Most people know Intel for PC chips, but there’s a tiny part of its overall business that could play an important role going forward: chips for the Internet of Things, or ordinary household devices that connect and share data with each other.
The so-called Internet of Things segment only accounts for about 5% of Intel’s overall business today.
But the broad range of devices that make up the Internet of Things market, from washing machines to automobiles, generate tons of data. And all that data is stored and analysed by the chips in data centres, a market that’s dominated by Intel, which has a massive 95% share.
As the IoT business grows, it will generate ever more data and further expand the overall data center market, which is where Intel is seeing the fastest growth and highest profitability now.
A lucrative cycle
In fact, investment bank Trefis wrote in a note Monday that the IoT segment will add almost 20% upside to Intel’s overall valuation, citing its contribution to the data center business as one of the reasons for it.
“The data generated from billions of connected IoT devices will need to be processed and analysed, which will require greater computing and storage capacity. Being the market leader in the server microprocessor market, Intel is also well-positioned to gain from the explosion of data that IoT will bring about,” Trefis wrote.
It added that the installed base for IoT devices will explode by 2020, hitting 30 billion connected devices worldwide. The economic impact is estimated to be $6.2 trillion by 2025, according to the note.
This isn’t the first time we’ve heard of this virtuous cycle of Intel’s IoT business feeding the growth of its data center business.
When we spoke with Diane Bryant, Intel’s SVP and head of Data Center Group, she echoed the same idea, saying, “All of those connected devices create lots and lots of data that come back into the data center to be computed on, managed, stored, and goes across the network, which is also part of my business.”
With the PC market shrinking, Intel has been putting more emphasis on other businesses, like the data centres and the IoT lately as its next growth engine.
In the last quarter, its Client Computing Group, which includes both the PC and mobile businesses, generated $8.5 billion, while the data center group saw $4.1 billion in revenue. But over the first 9 months of this year, the Data Center Group made $5.6 billion in operating profit, slightly more than the Client Computing Group’s $5.4 billion, effectively making it Intel’s most important business.