Madden: Breaking down semiconductor revenue for the IoT

The market for connected devices can be surprising, if you dig beneath the hype at the surface. Get past the big round numbers (20 billion connected devices), because nobody in the industry can capture that big number alone. Here are some facts that could surprise you:

  • Roughly 9 billion RFID tags shipped last year, to track retail products, packages, pallets, and even livestock. Do these count as “IoT” devices? That’s debatable. But it’s clear that huge numbers of items are already being tracked—it’s not a brand-new market. Instead, think of Asset Tracking as a market for fifteen-cent RFID tags that we’re trying to upsell into a market for $1.00 IoT devices.
  • About fifty million Smart Meters will be deployed this year. Almost all of the big utility companies committed to technologies such as G3-PLC, FSK, and 802.15.4g years ago. They’re unlikely to change horses, and they’re unlikely to put their future in the hands of mobile operators. Smaller utilities will behave differently. Again, people should not think of this as a new market, but as a market with some room for growth.
  • Medical devices are a third well-established market, with millions of MICS/Medradio devices implanted in patients every year. The medical and fitness tracking market is growing quickly, with new low-cost devices adding to this premium high-rel market.

With these well-established markets, the breakdown of semiconductors for “connected devices” looks very different than the industry hype.

Even if we exclude RFID, shipments of devices are dominated by short-range wireless technologies such as Bluetooth, Wi-Fi, and 802.15.4 (no surprise), with wired devices coming in second. LPWA is still very small compared with GSM, LTE, and licensed RF formats.

However, shipments don’t really matter. It’s more important to look at revenue, because you take revenue to the bank. RFID semiconductors are ultra-low cost, so while RFID is still the largest segment, it’s not overwhelming. Bluetooth and Zigbee sell pretty cheap, compared with GSM, LTE, and 900 MHz licensed radio. Even satellite-based IoT devices are comparable with Bluetooth/Zigbee when we look at semiconductor value.

We’re tracking more than 45 different connection technologies for “IoT." Wired, wireless, licensed, unlicensed, standardized and proprietary. Fragmentation will only go away very slowly, as specialized formats converge with standardized formats. The main driver will be economy of scale to drive cost down. But right now the number of wireless options is increasing, not dropping. We have a long way to go.

Looking forward, one big question that we’re investigating comes down to this: What’s the impact of NB-IoT? Will the mobile operators be able to disrupt other markets, and create new markets? Will 3GPP-based chipsets be cheap enough? Will reliability and quality pull the market away from the low-cost approaches to premium technology choice? Will network-based LPWA approaches survive long enough to reach their breakeven point?

After some deep-dive discussions in key markets, we don’t see a slam-dunk for NB-IoT, but the new technology has a good shot. Growth of automotive, drone, and tracking applications will drive the premium segment nicely…so we predict a very different picture of semiconductor revenue after 2020.

Joe Madden is Principal Analyst at Mobile Experts LLC, a network of market and technology experts that analyze wireless markets. The team provides detailed research on Small Cell, Base Station, Carrier Wi-Fi, and IoT markets. Mr. Madden currently focuses on trends in 5G, IoT, and Enterprise markets for wireless infrastructure. Over 26 years in mobile communications, he accurately predicted the rise of Digital Predistortion, Remote Radio Heads, Small Cells, and the rise of a Mobile IT market. He validates his ideas with mobile and cable operators, as well as semiconductor suppliers to find the match between business models and technology. Mr. Madden holds a Physics degree from UCLA. Despite learning about economics at Stanford, he still obeys the laws of physics.