have.”