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Transcript of OORT among 'private companies to watch' via Goldman Sachs
June 25, 2014
Internet of Things – Volume 1
Making S-E-N-S-E of the
next mega-trend
Equity Research
Framing the IoT opportunity for CommTech and Semiconductors
The Internet of Things takes shape as the next mega-trend
The Internet of Things (IoT) is emerging as a third, and likely bigger, wave
in the development of the Internet, following the rise of the fixed Internet in
the 1990s and the mobile Internet in the 2000s. While the fixed Internet
connected 1 billion users via PCs, and the mobile Internet connected 2
billion users via smartphones (on its way to 6 billion), the IoT is expected to
connect 28 billion “things” to the Internet by 2020. We are launching a
series of reports in which we examine the implications of the IoT wave
across multiple sectors within the Tech industry and beyond, with this first
installment focused on the CommTech and Semiconductor sectors.
Making S-E-N-S-E of the IoT
Given the incredible breadth and depth of technologies, applications, and
verticals related to the IoT, understandably there is some confusion on how
to define it and what makes it different than the “regular” Internet. We
address that question with the S-E-N-S-E framework, which captures what
we view as the key attributes of the IoT: Sensing, Efficient, Networked,
Specialized, Everywhere. The key verticals of adoption include Wearables,
Cars, Homes, Cities, and Industrials; we cover the first four in this report.
CommTech: (1) Wi-Fi, (2) Cellular, (3) “Fog” computing
We see three important implications for CommTech: (1) Wi-Fi becomes the
dominant access technology, with IoT adding 50% to the Wi-Fi market by
2020; (2) New cellular connections could expand the baseband market by
over 15%; and (3) Network intelligence shifts to the edge, as fog computing
supplants the cloud in crunching data closer to the devices in the network’s
edge. We see Cisco, Garmin, Gemalto, Qualcomm, Ruckus, Silver
Spring, and Wistron NeWeb as best positioned in our coverage.
Semiconductors: (1) Sensors, (2) Connectivity, (3) ARM/MCU
We expect the rise of the IoT to drive the most incremental growth in the
following segments of semis and components: (1) Sensors, (2) Connectivity,
including Wi-Fi, Bluetooth, ZigBee, and a number of other standards we detail
in this report, and (3) ARM-based processors and microcontrollers (MCU),
which we expect to have an edge over x86 given lower power. We see ARM,
Atmel, Broadcom, Freescale, InvenSense, Maxim, Microchip, Murata,
Samsung, and TE Connectivity as best positioned in our coverage.
Simona Jankowski, CFA (415) 249-7437 [email protected] Goldman, Sachs & Co.
James Covello (212) 902-1918 [email protected] Goldman, Sachs & Co.
Heather Bellini, CFA (212) 357-7710 [email protected] Goldman, Sachs & Co.
Michael Bang +82(2)3788-1655 [email protected] Goldman Sachs (Asia) L.L.C., Seoul Branch
Ikuo Matsuhashi, CMA +81(3)6437-9860 [email protected] Goldman Sachs Japan Co., Ltd.
Bill Shope, CFA (212) 902-6834 [email protected] Goldman, Sachs & Co.
Daiki Takayama +81(3)6437-9870 [email protected] Goldman Sachs Japan Co., Ltd.
Mark Delaney, CFA (212) 357-0535 [email protected] Goldman, Sachs & Co.
Donald Lu, Ph.D +86(10)6627-3123 [email protected] Beijing Gao Hua Securities Company Limited
Robert Yen +886(2)2730-4196 [email protected] Goldman Sachs (Asia) L.L.C., Taipei Branch
Gabriela Borges (212) 357-2692 [email protected] Goldman, Sachs & Co.
Alexander Duval +44(20)7552-2995 [email protected] Goldman Sachs International
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investorsshould be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investorsshould consider this report as only a single factor in making their investment decision. For Reg AC certification and otherimportant disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed bynon-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Global Investment Research
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 2
North America Asia
Simona Jankowski, CFA Daiki Takayama
[email protected] [email protected]
(415) 249-7437 +81(3)6437-9870
Goldman, Sachs & Co. Goldman Sachs Japan Co., Ltd.
James Covello Michael Bang
(212) 902-1918 [email protected]
[email protected] +82(2)3788-1655
Goldman, Sachs & Co. Goldman Sachs (Asia) L.L.C., Seoul Branch
Heather Bellini, CFA Ikuo Matsuhashi, CMA
[email protected] [email protected]
(212) 357-7710 +81(3)6437-9860
Goldman, Sachs & Co. Goldman Sachs Japan Co., Ltd.
Bill Shope, CFA Donald Lu, Ph.D
[email protected] [email protected]
(212) 902-6834 +86(10)6627-3123
Goldman, Sachs & Co. Beijing Gao Hua Securities Company Limited
Mark Delaney, CFA Robert Yen
[email protected] [email protected]
(212) 357-0535 +886(2)2730-4196
Goldman, Sachs & Co. Goldman Sachs (Asia) L.L.C., Taipei Branch
Kent Schofield
(415) 249-7489
Goldman, Sachs & Co.
Europe
Gabriela Borges Alexander Duval
[email protected] [email protected]
(212) 357-2692 +44(20)7552-2995
Goldman, Sachs & Co. Goldman Sachs International
Doug Clark, CFA
(415) 249-7453
Goldman, Sachs & Co.
Balaji Krishnamurthy, CFA
(212) 934-6451
Goldman Sachs India SPL
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 3
Contents
Portfolio manager summary 4
The Internet of Things takes shape as the next mega-trend 6
Making S-E-N-S-E of the Internet of Things 6
The IoT value proposition 8
Why now? Enablers of IoT 9
Barriers to adoption 10
The IoT stack: Vertical vs. horizontal solutions 11
Key verticals of adoption 13
Connected Wearable Devices 13
Connected Cars 15
Connected Homes 17
Connected Cities 18
Network infrastructure for the IoT 20
Sizing the incremental networking opportunity 21
IoT communication standards 22
Semiconductors for the IoT 26
Sizing the semiconductor content opportunity 27
Cores, architectures and power efficiency 28
Company profiles: Infrastructure enablers for the IoT 31
Aerohive (HIVE, Buy): Benefiting from the next generation of connected students 32
Amphenol (APH, Neutral): Broad connector exposure with increasing sensor business 32
Apple (AAPL, Buy): Extending the iOS ecosystem to IoT 32
ARM (ARM.L, Buy): Significant potential to capitalize upon the IoT based on ARM’s low power designs 34
Aruba Networks (ARUN, Neutral): Capitalizing on IoT through Wi-Fi connectivity and the BYOD trend 35
BlackBerry (BBRY, Neutral): Leveraging QNX and BlackBerry’s secure network infrastructure for IoT 35
Broadcom (BRCM, Neutral): Well positioned with connectivity and broadband portfolio plus developer support 36
Cisco Systems (CSCO, Buy): IoT thought leader benefiting through Wi-Fi and “fog” computing 37
Delta (2308.TW, Buy): Big Data trends driven by IoT could benefit Delta 38
Garmin (GRMN, Neutral): Expanding portfolio of wearables and growing content in connected cars 38
Gemalto (GTO.AS, Buy): Digital security expertise to monetize IoT in the Machine-to-Machine segment 39
Google (GOOGL, Neutral): Gathering more data, offering more services 40
InvenSense (INVN, Buy): Early design wins on wearables although still small part of total sales 41
Marvell (MRVL, Neutral): Baseband and connectivity products should allow Marvell to benefit 41
Mediatek (2454.TW, Neutral): Tapping into the IoT market 42
Microcontrollers, microprocessors, and analog: Content gains in auto, industrial and infrastructure 43
Murata Mfg. (6981.T, Buy): Positioned to benefit most from IoT in the technology upstream supply chain in Japan 43
Netgear (NTGR, Sell): The gateway in the home to the IoT 44
Nokia (NOK1V.HE, Not Rated): Leveraged to the Automotive vertical with the HERE mapping platform 45
Qualcomm (QCOM, CL-Buy): Extending cellular and connectivity leadership from smartphones into the IoT 46
Quanta (2382.TW, Neutral): Rising data flows create growth opportunity in cloud computing 47
Ruckus Wireless (RKUS, Buy): Pure-play Wi-Fi vendor in the sweet spot of IoT 47
Samsung Electronics (005930.KS, Buy): Widest hardware reach in IoT 48
Silver Spring Networks (SSNI, Buy): Connected city pure play – smart meters, street lighting, and beyond 49
TE Connectivity (TEL, Buy): Auto and industrial connector exposure with increasing focus on sensors 50
Wistron NeWeb (6285.TW, Neutral): Expert in wireless solution embracing IoT trends 51
Emerging Technology Research: Private Companies to Watch 53
Disclosure Appendix 54
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 4
Portfolio manager summary
We expect the Internet of Things (IoT) to be a mega-trend, following the major shifts to
mobility and cloud computing that shaped the last decade in technology. By its very nature,
IoT’s implications will reach far beyond the Tech sector into many other industries, creating
new winners and losers based on companies’ abilities to adapt to a world where things are
connected. With this report – our first in a series – we attempt to take an overly broad topic
and help investors narrow their focus to the verticals and technologies that matter most.
We have the following key takeaways.
