TI Partners With Microsoft To Speed Up Its IoT Development

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TXN: Texas Instruments logo
TXN
Texas Instruments

Texas Instruments (NASDAQ:TXN) is one of the small number of companies that has most of the building blocks to enable the Internet-of-Things (IoT). The company has one of the broadest portfolio of embedded wireless connectivity solutions, including microcontrollers (MCUs), processor solutions, sensing technology, power management and other analog solutions. Earlier this week, TI became one of the first members of Microsoft’s Azure Certified for IoT program, which certifies that the partner products have been tested to support Azure IoT and allows customers to build cloud-connected products faster and easier.

IoT is quickly emerging as the next major driver of growth for the semiconductor industry, and thus almost every semiconductor company is embracing IoT as part of its long-term growth strategy. Being one of the largest semiconductor companies in the world, TI is aggressively pursuing various IoT opportunities, and we believe that the company could be one of the major beneficiaries of the exponential growth expected from this market.

Our price estimate of $50 for TI is marginally higher than the current market price.

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See our complete analysis of Texas Instruments here

Microsoft’s Azure Certified for IoT program

Earlier this week, Microsoft announced the general availability of its Azure IoT Suite, a set of pre-configured solutions and technologies for monitoring and managing IoT types of devices. The company also launched the ‘Microsoft Azure IoT’ program, which certifies that the partner products have been tested to support Azure IoT and allows customers to build cloud-connected products faster and easier.

TI is one of the  first members of the program, along with Intel, Beaglebone, Freescale, Raspberry Pi, Resin.io, and Seeed. The company announced three low-cost evaluation kits this week, each based on its embedded processors and supporting the ‘Microsoft Azure Certified for IoT’ program. They are intended as a platform to kick-start its customers IoT projects and initiatives. Microsoft stated that it intends to work closely with TI on industrial, automotive and consumer applications certified for Microsoft Azure IoT Suite, and one can expect additional certifications of TI products in the coming months. (Read Press Release)

Sizing Up The IoT Opportunity

IoT includes all other computing devices apart from PCs, tablets and smartphones. Or as McKinsey puts it, it is the networking of physical objects through the use of embedded sensors, actuators, and other devices that can collect or transmit information about the objects.

According to Cisco Consulting Services, IoT has the potential to unleash $19 trillion of global economic value, by 2024. McKinsey Global Institute estimates that the impact of IoT on the global economy can be as high as $6.2 trillion by 2025. The installed base for IoT devices is estimated to grow from around 10 billion connected devices today to as many as 30 billion devices (or 50 as per some estimates) by 2020.

Expansion In IoT Is An Important Factor That Will Drive TI’s Embedded Business

Though TI exited the cellular application processor market in September 2012, it is a key provider of WiFi chips for the embedded market. In the IoT space, minimal power consumption and the lowest possible cost are two key requirements. MCUs, which are purpose-dedicated, low-cost logic devices, currently dominate the market for IoT. TI’s SimpleLink portfolio consists of low power wireless connectivity solutions – wireless MCUs, wireless network processors (WNPs), RF transceivers and range extenders for the broad embedded market – which help manufacturers to develop and connect anything to the IoT. The company has also partnered with ARM Holdings and IBM Corporation (IBM) to launch an initiative that aims to develop a dominant IoT operating system. [1]

With a market share of 18%, TI is one of the leading players in the analog semiconductor market and derives over 60% of its revenue from this division. On the other hand, the company accounts for 14% of the embedded processors market and derives a little over 20% of its revenue from the division. However, the fast expanding embedded market offers significant growth opportunities for TI, and IoT is the fastest growing sub-segment.

With increased investments in the area over the past few years and new product launches, TI continues to expand its embedded portfolio every quarter. Over the past year, TI  has expanded its embedded product portfolio by almost 20%. In late 2010-early 2011, TI significantly stepped up its investments in the embedded market in order to accelerate its product introductions. The company continues to invest at a healthy level, though at a lower level compared to the past. The high level of investment and an expanding product portfolio from heavier levels of investment in the prior few years, should continue to drive growth in the future as well.

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Notes:
  1. Why the Internet of Things matters to Texas Instruments’ growth, Market Realist, November 19, 2014 []