IoT Opportunity Drives IP Grab

While mergers and acquisitions are always justified for financial reasons, they are often initiated for strategic reasons. The recent wave of acquisitions in the semiconductor industry like Intel-Altera, Avago-Broadcom, and NXP-Freescale is driven by the rush to build competitive intellectual property (IP) portfolios to address the plethora of Internet of Things (IoT) applications that is predicted to drive anywhere from 50 billion to over a trillion connected devices by 2020 depending on which optimistic forecast you choose to believe.

The premise behind this IoT era is the opportunity to create a connected world where information flows from and to everything that could potentially have sensors or some form of intelligence. This includes everything from people to machines to the world around us. To accomplish this, the world will be filled with sensors to gather information, interconnects (particularly wireless) to transmit the data, and compute solutions to analyze and act upon the data. However, there are hundreds of possible sensors, many wireless interface technologies that each have a market or application that they are particularly well suited, and compute solutions that range from small microcontrollers running motors to the processors running the servers in massive cloud data centers. In addition, there are many other complementary technologies such as energy harvesting, wireless charging, embedded memory, and innovative packaging technologies that can reduce the size and increase the performance efficiency of semiconductor solutions. As a result, a dominant semiconductor strategy may require a very broad range of technologies and products.

While assembling a successful strategy to be a dominant player in the IoT era is a huge challenge, the opportunity is equally as large. Just as Intel led the PC era with CPU technology and companies like Apple, Qualcomm, MediaTek, and Samsung lead the smartphone era with mobile System-on-Chip (SoC) solutions, the companies that lead in IoT will have the opportunity to drive the direction of technology and the industry while reaping the rewards of higher revenue and potentially higher profit margins. But with each new era, the bar for leadership increases in terms of breath or technology and complexity of that technology.

This race to dominate the IoT era is driving consolidation in every area of the semiconductor market from embedded solutions through networking and cloud solutions. While the list continues to grow, the following are some of the strategic IoT mergers and acquisitions (M&A) we have seen thus far: NXP-Freescale, Cypress-Spansion, MicroSemi-Vitesse, Lattice-Silicon Image, Avago-Broadcom, and even Intel-Altera. While some are not as broad in terms of product portfolios as the embedded mega merger of NXP and Freescale, all have an impact on a segment of the market impacting IoT from the next generation of sensors and devices to the network and cloud server solutions.

While the IoT era is still nascent, opportunities are emerging as new devices, data analytics, and business models based around data and services emerge. As a result, this M&A wave will not only continue, but spread to other areas, such as systems, software, and services. Just announced was the acquisition of Elliptic, a small company developing security IP for IoT applications, by Synopsis, which has built up a significant portfolio and business around semiconductor IP. Although the definition of IoT is about connecting people, places, and things, the next step is to make all those electronic solutions intelligent. With great effort being put into machine learning by companies like Baidu, Google, Microsoft, Qualcomm and others, this intelligence could drive another M&A wave.

While M&A is viewed as a vehicles to increase revenues and/or profitability, for the tech industry, it has paved the way for massive IP grabs to secure a company’s future in the next era of the industry. With many of the tech leaders sitting on piles of cash, look for more acquisition from companies like Apple Cadence, Cypress, Intel, Microchip, TI, and mergers between or acquisitions of smaller players like Atmel, Cavium, Applied Micro, or even pieces of Broadcom after the Avago merger.

Unfortunately, the outcome of these M&A waves is that only a few dominant companies will emerge and many of the innovative start-ups will buried under the bureaucracy of the industry heavy weights. However, with each new generation of technology, some of the industry powerhouses disappear or fade into obscurity like IBM and Motorola, while new startups emerge. 

(Forbes)