1. IoT will rearrange the tech landscape, again – IoT has key attributes that distinguish
it from the “regular” Internet, as captured by our S-E-N-S-E framework: Sensing,
Efficient, Networked, Specialized, Everywhere. These attributes may tilt the direction of
technology development and adoption, with significant implications for Tech
companies – much like the transition from the fixed to the mobile Internet shifted the
center of gravity from Intel to Qualcomm or from Dell to Apple.
2. Five verticals get the most focus – While IoT will be found virtually everywhere, we
focus on five verticals that are early in the adoption curve and offer a large market
opportunity and the possibility for significant profits: Connected Wearable Devices,
Connected Cars, Connected Homes, Connected Cities, and the Industrial Internet.
3. CommTech impact: Wi-Fi, Cellular, “Fog” computing – IoT will require primarily
wireless communications; thus, we expect Wi-Fi to be the key communications
standard for IoT, much like DSL/Ethernet was for the fixed Internet and 3G/4G for the
mobile internet. Secondarily, cellular connections will grow for hard to reach or mobile
objects (e.g., cars). In terms of infrastructure, we expect more network intelligence to
reside in the edge, giving rise to “fog” computing architectures, as most data will be
too noisy or latency-sensitive or expensive to be carried all the way back to the cloud.
4. Semiconductor impact: Sensors, Connectivity, and ARM/MCU – Sensors have
outgrown other semiconductor units by five percentage points over the last two years,
and we expect that trend to continue as they proliferate. Connectivity will also grow
above-average, driven by Wi-Fi, Bluetooth, ZigBee, NFC, and other IoT standards. More
devices will use ARM-based processors and microcontrollers given their lower price
points and power requirements relative to the x86 microarchitecture.
Exhibit 1: The IoT heat map: Where to focus
Source: Goldman Sachs Global Investment Research.
Wearables Home City Auto Industrial
Timing Scale
Market size ($) More Significant
Profitability
Semiconductor content
Less Significant
Networking content
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 5
Exhibit 2: The CommTech IoT Matrix Company focus by technology and vertical
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 3: The Semis and components IoT Matrix Company focus by technology and vertical
Source: Company data, Goldman Sachs Global Investment Research.
WiFiFog
ComputingConnected
DevicesSecurity Wearables Auto
Connected Home
Connected Cities
Industrial Internet
Aerohive
Aruba
BlackBerry
Cisco
Garmin
Gemalto
Netgear
Nokia
Ruckus
Silver Spring
Wistron NeWeb
Product focus Vertical focus
ConnectivityMCUs/
ProcessorSensors Wearables Automotive
Connected Home
Connected Cities
Industrialinternet
Amphenol
ARM Holdings
Atmel
AMD
Broadcom
Freescale
Intel
InvenSense
Marvell
Maxim
Mediatek
Microchip
Murata
Nvidia
NXPI
ON Semiconductor
Qualcomm
Renesas
STMicroelectronics
TE Connectivity
Texas Instruments
Product exposure Vertical exposure
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 6
The Internet of Things takes shape as the next mega-trend
The Internet of Things (IoT) is starting to take shape as the next mega-trend, following the
major shifts to mobility and cloud computing that shaped the last decade in technology.
While those two mega-trends had profound and industry-changing implications for the
technology industry, the implications of the IoT will likely prove even more far-reaching, as
by its very nature it is a trend that will reach beyond tech to touch every industry, from
healthcare to retail to oil and gas exploration.
What is IoT? The Internet of Things connects devices such as every day consumer
objects and industrial equipment onto the network, enabling information gathering
and management of these devices via software in order to increase efficiency,
enable new services, or achieve other health, safety, or environmental benefits.
The term was first proposed by Kevin Ashton, a British technologist, in 1999, when
he was Executive Director at MIT’s Auto-ID Center, an RFID research consortium.
Exhibit 4: IoT emerging as the next mega-trend
Internet subscribers over time
Note: y-axis is on a logarithmic scale
Source: IDC, Ericsson, Goldman Sachs Global Investment Research.
Making S-E-N-S-E of the Internet of Things
Given the incredible breadth and depth of technologies, applications, and verticals related
to the IOT, understandably there is some confusion around exactly how to define it and
what makes it different than the “regular” Internet. We attempt to answer that question in
Exhibit 5 below using the S-E-N-S-E framework, which captures what we view as the key
attributes of the IoT: Sensing, Efficient, Networked, Specialized, Everywhere. In the
sections below, we discuss how these attributes translate to changes in the underlying
enabling network infrastructure and drive incremental semiconductor demand, and where
they create the most opportunities for vendors in the infrastructure supply chain.
200mn
1bn
100mn
2bn
6bn6bn
28bn
32
64
128
256
512
1,024
2,048
4,096
8,192
16,384
32,768
1996 2000 2004 2008 2012 2016 2020
Insta
lled
base (
mn
)
PC Smartphones IoT
June 25, 2014
Goldman Sachs Global Investment Research
Exhibit 5: MKey attribute
Source: Goldma
The infle
As we wrote
inflection ye
of connecte
from 9bn in
today. Whil
different no
aspects of b
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Making S-E-N-S-E of the Internet of Things es of the IoT and how it differs from the “regular” Interne
an Sachs Global Investment Research.
ection is upon us
e in our 2014 outlook report for CommTech, we expect
ear in the hype, if not actual deployments, of IoT. IDC f
ed devices (excluding PC, smartphone, and tablet) will
n 2013, which dwarfs the 3bn of connected PCs (includi
e such headline-grabbing projections have been aroun
ow is that major companies have come out with real pr
both the IoT infrastructure and the end points (Exhibit 7
omponents and semiconductors including sensors, mic
ations chips (e.g., Bluetooth, Wi-Fi, ZigBee) have seen s
connected end points affordable at price points less th
Global: Technology
7
t
t 2014 to be a significant
forecasts that the number
reach over 28bn in 2020
ing tablets) and handsets
nd for some time, what is
roducts that enable
7). Additionally, the
crocontrollers and
steep price declines that
an $100.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 8
Exhibit 6: Search activity for “Internet of Things” has
shot up according to Google Trends
Exhibit 7: Major IoT milestones point to an inflection
Notable IoT announcements
Source: Google Trends.
Source: Company data.
The IoT value proposition
From a business perspective, the value proposition of IoT can be summarized in two
categories that we list below, along with illustrative examples.
Revenue generation – Companies are focused on the IoT as a driver of
incremental revenue streams based on new products and services. For example,
since the beginning of the year AT&T has introduced a Connected Car service in
partnership with a number of automobile manufacturers, including Audi, GM,
Telstra, and Volvo, which offer high-speed 3G or 4G connections for a monthly
subscription fee of $10. By the end of 2014, 30 of GM’s 2015 vehicle models will
have LTE support, enabling vehicles to act as a Wi-Fi hotspot with connectivity for
up to 7 devices, as well access to OnStar for remote vehicle access, diagnostics,
and emergency service.
Productivity and cost savings – Businesses are also embracing the IoT to
improve productivity and save costs, such as capex, labor, and energy. For
example, Verizon is saving more than 55mn kWH annually across 24 data centers
by deploying hundreds of sensors and control points throughout the data center,
connected wirelessly. This results in a reduction of 66mn pounds of greenhouse
gases per year.
As shown in Exhibit 8, a recent survey by Infonetics point to both revenues and costs as
being the top drivers of IoT adoption by enterprises.
0
20
40
60
80
100
120
Rel
ativ
e le
vel o
f int
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oogl
e se
arch
es)
Product/Platform launch Detail
Cisco NCSEnables a fabric (mesh) network
that is better suited for IoT
Qualcomm Low-power Wi-Fi platformConnect major home appliances
to the network
GE Industrial InternetProduct porfolio includes industrial equipment,
Internet-linked sensors and software to monitor performance and analyze big streams of data
Intel QuarkSoCs that are smaller and lower power
than Atom to support IoT
Nest Protect (Acquired by Google)Thermostats and smoke detectors that can be managed through smartphone
Apple iBeaconLow power, Bluetooth device that can send push
notifications to devices in close proximity
Apple HomeKitHomeKit provides a common communication protocol for home related devices to work seamlessly with iOS.
Apple HealthKitAllows apps to gather information and control devices
from a centralized point.
AT&T Mobile Share Value updateAT&T now allows Mobile Share Value plan subscribers
to add select cars to their plans for $10/month.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 9
Exhibit 8: Top drivers of M2M and IoT adoption Infonetics Survey: M2M Service Adoption Drivers, % of respondents rating the factor “very
important” or “critical” (Sample size: 163)
Source: Infonetics, January 2014.
From a personal and societal standpoint, there are several other important drivers of IoT
adoption.
Health and wellness – Consumers are embracing wearable devices, such as
fitness bands, to keep track of and improve their health. Some fitness bands are
even being subsidized by insurance companies, who can offer more attractive
rates to employees who wear them.
Environment – There is a rising number of IoT applications that result in energy
savings. For example, smart meters, connected street lighting, and smart
thermostats such as the Nest all result in lower power usage.
Safety – IoT devices also enhance safety, such as connected smoke alarms,
surveillance video cameras, smart rail sensors, and oil rig temperature sensors.
Why now? Enablers of IoT
A number of significant technology changes have come together to enable the rise of the
IoT. These include the following.
