Why Intel May Have to Wait Awhile for IoT Investment Payback

NEWS ANALYSIS: Intel is well-positioned to provide most of the foundational chips for the Internet of Things, but it may be a while before its investment pays off.

SAN FRANCISCO--With the cloud getting less mysterious with each passing day, BYOD (bring your own device) gaining worldwide attention and big data analytics getting traction, the Internet of Things is the next market trend for those who look ahead in the IT business.

One by one, the Tier 1 IT companies are addressing the so-called IoT, with familiar names such as Cisco Systems, GE, EMC Pivotal, IBM, Amazon, Google, Hewlett-Packard and Microsoft already coming forth with products they project to fit into this sure-fire market.

Intel joined the gang Oct. 8, introducing specialized Atom and Quark system-on-chip processors for the millions of new ASIC-type connectors that will be needed to hook up the IoT to everything from air-conditioning units to bicycles to hard hats on workers at construction sites.

For the news report on these chips, read Jeff Burt's article here.

Focus is on Industrial IoT

Intel will concentrate first on supplying new processors for the industrial side of the machine-to-machine IoT, which already involves a high percentage of its installed base. This is one big trend in which the consumer side of the market will take a back seat for a change.

Back in the 1980s, when client-server IT was the trend, Apple and Microsoft went separate directions by focusing on education (Apple) and business productivity (Microsoft); both made out well, as it turned out. At this time, it appears that Intel has the jump in the race to equip the IoT against competitors such as AMD, Nvidia and LSI for this type of processor.
Intel already has a lot of "brownfield" opportunities, or those connecting IoT to already-installed commercial equipment such as those air-conditioning units, boilers and heavy equipment, analyst Patrick Moorhead of Moor Insights & Strategy told eWEEK.

"Those segments already are capturing data, but it's a manual process, not automated. Those IoT gateways will plug into those legacy buses and report out important information automatically, which previously required a human," said Moorhead, whose consultancy considers IoT a specialty. "Intel and companies like Echelon are showing a lot of leadership in this area."

Moorhead said the IoT will take a "very long time" to go mainstream, but that it truly is the "next big thing." Thus, product providers such as Intel may have to wait awhile for optimal profits while the users get used to the new machine-to-machine networks.

Very Different IoT Markets Will Emerge
"The first way to look at the market is by splitting it into the Industrial Internet of Things (IIoT) and the Human Internet Of Things (HIoT)," Moorhead said. "These are very different markets that have different requirements and players. Moor Insights & Strategy believes that IoT will become a household service with today's Internet penetration levels over the next 10 years."
Will these new processors and the ASICs that will house them serve as the real start for the Internet of Things, or are these simply stand-ins for infrastructure still to come--prototypes, if you will? Rob Enderle, chief analyst with the Enderle Group, thinks the Intel chips are indeed a key ingredient for the new machine-to-machine Web.

"Somebody has to build a set of standard components that go into a lot of devices relatively cheaply--these would be very inexpensive devices," Enderle told eWEEK. "You get to the low cost by having the manufacturing efficiencies of having volume. People would be able to add this capability relatively cheaply, then they can build it out--particularly for a lot of this old legacy stuff (servers, networking, storage)."

First IoT Connectors Need to Be Cheap, Easy to Use

"Folks don't like a heck of a lot of change, and they don't want to spend a ton of money because these things trade out, and a lot of times they won't turn this (new) stuff on. So it's got to be dirt cheap; this requires somebody like Intel to come in and provide it very cheaply--so it's installed, and maybe can be implemented," Enderle said.

Yet these kinds of specialized chips early in a new market won't be considered a loss leader for Intel, Enderle said.

"They're not so much of a loss leader for Intel, but this does requires somebody of Intel's scale to get the price down to a point to where these guys [equipment manufacturers] are going to take it," he said. "If you're putting something [such as an IoT ASIC] into an air-conditioner and you're competitively bidding, and the guy who's buying the air-conditioner isn't sure whether he's going to use this capability or not, you can't charge a ton extra for it.

"Typically, if these guys [manufacturers] were going to do it [add in the IoT capabilities] themselves, they'd have to charge thousands more to put it in, and they wouldn't get the price back. They just wouldn't sell the air-conditioner. So it requires somebody like Intel to get the price down so they're willing to take the risk, put it in there, and if it's there and people start to implement it, then you get the ball rolling," Enderle said.

"This takes a company that can scale and that's not in those businesses [such as making air-conditioners], so they don't show up as a competitor."

Start of a Whole New Wing of IT?

When these new ASICs start rolling out next January with the IoT chips in them, it will be only the start of a whole new wing of the IT world. As an early leader on the infrastructure side, Intel may have to bite the bullet on profits for a while before the market hits a tipping point, then moves over to critical mass.

Where it goes from there will be a lot of fun to watch--for Intel and everybody else.

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 13 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...