Probably the greatest concern of semiconductor companies these days, the Internet of Things, is a concept that is widely considered the novus ordo seclorum of almost every industry. On the surface, by bringing technology closer to the final user, it enriches consumer experience and is making people more connected than ever (this is demonstrated by the recently booming smart home and wearables markets). More important may be the main value-added feature of the IoT in its effect on a large number of traditional supply chains.

Virtually all the processes within the modern economic system, from old-but-not-obsolete sectors like mining and ranching to intangible activities such as B2B professional services, are now exposed to IoT-based disruption. For industrials, this means that the new phase of connectivity is able to take the brilliant Japanese Supply-Chain Management (SCM) invention – the Just-in-Time (JiT) manufacturing system – to the next level.

Another neologism, the Internet of Everything (IoE) –  which is, simply put, an upgraded version of the IoT – is based on ubiquitous, wireless connectivity. Not only physical devices but literally everything can become a part of interconnected networks. Integrated data centers, cloud and edge computing come together to shape the global information landscape. The new web resembles a digital organism that not only records and imitates real things – it goes further by constructing a completely new, virtual universe. 

At the moment, the business world is, obviously, being shaken by the abundance of ways to deal with data of any kind. Omnipresent sensors, vast memory storage capacities and smart optimization algorithms, designed to keep managers informed over time, provide details about the tiniest changes within their production ecosystems. The spreading organization models have already become a matter for fierce international competition.

This is with good reason. The technology has already gained traction, boosting the market size at a breakneck speed. While the IoT market players absorbed revenues of USD 235 billion in 2017, vast heaps of capital thrown at various projects in this field will almost certainly stir up further development, bearing fruit even in the short run.

According to McKinsey Global Institute, the potential economic impact of IoT applications worldwide will reach at least USD 3.9 trillion in the following five years. In the consultancy’s most optimistic scenario, this number will hit USD 11.1 trillion. The firm estimates that "127 new devices connect to the Internet every second," bolstering their optimism about consumers that are "more connected than ever."

There are many more factors that are positively affecting increasing multifaceted connectivity. For example, basic infrastructure improvement should not go unmentioned: as developing countries of fast-growing regions such as Africa, Latin America and South-East Asia broaden access to electricity, mobile services and the Internet, they are improving urban and intracity transport infrastructure, all helping their markets become more advanced technologically. This, in turn, makes it possible an easier adoption of complex data networks.

EqualOcean projects that the Internet of Things devices will add up to USD 10.2 trillion to the global GDP by 2025. We argue that sectors like manufacturing are prone to be affected by the technology the most. The Industrial Internet of Things (IIoT) is expected to account for around 35% of this amount. With a possible economic impact of USD 1.7 trillion, so-called ‘smart cities’ – interconnected solutions for public space that, in many respects, make urban life easier – are likely to become another growth driver in this realm.

Wearables, the hottest subsector of consumer electronics that numerous international corporations have recently been lured to, is another area set to expand massively. Smartwatches, fitness trackers, head-mounted displays and futuristic wireless implantables – all will play a key role in tomorrow’s person-to-person and person-to-environment communication, directly connecting the human body to dynamic datasets. The most important variable here is, indeed, population –  a more solvent population.

Brookings Institution reported in September 2018 that 3.8 billion people around the world, or roughly 50% of the global population, can be considered middle class or higher. Though it is just a tipping point, this proportion clearly indicates the future prospects of the consumption sector. Wearables and retail combined might create an approximate value of USD 2.8 trillion in the next half a decade.

Another Pandora’s box?

Here’s a truism: the three key pillars of the digital era – data collection, transmission and processing – require proper hardware to run on. Key to this is a long list of sensors of different kinds, processing units, which have been an object of stiff market rivalry between the world’s biggest corporations for several decades, a plethora of memory chips and other micro solutions. It gets even more complex at the IC level: ASICs are not only expected to dominate AI training, but they also have something to say in the area of interconnected devices systems.

As the devil is in the details, every new solution is tightly related to infinite security concerns. At the confluence of firmware and hardware in IoT, there are multiple pain points that need to be alleviated in order to prevent data theft and other illegal activities harmful for businesses of all types.

Hence, as the market balloons on the backs of adjacent subfields, it makes obvious the fact that this ‘new world order’ is creating a spacious room for semiconductor industry players. And this is seemingly well understood by the majority of the flagship chipmakers. From pure cloud computing to open hardware-as-a-service-like IoT platforms – a bunch of new business models have been developed by the likes of Intel (INTC:Nasdaq) and ARM (ARMH:Nasdaq).

Remarkably, the IoT enables startups to have more space for making innovative ideas come into fruition. One reason is that the scope here is larger than, for instance, that of AI technology. As a result, a huge number of companies have emerged over recent years.

Investment data accelerator Crunchbase has reported on 6,201 private firms founded within the past ten years that strive to make money by leveraging IoT. However, there are only 33 chipmakers among them, which indicates the relative ease of ‘outsourcing everything physical’– i.e., purchasing independent pieces of hardware to combine them into smart ecosystems, creating enormous networks of integrated solutions.

There are some interesting cases among these ventures. Founded in 2015, San Francisco-based SiFive has managed to raise USD 129.5 million within four funding rounds. The last one, a USD 65 million Series D, brought the firm more than half of this amount. That investment event was led by Qualcomm (QCOM:Nasdaq), which has recently been building chips for computer vision and is rarely seen in IoT-related projects.

The company claims that its engineers are able to design RISC‑V CPUs within an hour and calibrate System-on-Chip (SoC) ICs in weeks, not months. Moreover, the whole process of IC design can be controlled by SiFive’s clients through its website that enables them to customize one of 16 standard cores or design a new one – a truly innovative approach to chipmaking.

A bunch of semiconductor startups that just carried out their Series A rounds of financing represent the next generation of private businesses to disrupt the Internet of Things realm. Functionally different, they are scattered across both the supply chain and the world map: Hailo, Morse Micro, Codasip and BlueX Microelectronics represent Israel, Australia, Germany and China respectively.

An interesting regularity was spotted. Corporate Venture Capital (VC) arms are prone to consider only those firms that have already passed the ‘acid test’ of early-stage investment. This apparently has something to do with their risk assessment, more stringent requirements and higher hurdle rates – a situation that is normal for any industry. Bain & Company noticed that “many (corporate VCs) squander the opportunity by managing these VC efforts the same way they would manage an M&A or business development unit.”

In general, investment in the semiconductor sector is unevenly distributed. However, as a lot of new narrowly specialized enterprises emerge, the structure and size of the money flow also change, taking a smoother shape. With its authentic nature, the concept of the IoT, as well as the more recent IoE, might become pivotal on a global scale even in the short term. Or just morph into something else. One way or another, chipmakers won’t leave the game by any means.