Low-cost sensors – According to the SIA, the average cost of a sensor now costs
$0.60 vs. $1.30 10 years ago. As detailed below on page 28, sensors vary widely in
price, but in general they are now cheap enough and small enough to justify new
business cases.
Smartphones – Ubiquitous smartphones are now becoming the personal gateway
to the IoT, serving as a remote control or hub for the connected home, connected
car, or for the health and fitness devices consumers are increasingly starting to
wear.
Cheap bandwidth – The cost of bandwidth has also declined precipitously, by a
factor of nearly 40X over the past 10 years.
Cheap processing – Similarly, processing costs have declined by nearly 60X over
the past 10 years, enabling more devices to be not just connected, but smart
enough to know what to do with all the new data they are generating or receiving.
0% 20% 40% 60% 80%
Business Agility
Improve quality of ourproduct/services
Improve customer satisfaction
Generate new revenue
Improve workflow
Lower cost
Improve employee satisfaction
Dri
ver
s
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 10
Ubiquitous wireless coverage – With Wi-Fi coverage now ubiquitous, wireless
connectivity is available for free or at a very low cost, given Wi-Fi utilizes
unlicensed spectrum and thus does not require monthly access fees to a carrier.
Big data – As the IoT will by definition generate voluminous amounts of
unstructured data, the availability of big data analytics is a key enabler.
IPv6 – Most networking equipment now supports IPv6, the newest version of the
Internet Protocol (IP) standard that is intended to replace IPv4. IPv4 supports 32-bit
addresses, which translates to about 4.3 billion addresses – a number that has
become largely exhausted by all the connected devices globally. In contrast, IPv6
can support 128-bit addresses, translating to approximately 3.4 x 1038 addresses –
an almost limitless number that can amply handle all conceivable IoT devices.
Exhibit 9: Cost of compute is a fraction of its 1990’s level
Exhibit 10: …so is cost of bandwidth
Source: John Hagel, Deloitte, 5/14, Mary Meeker, KPCB.
Note: y-axis is on a logarithmic scale
Source: John Hagel, Deloitte, 5/14, Mary Meeker, KPCB.
Note: y-axis is on a logarithmic scale
Barriers to adoption
Our industry research points to four key hurdles that may influence the pace of IoT
adoption.
Security concerns – Security concerns escalate to a whole new level with the IoT,
given the potential for privacy violations or safety issues as a result of the ability to
remotely manipulate physical assets. For example, in a highly publicized case in 2013,
the FTC took legal action against TRENDnet, the maker of IP video cameras that were
sold to consumers to monitor “babies at home, patients in the hospitals, offices and
banks, and more.” In a major security breach, hackers realized that they could access
the live streams of any camera over the Internet, bypassing the login requirement,
which resulted in over 700 cameras’ live video feeds being streamed over the Internet,
including footage of babies, young children, and people engaging in daily life activities
in their homes. This is just one early example of the vulnerabilities associated with the
IoT. Security breaches could be far ranging, such as remote shut-off of industrial
equipment, theft or sabotage of power delivery, etc.
Regulation or compliance – Another key concern is compliance with regulations, as
many IoT implementations are being mandated by the government, such as the eCall
connected car requirement in Europe, the rail safety act in the US, or smart grid
mandates around the world.
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$10.00
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June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 11
Standards – Standardization is critical for IoT adoption, as businesses are hesitant to
invest in connecting assets that may become “stranded” if the communications
standards change. For example, smart meters are very expensive to deploy, as they
number in the tens of millions and have a useful life in the field of over 10 years, and it
would be prohibitive to have to replace them before their useful life is over.
Ease of use – Some of the early success stories in IoT have benefited from their ease
of use, such as the Nest thermostat (acquired by Google). Conversely, complex IoT
solutions are taking longer to deploy, such as eHealth initiatives.
Exhibit 11: Top barriers to M2M and IoT adoption Infonetics Survey: M2M Service Adoption Barriers, % of respondents rating the factor “very
important” or “critical” (Sample size: 163)
Source: Infonetics, January 2014.
The IoT stack: Vertical vs. horizontal solutions
At a high level, the IoT stack is not too dissimilar to that in the fixed or mobile Internet, and
can be visualized as enabling networking infrastructure at the bottom, connected devices in
the middle, and applications and services on top (Exhibit 12). Outside the level of maturity,
the main difference is that the IoT is significantly more fragmented, with multiple
specialized solutions by vertical, such as wearable devices, homes, cars, cities,
transportation or industrial applications. In this report, our focus is on the hardware layers
of the stack, including networking and semiconductors; the applications and services will
be addressed in a subsequent report.
More vertically integrated than the traditional Internet – In any technology market, we
typically see both vertically integrated (e.g., Apple) and horizontal (e.g., Android)
approaches. For example, Apple’s vertical integration spans across the semiconductors,
hardware, operating system, platform, applications and services; by contrast, those
elements exist in a largely disaggregated fashion in the Android ecosystem. Vertically
integrated solutions typically ramp faster in the early days of a new market, as it takes
longer for effective horizontal solutions to develop given the need for standardization and
other coordination. We expect that dynamic to be even more pronounced in the IoT, given
the inherent specialization by vertical (e.g., very different solutions are required for a
fitness band vs. a connected car vs. an oil rig). Thus, we expect to see a proliferation of
successful vertically integrated business models, such as PG&E’s smart grid deployment,
where the hardware and services are provided by the same vendors, rather than by third
0% 20% 40% 60%
Security
Regulation or compliance issues
Complexity of solutions
Cost of M2M services
Cost of M2M devices
Lack of information about availableservices and solutions
Lack of information about thebenefits of M2M services
Bar
rier
s
June 25, 2014
Goldman Sachs Global Investment Research
parties. Ove
solutions to
Exhibit 12: The IoT value stack: infrastru
Source: Goldman Sachs Global Investment Research.
While secu
security an
breaches m
stations, tra
end, includi
the data in t
the comput
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result, we e
For example
connectivity
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er time, as standards such as AllJoyn gain adoption, w
o become more prevalent, strengthening the value of t
ucture, devices, applications & services
rity is already of paramount importance with the In
nd privacy will escalate to a whole new level with th
may give hackers access to important physical assets su
ains, cars, or homes. As a result, security will need to b
ing encrypting the data on the device itself (“data at re
transit over the wired or wireless network. However, w
ational power required for encryption (e.g., if they only
ollers, due to cost considerations), they may remain vu
xpect many of the early IoT implementations will be c
e, IoT start-up Ayla Networks uses device keys that are
y modules at the factory and multi-layer authentication
t manages Ayla-enabled devices through the Ayla clou
Global: Technology
12
we expect horizontal
he key platforms.
nternet, concerns around
he IoT, given that security
uch as oil rigs, power
be implemented end to
est”), as well as encrypting
with many devices lacking
y include low-end
ulnerable to attacks. As a
losed end-to-end systems.
e burned into the
n as part of its end-to-end
d.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 13
Key verticals of adoption
By definition, the Internet of Things has enormous breadth that can be difficult to get one’s
arms around. In our view, it can be broken up into five key verticals of adoption: Connected
Wearable Devices, Connected Cars, Connected Homes, Connected Cities, and the Industrial
Internet. We dig deeper into the first four in this section, while the Industrial Internet is
addressed in a companion report.
Exhibit 13: The IoT landscape
Source: Goldman Sachs Global Investment Research.
Connected Wearable Devices
In this section, we define the major categories in the wearables segment and assess its size
and growth potential in the coming years. Broadly, the wearables segment can be
classified into the following categories.
(1) Fitness Bands, primarily fitness trackers typically in a wrist band form factor,
including Fitbit Force, Jawbone Up, Nike+ Fuelband, and Garmin Vivofit, among
others. These devices can track the distance walked, calories burned, set goals,
Wearables
Connected Cars
Connected Homes
Connected Cities
Industrial Internet
Transportation
Oil & Gas
Healthcare
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 14
and compete with friends on social networks. These are targeted towards casual
users trying to maintain an active lifestyle.
(2) Smart watches, comprising smart devices having a watch-like form factor, such as
Samsung Galaxy Gear, Sony SmartWatch, Pebble Steel, among others, which can
be paired with and used as an extension to smartphones to read e-mails, texts,
receive calendar alerts, take calls, and get contextual information without taking
the phone out of pocket. Additionally, these can also serve as fitness trackers.
Smart watches target users trying to get and act on information in a more efficient
way, especially in situations where operating the phone may be infeasible, such as
during bus journeys, or while playing a sport.
(3) Smart glasses, comprising light-weight glasses that can be worn on a regular
basis, such as Google Glass. These glasses provide context-specific information,
turn-by-turn directions, or any general information such as alerts and texts. They
also enable the user to capture photos and record videos on the move. Smart
glasses offer an “always-on” experience for users who want to be connected at all
times to receive context-specific information.
(4) Action cameras, or compact, light-weight Point-of-view (PoV) camcorders, such as
GoPro Hero 3+ and Garmin VIRB Elite, can be attached to helmets or cars to record
extreme outdoor activities such as sky-diving, dirt-biking, etc. Action cameras can
also upload videos real-time and provide GPS data. They currently target
experience sports activities, while daily use and casual video recording represent
expansion opportunities.
Exhibit 14: Snapshot of wearables in the IoT market
Source: Company data, Goldman Sachs Global Investment Research.
Operating Systems (OS) market remains highly fragmented for now: Most smart wearable
devices use proprietary OS, based on the Real-Time Operating System (RTOS), designed
Category Use Cases Key Vendors FeaturesCommunication
ProtocolsOperating Systems
Fitness Bands
• Monitor fitness by tracking distance run, calorie burn, heartbeat, sleeping patterns and so on (primarily as a fitness assistant ) • Share fitness statistics and compete with others on social networks
• Convey mobile alerts
• Basis B1• Fitbit• Garmin Vivofit• Jawbone UP24• Jaybird Reign• Larklife• Misfit Shine• Nike+ Fuelband
• Activity tracker worn as a band• Needs to be paired with IP enabled devices, eg. Smartphone• Links fitness statistics to social networking apps• Displays notifications and alerts
• ANT+• Bluetooth
No specific OS running on the device itself. However, there is support for linking to IP enabled devices running Android, iOS etc.
Smart Watches
• Remotely control smartphones (lock/unlock, play/stop music etc.) as well as use it as a handsfree to attend calls
• Get turn-by-turn directions through GPS navigation as well as context specific information like restaurants, hotels etc.
• Use it as a fitness assistant and track activity levels and sleeping pattern
• LG G Watch• Moto 360• Pebble Smartwatch• Qualcomm Toq• Samsung Gear 2• Sony Smartwatch
• Pair with IP enabled devices• Install third-party applications to boost features and functions• Touchscreen• In-built Camera• Voice control• Vibration based alerts• Parental controls (track children)• Control smartphones remotely
• Bluetooth/Bluetooth Low Energy (BLE)
• Android Wear• Micrium (MicroC/OS-II)• Pebble OS• Qualcomm OS• Tizen (Linux)
Smart Glasses
• Visually enrich ones view with relevant information, such as translating road signs, turn-by-turn directions, user reviews, etc.
• Capture photos and videos and stream on a real-time basis
• Enhance vision as well as improve gaming experience
• Google Glass• Innovega’s iOptik• Kopin Corp’s Golden-I
• Light-weight, head mounted display (HMD)• Does not need smartphone to function• Touchpad to slide through screens• Communicate using natural language based voice commands•Third-party apps can be used via Android app-store
• WiFi• Bluetooth/BLE
• Android• Gi-OS
Action Cameras
• Record high-definition videos in extreme outdoor situations (such as climbing a mountain, racing etc.) by attaching to helmets, cars, bikes etc.
• Capture details such as altitude, geographical location, speed and upload on a real-time basis
• GoPro Hero• Garmin VIRB elite• Ghost Drift S• Ion Air Pro 3• Looxcie• Pivothead• Sony Action Cam 2
• Light-weight, compact• Real-time video streaming and sharing• GPS• Accelerometer• Barometric altimeter
• ANT+• NFC• WiFi
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 15
for embedded devices. For instance, Pebble smart watches run on Pebble OS while
Qualcomm Toq runs on Qualcomm OS. Consequently, the underlying OS market in the
wearables segment remains fragmented. Google launched a modified version of Android
for smart devices, Android Wear, with Moto 360 and LG G Watch as the first devices to
utilize this. Given the large base of third-party application developers and Google’s support,
Android Wear is likely to gain considerable traction in this space. Samsung uses the Linux-
based open source Tizen OS for its Gear 2 and Gear 2 Neo smart watches, with potential as
an emerging competitor to Android. In addition, upcoming introductions from Apple and
Microsoft are likely to leverage their own OSs.
Exhibit 15: Wearables to reach about $20bn by 2017, growing at over 60% CAGR IDC segments wearables as Complex Accessories, Smart Accessories, and Smart Wearables,
largely overlapping Fitness Bands, Smart Watches, and Smart Glasses, respectively
Source: IDC, Goldman Sachs Global Investment Research.
IDC forecasts the overall wearables segment to increase from over $2.5bn in 2013 to nearly
$20bn in 2017, representing a CAGR of over 60%. Smart Watches and Smart Glasses
(broadly categorized as Smart Accessories and Smart Wearables by IDC) are likely to grow
the most, at a CAGR of close to 100% and 200%, respectively. As a result, IDC estimates
Smart Watches to grow to over 35% of the wearables market by 2017, up from 15% in 2013
(Exhibit 15).
Connected Cars
Connected car refers to any vehicle that is connected to the internet typically using a
cellular technology (3G/4G), and may also feature 802.11 connections for communication
with other vehicles and infrastructure (such as traffic lights). The trend towards connected
cars is well under way; 802.11p has already been standardized for vehicle communications
and Qualcomm has already designed an LTE chipset specifically for the auto industry
(602A). Connected Cars penetration is being driven by applications in the following
categories.
(1) Safety, by providing features such as active cruise control, lane and vehicle proximity
assistance, and traffic assistance. Also, these cars can contact emergency services and
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2013A 2014E 2015E 2016E 2017E
Rev
enu
e ($
mn
)
Complex Accessories Smart Accessories Smart Wearables Action cameras
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 16
send vital information such as speed and location automatically in case of an accident,
thereby improving response time. Road and driver safety is one of the prime reasons
for introducing connectivity in cars, stimulated by various regulatory mandates in
different countries.
(2) Vehicle Diagnostics, through which the vehicle can be monitored on a real-time basis,
potential issues can be detected and fixed, thereby providing an efficient overall
driving experience.
(3) Infotainment and Navigation, which provide entertainment features such as video
streaming, access to social media, and internet radio along with GPS-based navigation
and location services.
(4) Fleet Management, which provides features such as real-time vehicle tracking, driver
profiling, and fuel management. This can help organizations manage their fleet more
effectively and improve productivity, thereby reducing overall costs.
According to GSMA, safety related services will be supported by over 41mn vehicles,
vehicle diagnostics by close to 15mn vehicles, in-car infotainment by over 32mn, and
navigation related services by over 28mn vehicles globally by 2018, compared to a global
auto market of about 80mn in 2013.
Regulatory mandates expected to improve car connectivity
Countries have begun to implement regulatory mandates for car manufacturers aimed at
improving road safety for vehicles and pedestrians. eCall (in Europe) and ERA-GLONASS (in
Russia) focus on providing connectivity to cars for faster response in case of emergencies,
while SIMRAV (in Brazil) focuses on tracking stolen vehicles. Other countries like China and
India are also likely to follow suit and have similar mandates. We expect more traction in V2V
(Vehicle-to-Vehicle) communication technology through which cars could prevent collisions
and V2I (Vehicle-to-Infrastructure) communication technology through which cars can
communicate with the traffic signals and suggest adequate speeds to avoid red-lights. Other
mandates include UBI (Usage Based Insurance) which can be used to provide differential
insurance based on the total distance driven, average speed, and car type.
Exhibit 16: Global penetration to reach 60% by 2020 (at 77% CAGR 2013-2020E)
Source: Gartner (March 2014), Company data, Goldman Sachs Global Investment Research.
-
20
40
60
80
100
120
2013A 2014E 2015E 2016E 2017E 2018E 2019E 2020E
No
. of
cars
(m
n u
nit
s)
Connected Cars Non-connected Cars
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 17
The total automobile market is expected to increase from over 80mn units in 2013 to 100
mn units by 2020, a 3% CAGR. While we expect the penetration of connected cars to
increase gradually in the near future from 2% in 2014 to less than 20% in 2017, we expect it
to increase at a much higher rate from 2017 to 2020 and reach close to 60% globally by the
end of 2020, with support from developing countries (including Brazil, China, and India
among others).
Connected Homes
The Connected Home segment focuses on connecting household appliances to the network,
with resulting advantages including improved security, remote management of devices,
and energy management. The following key categories compose the Connected Home.
(1) Security Cameras such as DropCam Pro, Foscam, and Netgear VueZone can be
connected to the Internet. Depending on the product, variants may have night vision
capabilities, stream live feed, and may also be controlled remotely through
smartphones, enabling round the clock surveillance. Some devices also include motion
detection capability that triggers alerts to the home owner in case of unexpected
movements. This could be one of the earliest opportunities in the Connected Home
segment, with the revenue from worldwide home surveillance expected (Source: IDC)
to grow from over $5.5bn in 2013 to $7bn in 2016 at a CAGR of 8%.
(2) Smart Thermostats by Ecobee, Honeywell, and Nest (acquired by Google) can learn
from usage patterns and adjust temperature settings automatically.
(3) Smart Appliances include ovens, refrigerators, washing machines, etc., which can be
monitored as well as operated remotely. Key vendors include Bosch, GE, LG and
Samsung.
(4) HVAC Systems ensure adequate airflow and temperature throughout the house, and
prevent sections from over-heating/cooling. EcoNet, Keen Vents, and others
manufacture smart vents and Honeywell’s Total Connect Comfort Services is one
example of a control solution.
(5) Smart Locks, such as those offered by Goji, KwikSet, and Lockitron, offer keyless entry,
time-based access to select individuals, and remote access via eKeys. Benefits include
convenience and increased security.
(6) Smart Lighting introduces remote control access and typically leverages LED upgrades
to improve energy efficiency. Key vendors include GE, Leedarson, Philips, and
Samsung, as well as a number of start-ups (Exhibit 39).
(7) Entertainment Systems, or home theater and whole house audio systems from Bose
Soundtouch, NuVo, and Sonos, can be integrated with other home systems such as
lighting, climate control, etc. and be controlled via smartphones or tablets to get a
richer entertainment experience.
We believe this segment could be a meaningful revenue opportunity in the near term.
Samsung expects the global Smart Home Device market to reach $15bn in 2015, nearly
doubling over 2013 levels of $7.8bn. Samsung expects the bulk of this opportunity to be
driven by the US, UK, Australia, and China. More recently, Google acquired Smart
Thermostat maker Nest for $3.2bn (January 2014) and Apple launched HomeKit software at
WWDC 2014 (June 2014).
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 18
Exhibit 17: Connected Home landscape
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 18: Worldwide smart thermostat revenues
expected to increase 16X by 2020 Worldwide smart thermostat market revenues
Exhibit 19: North America and Europe home automation
systems revenues expected to increase 6X by 2017 North America and Europe home automation systems
Source: Navigant Research.
Source: Berg Insight.
Connected Cities
The initial foray into connected cities was catalyzed by over $3bn in stimulus funding and
support for smart grid technology adoption as part of the United States’ 2009 American
Category Use Cases Key Vendors FeaturesCommunication
Protocols
Security Cameras
• Ensure safety by recording activities around a home• Monitor a child or an elderly person in another room to see if they require any attention• Ensure safety of your vacation home throughout the year by keeping a remote watch
• DropCam Pro• Foscam• Honeywell• Logitech Alert 750n• Netgear VueZone• Samsung SNH-1011
• High Quality video and audio• Two-way talk; Night Vision• Live-streaming remotely• Motion detector - mobile and email alerts• Cloud recording via encrypted channels• Customizable recording and alert schedules
• Ethernet• WiFi
Smart Thermostats
• Prevent a home from overheating or overcooling• Remotely adjust the temperature to appropriate levels• Set the appropriate temperature automatically based on previous manual adjustments
• Aros• Ecobee• Honeywell• Nest (Google)
• Smartphone/Tablet based control• Personalized insights on energy savings via reports• Setup alerts and reminders• Setup vacation schedule• Remote programming via web portal
• WiFi• ZigBee
Smart Appliances• Save time on tasks and remotely control various appliances
• Bosch• GE Brillion • LG• Samsung• Whirlpool
• Monitor progress remotely• Set timers and Start/Stop remotely• Control temperature settings remotely• Job completion alerts
• Bluetooth• Insteon• ZigBee
HVAC Systems
• Adjust room temperature and airflow automatically based on lifestyle• Prevent overheating or overcooling sections of the house and save energy
• EcoNet Controls Z-Vent• Honeywell's Total Connect Comfort Services• Keen Vents
• Monitor and control HVAC over internet• Access multiple locations from one place (if connected)• Receive e-mail alerts• Open/close/redirect vents for most efficient energy usage
• WiFi• ZigBee• Z-Wave
Smart Locks
• Answer doorbells and grant access even when not present in the house• Receive alerts based on any suspicious activity around the doors/gates• Record the entry/exit details for security purposes
• August• Baldwin Locks• Goji• Kwikset Kevo• Lockitron• OkiDokeys• Skybell• Yale Locks
• Keyless entry• eKeys - Individual keys for all family members • Time based access control• Answer doorbells from anywhere using smartphones• IR & Motion sensors - sends alerts in case of movement• 24x7 customer support - in case of smartphone theft• Logging entry/exit details
• Bluetooth• WiFi
Smart Lighting• Automatically dim or switch off the lights when it is empty in order to save energy
• GE lighting• GreenWave Reality• Leedarson Lighting• LIFX• Philips Hue
• LED based lighting - energy saver• Control via smartphone/tablet• Mood lighting• Assess daylight levels and control brightness automatically
• Insteon• WiFi
Entertainment Systems
• Play music in any of the rooms• Setup a separate home-theater to watch movies in a theater like environment
• Bose Soundtouch• HTD• NuVo• Sonos• Samsung Shape M7
• Whole House Audio/Video• Wireless mesh network (separate from home's WiFi)• Can integrated in existing home systems• Control via smartphone/tablet
• WiFi
0
200
400
600
800
1000
1200
1400
1600
2013 2020E0
5
10
15
20
25
30
35
Re
ven
ue
($m
n)
mn
un
its
Revenue ($mn) Installed Base (mn)
$2 bn
$13 bn
0
10
20
30
40
50
60
$0
$2
$4
$6
$8
$10
$12
$14
2012 2017E
Ins
tall
ed b
ase
(m
n u
nit
s)
Rev
en
ue
(U
S$
bn
)
Revenue Installed base
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 19
Recovery and Restoration Act. The United States has emerged as a leading adopter of
smart meter technology, approaching 50% penetration of 150mn total endpoints. The
total addressable market for smart meter upgrades is about 1.5bn home and business
endpoints globally. Navigant Research estimates smart meter penetration was about 20%
in 2013 (an installed base of slightly over 300mn), expected to reach nearly 1.1bn in 2022,
implying a 15% CAGR. Much of the smart meter penetration is being driven by government
initiatives, for example in Europe (where there is a target for 80% of households to have
smart meters by 2020) and Latin America. Smart meters enhance traditional gas, electric,
and water meters by adding two-way communications, or networking capabilities. As a
result, utilities and consumers are able to collect and analyze energy consumption data,
resulting in cost savings (less truck rolls, meter reading, etc.), improved grid efficiency and
reliability, and lower energy usage.
Exhibit 20: Navigant Research expects the smart meter
installed base to grow to over 830mn by 2020 Smart meter shipments by region, units 000s
Exhibit 21: Smart meters represent a 1.5bn global
endpoint opportunity Approximate estimate of smart meter opportunity by
geography, in million
Source: Navigant Research, 2014.
Source: Company data, Goldman Sachs Global Investment Research.
By extension, smart meters and the grid network architecture lay the foundation for further
connectivity throughout cities, including smart street lighting, parking meters, traffic
lights, electric vehicle charging, and others. Silver Spring estimates the TAM for smart
public street lights is about 300mn endpoints. Similar to smart meters, street lighting
offers improved efficiency and better network control/visibility. In conjunction with lighting
connectivity, LED light replacements materially improve energy efficiency. According to
The Climate Group, LED lamps combined with smart controls can reduce CO2 emissions by
50-70%. In addition to the benefits of energy savings, smart street lighting can also
improve public safety. In a similar vein, networked or smart traffic lights offer traffic
reduction benefits and better safety. The Institute of Transportation Engineers estimates
there are more than 300k traffic signals in the United States. Another example is
connected parking meters. While estimates range widely, the Intelligent Transportation
Society of America (2011) estimates there are approximately 20-40mn permit or metered
parking spaces in the US, representing less than 10% of all parking spaces (or roughly
500mn), and the Commercial Investment Real Estate (2004) estimates about 5mn actual
parking meters. As with all connected city applications, outage or technology malfunctions
can be detected more quickly. We detail other potential connected city use cases in Exhibit
22 below.
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Sm
art
Me
ters
(0
00
s)
Middle East Latin America Asia Pac Europe North America
US 150
UK25
Japan70
Brazil62
India270
Australia/New Zealand
10
Rest of Europe260
Middle East60
Rest of LatAm60
China300
Rest of APAC240
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 20
Smart meters are deployed by utilities, which are generally large, regulated institutions;
thus, technology decisions and deployments take place slowly, typically over several years.
By contrast, street lights, traffic lights, or parking meters procurement is far more
fragmented, with the decision made by cities or municipalities. As a result, deployments
can be far more rapid compared to smart meters. Even though these deployments are in
early stages, we believe the ramp could be more rapid and less lumpy than smart meters.
As an illustrative example, we note that within a year after introducing its solution in mid-
2013, Silver Spring has already begun connecting street lights and traffic controls in cities
such as Copenhagen, Dublin, Miami, Oslo and Paris, and Dongguan and Foshan in China.
Exhibit 22: Snapshot of Connected City space in the IoT market
Source: Company data, Goldman Sachs Global Investment Research.
Network infrastructure for the IoT
The unique attributes of the IoT, as presented above in our S-E-N-S-E framework, imply
three important inflections in network infrastructure.
1. Wi-Fi becomes pervasive: “access for the IoT” – We expect the majority of IoT
devices will access the network wirelessly, given wireless access is more pervasive,
cheaper, and easier to deploy than wireline. Further, we expect Wi-Fi to be the
dominant wireless access technology for IoT, given that unlike cellular, it uses
unlicensed spectrum and thus does not require monthly access fees. This is also
consistent with the results of a survey of by VDC Research, where about 70% of
respondents expect the IoT to use Wi-Fi (Exhibit 25). Put another way, just like wired
access (copper and fiber) laid the foundation for the fixed Internet and cellular access
(3G and 4G) enabled the mobile Internet, we expect Wi-Fi to be the enabler of the
Internet of Things. To put these markets in context, the size of wired access market was
$7.0bn in 2013, while the cellular basestation market was $43.0bn, implying significant
headroom for the Wi-Fi access point market, which was $7.8bn.
Category Use Cases Key Vendors FeaturesCommunication
Protocols
Smart Grid
• Save time and cost associated with meter reading, by doing it remotely instead of visiting the premises• Provide notification of any failures or outages instantaneously, thereby enabling more timely corrective response• Protect meters from being tampered with
• Echelon• Elster• Itron• Sensus• Silver Spring Networks• Toshiba
• Remote monitoring of electricity and gas usage• Outage alerts• Real-time load control• Remote disconnect switch• More accurate pricing to reflect peak/off-peak usage
• Power Line Communication (PLC)• WiFi• ZigBee• Cellular
Smart Street Lighting
• Reduce energy consumption by switching to LED street lighting • Detect failrue and expedite replacements• Improve the safety of pedestrians by illuminating the crossings with appropriate color to indicate whether it is safe to cross or not
• Echelon• Philips GreenLine• Sensus• Silver Spring Networks• Tvilight
• LED based lighting• Automatic dimming • Energy savings in the long run• Faster failure detection• Color coded pedestrian crossing
• PLC• Cellular• WiFi• Cellular
Smart Mobility
• Reduce congestion by providing real-time information about available parking spots to the drivers• Control the frequency of traffic signal changes depending on traffic and pedestrians, and thereby easing traffic flow
• Cisco• Deteq• IBM• Libellium• Schneider Electric• Streetline
• Detection of free parking spots• Vehicle and pedestrian detection• Pollution, icy roads detection• Crack monitoring - bridges, tunnels• Automated tolling systems• Real-time traveler information
• Bluetooth• WiFi• Cellular
Smart Buildings
• Integrate different systems such as HVAC, lighting, elevator, access controls, and fire alarms for more efficient response in case of an emergency as well as lead to savings in daily energy requirements• Monitor equipment performance in real time, identify past trends and potential points of failure for optimization of operations
• BuildingIQ• Cisco EnergyWise• Echelon• Hitachi• IBM• Mitsubishi Electric• Schneider Electric
• Control HVAC, lighting systems, elevator systems, access management and the safety of the entire building• Demand Response • Reduced energy consumption
• BACnet• KNX• LonWorks• Modbus
Smart Water
• Monitor water quality to ensure quality for general consumption• Monitor industrial discharge into rivers/seas to avoid contamination beyond acceptable limits• Detect and manage floods more effectively to reduce life/property damage
• Geosyntec• ioBridge• Libelium • Schneider Electric
• Monitor water quality (pH, temperature, ammonia content etc.) on a real-time basis• Detect water leakages in pipes• Integrated water cycle management• Detect floods
• Cellular• ZigBee
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 21
2. Cellular baseband market could expand by over 15% – We view the IoT as an
incremental growth opportunity for the cellular baseband market, which is otherwise
maturing given already high handset penetration globally. The cellular baseband
market in 2013 was $17.3bn (+13% yoy) based on handset market shipments of over
1.8bn (handsets drive the majority of baseband units, though tablets and other devices
certainly contribute). Ultimately, we believe the IoT could add about 2 percentage
points to cellular baseband market growth through 2020, assuming cellular attach rates
for IoT devices of about 5%, which implies 250-300mn IoT cellular baseband shipments
in 2020. The automobile vertical is likely to be the biggest driver of IoT cellular
baseband demand within that timeframe, as cars are mobile and thus will need cellular
connections as opposed to Wi-Fi. As discussed above, the annual volume of cars
shipped is around 80mn, most of which could be connected by 2020. In addition, tough
to reach locations such as smart meters or street lighting in rural areas could also be
connected via cellular connections if fixed line Internet and Wi-Fi are not available.
3. The network edge gains intelligence: “fog computing” – The traffic patterns of the
IoT will be different than those of the traditional Internet, driving more of the network’s
intelligence to the edge. The differences stem from the fact that IoT devices will be an
order of magnitude greater in number than PCs and smartphones, but the bandwidth
usage per device can be orders of magnitude lesser (think of the data rate of a parking
meter compared to streaming an HD video to a smartphone). This implies there will be
a lot more signaling traffic relative to data traffic, as well as a greater need for
subscriber management. In addition, a greater percentage of the data generated may
be noise (e.g., an IP surveillance camera or a smoke detector in the absence of any
events), with only occasional needs for action to be taken (e.g., sound an alarm if there
is an event). Therefore, more of the intelligence will need to shift to the “edge” of the
network (i.e. servers, routers, or gateways that are near the end devices), for two
reasons: (a) so that decisions can be made with low latency (e.g., apply the brakes to a
train if there is an issue with the tracks), and (b) so that bandwidth is not wasted by
hauling a lot of useless data or background noise to the cloud. This architecture is
sometimes referred to as “fog computing,” a term coined by Cisco, a reference to the
fact that some of the data will be collected and be processed near the devices, just like
fog is near the ground, rather than in a far-away “cloud” data center.
Sizing the incremental networking opportunity
We estimate that the IoT offers the largest incremental networking opportunity for
(1) connectivity chips, (2) Wi-Fi access points, and (3) cellular basebands. Based on
IDC’s IoT forecast of 28bn devices by 2020, we estimate that IoT devices could drive an
incremental $4.6bn of annual connectivity chip revenue (Wi-Fi, Bluetooth, etc.) by 2020,
compared to 2013 market size of $7.1bn. In other words, the IoT could add more about 65%
to the market size by 2020, implying a 7% CAGR from 2013-2020, based on our assumption
that 85% of connected IoT devices will have some type of connectivity, such as Wi-Fi or
Bluetooth. Similarly, we estimate that the IoT could expand the cellular baseband market
by about 16% relative to its size of $17.3bn in 2013, based on an assumption that 5% of IoT
devices will have a cellular connection at an ASP of $10 per baseband.
From a network infrastructure standpoint, we believe Wi-Fi access points are most
leveraged to the IoT due to high attach of Wi-Fi and low cost of deployment, leading to a
50% incremental market opportunity or a 6% CAGR through 2020. Conversely, we do not
expect the impact to Optical or Routing markets to be as material, with an incremental
contribution of 8-9% by 2020 or a 1% CAGR, reflecting the lower bandwidth usage of IoT
devices relative to the wired and mobile Internet.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 22
Exhibit 23: We estimate the IoT adds the most growth to the Wi-Fi market, with limited
impact to Optical and Routing markets Incremental revenue opportunity by segment in 2020, compared to market size in 2013 ($mn)
Source: Gartner, Dell Oro, IDC, Cisco VNI, Infonetics, Goldman Sachs Global Investment Research.
IoT communication standards
There are a host of communications mediums that will be employed in the broad IoT
landscape (Exhibit 26). As described above, we expect Wi-Fi to be the cornerstone wireless
technology for IoT. As part of its VNI forecast, Cisco forecasts 61% of all global internet
traffic will be Wi-Fi based. Similarly, survey results from VDC Research imply Wi-Fi will be
used in a majority of IoT devices.
Exhibit 24: Global Internet Traffic, Wired and Wireless
Exabytes per Month
Exhibit 25: Wireless Technologies in M2M/IoT projects
Survey respondents on type of wireless technology
Source: Cisco VNI 2014 : The Zettabyte Era.
Source: VDC Research.
Below we address some of the key attributes as well as benefits and limitations of the
primary IoT communication technologies.
65% growth52% growth
16% growth
9% growth8% growth
-
5,000
10,000
15,000
20,000
25,000
Connectivitychips (Wi-Fi,
Bluetooth, etc)
Wi-Fi APs Cellularbaseband chips
Optical (Metro) Routers (ServiceProvider Edge)
Mar
ket r
eve
nues
($
mn
)
2013 Market Size IoT opportunity (2020)
55%
61%41%
24%
4%
15%
0
60
120
2013 2014 2015 2016 2017 2018
Exa
byt
es
per
Mo
nth
Fixed / Wi-Fi Fixed / Wired Mobile Data 0% 10% 20% 30% 40% 50% 60% 70%
OtherANT
AM or FM radio315/433 MHz
InfraredProprietary wireless
900 MHzUnlicensed 2.4GHz band
Cellular 2GWi-Fi DirectCellular 4G
NFCBluetooth Classic
ZigbeeCellular (3G)
Bluetooth LE/SmartCellular (any)
Bluetooth (any)Wi-Fi
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 23
Exhibit 26: IoT Wireless Technologies characteristics Not a complete list
Source: Gartner, Goldman Sachs Global Investment Research.
Cellular – Provides always-on connectivity to the macro network. Similar to mobile
phones, cellular data can transmit over 2G, 3G, or 4G networks. Benefits include broad
coverage leveraging existing base station infrastructure as well as mobility (e.g., cars).
Potential drawbacks include power consumption, fees associated with data transfer
over licensed spectrum owned by carriers, and potential gaps in coverage. Cellular
chipsets range from the mid-$20 range for high-end LTE to the mid-single digits for
legacy connections (like 2G and 3G).
Wi-Fi – Offers low power consumption and low cost relative to cellular. Unlike cellular,
Wi-Fi operates in unlicensed spectrum, resulting also in lower data transmission costs.
Range is limited by proximity to a wireless router or relays and the quality of
connection can be diminished by network congestion. Wi-Fi chips are typically priced
in the mid- to low-single-digit dollar range. There are several different Wi-Fi standards
and IoT applications, such as the following.
o Wi-Fi Direct enables two or more devices to connect directly in the absence of
a traditional Wi-Fi hotspot.
o With the recent availability of the 802.11ac Wi-Fi standard, Wi-Fi operates in
the 5GHz band with wider channels (note 11n could also operate in 5GHz but
in smaller channels), thus enabling more capacity. Theoretical throughput of
11ac can exceed 1 Gbps.
o Also known as Low-Power Wi-Fi, 802.11ah operates in the sub 1GHz band.
Qualcomm views 802.11ah as central to IoT, given support for extended range
Wi-Fi and efficient power profile. 11ah extends Wi-Fi beyond 2.4 and 5GHz,
enabling coverage in challenging environments such as in building,
basements, etc. It also supports low cost sensors without a power amplifier,
and minimum data rates result in short-term data bursts. 11ah draft 2.0 is
expected to be standardized in mid-2014, though final standards may not
arrive until early 2016.
o 802.11p is an approved standard for vehicle to vehicle communications. It
uses dedicated short range communications (DSRC) for applications such as
toll collection, interaction between cars, and safety and roadside
communications.
Bluetooth – Bluetooth provides a short distance wireless connection with low power
consumption, even compared to Wi-Fi. Bluetooth Low Energy (also known as
Bluetooth Smart or BLE) further reduces the power consumption profile of traditional
Bluetooth. For example, Bluetooth devices can sustain battery life for weeks or months,
while Wi-Fi can be hours or days. Data transfer rates are somewhat limited at about
1Mbps (though theoretical throughput is up to 24Mbps), though the range extends up
to about 100 meters (300+ feet). Similar to Wi-Fi, Bluetooth can be used for machine to
machine connections and device pairing. Bluetooth 4.1 was introduced in December
Wireless Communications Technology
Key Applications Range Max Throughput Power Consumption
Cellular (2G, 3G, LTE) Always connected, high data rates, mobility 30km 1Gbps High
NFC Mobile marketing, mobile payments, wearables 10cm 20Kbps Low
Wi-Fi Automotive, connected home, consumer electronics, mobile marketing, appliances, wearables 100-300m 300Mbps High*
Bluetooth Mobile marketing, mobile payments, connected home, personal productivity 10-100m 1Mbps Low
ZigBee Connected home, consumer electronics, appliances, industrial 10-100m 20Kbps-250Kbps Low
Z-Wave Connected home, appliances Variable (+/-100m) 40Kbps Low* Low power Wi-Fi option
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 24
2013, which enables devices to communicate with each other before feeding that data
back to a host, and interoperates with LTE.
ZigBee – Standardized by the IEEE, ZigBee is a low power communication protocol
that operates in the industrial, scientific, and medical (ISM) radio bands (900MHz or
2.4GHz). As a result, data transmission rates can vary from 20Kbps to 250Kbps. ZigBee
is often deployed in a mesh network format (such as with smart meters), whereby
endpoints can interconnect and create a reliable network with extended range. ZigBee
enables devices to join a network very quickly.
Z-Wave – Z-Wave is a wireless protocol designed for home automation. It uses low-
power RF radio for household devices such as lighting, entertainment systems, and
appliances. It is a low-latency communication method with data rates up to 100Kbps
and operates in sub-gigahertz frequencies.
In reality, many IoT endpoints will employ multiple communications technologies based on
cost, improved flexibility, and interoperability. A primary example is Google’s Nest, which
incorporates both Wi-Fi and ZigBee. In addition, Silver Spring Networks’ smart meters
support cellular, ZigBee, RF mesh, and Wi-Fi capabilities. A key advantage of Wi-Fi and
Bluetooth is that they are already embedded in essentially all smartphones.
Higher-level standards under way – The IEEE has already standardized dozens of use-
cases and applications for IoT protocols. In addition to the basic communications standards
discussed above (layer 2 in the OSI stack), which handle the underlying communications,
there is a need for standardization at higher layers of the stack. While the ecosystem
remains fragmented, we highlight two key organizations that have emerged to drive
operating system standardization and coordination efforts across industries: the AllSeen
Alliance, whose focus is more broadly directed at the consumer side of the IoT, and the
Industrial Internet Consortium, which addresses industrial applications.
AllSeen Alliance – The AllSeen Alliance was established in December 2013 and
comprises about 40 organizations, including many of the major consumer brands such
as Haier, LG, Panasonic, and Sharp (Exhibit 27). The alliance is working on the
emerging AllJoyn operating system for IoT, an open-source framework started by
Qualcomm which has been contributed to the AllSeen Alliance and is in the process of
being standardized under the Linux Foundation. AllJoyn is an application-level
protocol (layer 7 in the OSI stack) that enables security, discovery, and interoperability.
Currently, the core framework includes device information and configuration,
onboarding, notifications (enable devices to broadcast and receive basic
communications), control panel (enable a device to control another product via a
graphical interface), and audio. The idea is that any two devices that support AllJoyn
can communicate to each other, without regard for which manufacturer made them or
which communications technology they use. To use an analogy, AllJoyn is to the IoT
what HTTP (Hypertext Transfer Protocol) is to the Internet. Other open-sourced
operating systems designed for the IoT including Contiki, LiteOS, RIOT, Sapphire,
Nimbits, Thingspeak, OpenAlerts, IoT Toolkit, The Thing System, and Nitrogen.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 25
Exhibit 27: Members of the AllSeen Alliance
Source: Allseenalliance.org
Industrial Internet Consortium – The IIC was started in March 2014 by five founding
members - AT&T, Cisco, GE, Intel and IBM. IIC has nearly 50 members that include
many industrial companies (Exhibit 28). The IIC is focused on IoT use cases, reference
architecture framework, and testbed prioritization. While it is not a standard-setting
body, it has established relationships with standards organizations to influence the
standard-making process as an enabler of IoT.
Exhibit 28: Members of the Industrial Internet Consortium
Source: IIConsortium.org
Premier
Haier 2lemetry Fon Musaic
LG Electronics AT&T Digital Life GOWEX Muzzley
Panasonic Affinegy Harman Patavina Technologies
Qualcomm Audio Partnership HTC Sears Brand Management Corp
Sharp Beechword Software iControl Networks Sprotuling
Silicon Image Beijing Winner Micro Electronics Imagination Technologies The Sprosty Network
Technicolor Canary Kii Tuxera
TP-Link CA Engineering Letv Two Buls
Cisco LIFX Vestel Group
D-Link Lite-on Weaved
doubleTwist Moxtreme Wilocity
Community
Accenture Intel-GE Care Innovations SevOne, Inc.
AT&T* MachineShop, Inc. SpaceCurve
Bayshore Networks, Inc. MDSL Symantec
BlackBerry Micron Technology Synapse Wireless
Bosch MITRE Corporation System Insights
Cisco Systems Inc.* Mobily TE Connectivity
Cubicon Corporation Open Group The Charles Stark Draper Laboratory
Dan Hussain Moxa Inc. ThingWorx
Datawatch Parker Hannifin Toshiba
Eclipse Foundation People Power Toyota Motor Sales
Elecsys Corporation Pitney Bowes Tyco
ENT Foundation PrismTech V2COM
General Electric* PTC Inc Vanderbilt University
Grid Connect Inc. Purfresh Inc. Water & Process Group (WPG)
Huawei Technologies Co., Ltd. Real-Time Innovations Wyconn
IBM* RhoData Corporation Xcaliber Technologies, LLC
Intel* LAAS-CNRS
* Founding Member
Members
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 26
Semiconductors for the IoT
IoT presents a secular growth opportunity within microcontrollers, analog and
sensors; although we see the opportunity as a driver of incremental growth, rather
than an inflection point. We believe the internet-of-things describes a trend toward higher
semi content that has already been taking place for some time. We believe this is illustrated
by the higher growth rates in microcontrollers and sensors in recent years, especially in the
context of overall semi industry growth slowing.
Microcontrollers: Microcontroller units grew at an 8% CAGR between 1998 and 2005,
but at an 11% CAGR between 2006 and 2013 (Exhibit 29). This compares to IC units ex.
memory growing at a 7% and 3% CAGR respectively over these time frames (We
choose 2006 as an inflection point because this is when growth rates vs. IC units begin
to noticeably diverge).
Exhibit 29: Microcontroller growth has significantly outpaced the semiconductor market Market size and unit CAGR
Source: SIA, Goldman Sachs Global Investment Research.
Sensors: Sensors grew at a 6% CAGR from 2004 to 2008, compared to IC units ex.
memory also growing at 6% (Exhibits 30 and 31). However, from 2011 to 2013, sensors
grew at a 5% CAGR vs. IC units ex. memory being flat (we choose 2011 as an inflection
point due to reclassification in the SIA data in 2010, although historical data suggests
sensor growth rates may have inflected higher as early as 2009).
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June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 27
Exhibit 30: Sensors grew in-line with the overall semi
market from 2004-2008… Indexed IC units and sensor units to January 2004
Exhibit 31: ..but sensor growth has outstripped semis
from 2011-2013 (5% CAGR vs. semis at 0%) Indexed IC units and sensor units to January 2011
Source: SIA, Goldman Sachs Global Investment Research.
Source: SIA, Goldman Sachs Global Investment Research.
Sizing the semiconductor content opportunity
Higher ASPs and higher performance; or lower ASPs and higher volumes. Upgrading
an IoT device or system to include real-time data monitoring and analytics requires
additional microcontroller and sensor content. For microcontrollers specifically, we believe
the incremental opportunity lies in either (1) upselling a customer to microcontrollers with
higher processing power (e.g., from 8-bit to 32-bit) or (2) developing lower-cost and lower-
power chips that can be sold in meaningfully higher volumes. Examples include the
following.
In the industrial market, the trend toward “distributed” controllers vs. one centralized
controller. Controllers are installed at more stages in a production process to allow for
more precise monitoring, analysis and correction. Although each distributed controller
is sold at a lower ASP than a centralized controller, the volume opportunity is more
significant.
In automotive, applications include advanced driver assist, safety features, and
infotainment. We estimate that semi content gains in automotive have averaged 6%
per year over the past 10 years.
In the wearables and smartphone markets, devices increasingly include sensor hubs.
Sensor hubs are microcontrollers which offload power and processing requirements
from a core processor and hence offer longer battery life (we believe in the order of
10%-20%) and greater power efficiency at a small incremental cost.
We summarize ASPs across processors and sensors in Exhibits 32 and 33, and provide a
snapshot of key semi content in Internet-of-Things device teardowns in Exhibit 34.
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Sensors IC units ex. memory Linear (Sensors) Linear (IC units ex. memory)
Sensors: 6% CAGR 2004 - 2008
IC units: 6% CAGR 2004 - 2008
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Sensors IC units ex. memory Linear (Sensors) Linear (IC units ex. memory)
IC units: 0% CAGR 2011 - 2013
Sensors: 5% CAGR 2011 - 2013
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 28
Exhibit 32: Processor ASPs vary by performance
Estimated range of sensor ASPs
Exhibit 33: Sensor ASPs vary by application
Estimated range of sensor ASPs
Source: Goldman Sachs Global Investment Research.
Source: Goldman Sachs Global Investment Research.
Exhibit 34: Teardowns of existing IoT devices reveal substantial semiconductor content
Chips across IoT devices
Source: iFixit, Company data, Goldman Sachs Global Investment Research.
Cores, architectures and power efficiency
Key architectures for IoT:
X86: Intel launched Quark, its new product family specifically for IoT applications, in
September 2013 and it is currently shipping 32nm SoCs at about $10 per chip. Quark is
designed for low power applications, with Intel claiming Quark chips are one-fifth the size
and one-tenth the power of its existing low-power Atom line of products. Intel plans to
increase investment in IoT applications by 20% this year and now reports a new “Internet
of Things” business segment quarterly. In 2013, this segment comprised $1.8 bn in
revenue (3% of sales) vs. $1.6 bn in 2012, including contributions from software. AMD is
$0
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Intel Quark Low-endx86 MPU
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Semi content Nike Fuelband FitBit One Nest Smart Meter Gear Watch Google GlassMPU/APU
Integrated SoCMCU
MCU (2)ASIC
BluetoothWiFi moduleZigbee SoCPower SoC
Protection circuit moduleBattery management
AmplifierUSB controllerAudio codec
AccelorometerGyroscope
Activity sensorAltimeterCamera
Heat sensorHumidity sensorProximity sensorSmoke sensor
Retail price $99 $100 $129 $50 - 200 $199 $1,500
Processing
Connectivity
Analog
Sensors
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 29
pursuing similar IoT opportunities with its Eagle Steppe product family. A key part of the
company’s strategy is diversifying beyond its traditional PC and server market with new
embedded applications.
ARM: ARM Holdings targets IoT applications with its Cortex M series of microcontrollers,
which have been introduced at progressively lower price points and power envelopes
(Exhibit 35). Microcontrollers represent the highest share of royalty revenues for ARM in its
Embedded Systems segment, and are one of ARM’s highest unit opportunities in our view.
ARM has Cortex M partnerships with over 40 microcontroller companies.
MIPS: Imagination acquired MIPS in 1Q13 and, in the following weeks, articulated a goal of
25% share of the CPU IP market (compared to 6% in 2012, based on data from The Linley
Group). Since that time, the company has announced partnerships with Qualcomm,
Broadcom, and others to create an open-source foundation promoting the MIPS
architecture for improved portability from “datacenter to device,” In addition, Imagination
is working with Java to improve the performance of Java-based applications on its
proprietary 32-bit and 64-bit graphics cores.
Exhibit 35: ARM continues to develop smaller, lower power MCUs ARM MCUs over time
Source: Company data, Goldman Sachs Global Investment Research.
We believe that ARM-based microprocessors and microcontrollers will have a distinct
advantage over x-86 chips in the IoT market for the following reasons.
1. Power efficiency: Our view continues to be that x-86 chips are best positioned in
applications that require high performance, and that ARM chips are best
positioned in applications that require low power. Although apples-to-apples
benchmarking statistics comparing Intel’s Quark to ARM’s Cortex M products have
yet to become available, we expect ARM will continue to hold a power efficiency
advantage in embedded applications over the medium term.
2. Existing customer relationships and channel breadth: Although Intel and AMD
have strong relationships through the PC supply chain, we believe ARM’s
microcontroller partners have considerably more breadth in the handset,
consumer, auto, and industrial markets.
3. Adjacency to analog content: We believe companies with broad portfolios of
microcontroller and analog content are best positioned to benefit from IoT, as
0
20
40
60
80
100
120
140
160
180
Cortex M4 Cortex M3 Cortex M0 Cortex M0+
2010 2004 2009 2012
Dyn
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µW
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1.8V 1.2V 0.9V
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 30
these companies can sell customers a complete analog-processing solution. These
types of integrated solutions likely lower costs and improve time to market. All of
the microcontroller companies in our universe have supporting analog portfolios,
whereas customers sourcing processors from Intel/AMD must source their analog
content separately.
We refer readers to the ARM company profile on page 34 for more detail.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 31
Company profiles: Infrastructure enablers for the IoT
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 32
Aerohive (HIVE, Buy): Benefiting from the next generation of
connected students
Company profile
Aerohive is a provider of cloud-based enterprise wireless local area networking (WLAN)
solutions. Aerohive’s “controller-less” approach manages the WLAN network through its
Cloud Services Platform, which can sit in Aerohive’s data centers, private clouds, or partner
clouds. Aerohive sells WLAN access points (AP), campus/branch routers and switches,
cloud services, and software to enterprises. The majority of Aerohive’s revenue comes
from education (40-50% of revenue), retail, and healthcare.
Exposure to IoT
IoT for the next generation of connected students – Three out of five schools in the US
do not have needed Wi-Fi connections, according to the Federal Communications
Commission (FCC). As the next generation of connected students incorporates its mobile
devices into classrooms, Wi-Fi for the education vertical, especially K-12, becomes a
spotlight, evidenced by the FCC’s recent proposal to allocate $2bn in E-rate funds for Wi-Fi
in schools through 2015 and 2016. We believe that Aerohive, with its heavy exposure to the
education vertical, is in a strong position to benefit from this initiative. Longer term, as
students adopt wearables and shoppers, patients, educators, and employees expect a more
connected experience, we expect Aerohive will be a key enabler.
Amphenol (APH, Neutral): Broad connector exposure with
increasing sensor business
Company profile
Amphenol is a diversified supplier of connectors and related components including
antennas, cable, and sensors. The company has a history of using tuck-in M&A to add new
capabilities and maintain balanced end-market exposure, and this has translated into
above average organic growth. Amphenol is the second largest supplier in the roughly $50
bn connector market based on revenue. Its key end markets are mobile devices, A&D,
datacom, industrial, auto, and mobile networks.
Exposure to IoT
We believe that Amphenol will benefit from increasing connector content in industrial and
auto applications, which we view as a continuation of the long-term trend in the market. In
addition, we believe that Amphenol’s recent acquisition of GE’s Advanced Sensor business
will help the company to benefit from increased measurement requirements for IoT
applications. We estimate that sensors are a low to mid-single digit percent of total sales
for Amphenol. Finally, Amphenol’s antenna business could pick-up for IoT connectivity,
and we believe this is more likely to occur in larger form factor devices given that its sales
are currently tied primarily to tablets and ultrabooks for WiFi (rather than for handsets).
Apple (AAPL, Buy): Extending the iOS ecosystem to IoT
Company profile
Apple is a leading provider of smartphones, tablets, and PCs with proprietary operating
systems across mobile devices (iOS) and general purpose computers (Mac OS). The
company sells its products directly through their more than 400 retail stores as well as
through carrier partners and third-party retailers. Apple’s platforms attract a robust user
Covered by Kent Schofield, US Smid-cap CommTech analyst
Covered by Mark Delaney, US IT Supply Chain and Semi analyst
Covered by Bill Shope, US IT Hardware analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 33
base with nearly 800 million iTunes accounts and a Mac installed base of 80 million.
iPhones represent the largest revenue generator for Apple with 150.3 million units in
FY2013 totaling $91.3 billion in sales (53% of total company revenue). iPads generated 19%
of FY2013 revenue as the company sold 32.0 million units. The Mac segment accounted for
$21.5 billion of revenue in FY13, which equates to 13% of the company total. Apple also
has a robust services stream with the iTunes/Software/Services segment generating $16.0
billion of revenue in FY13 (9% of total). Platform enhancements continue to be critical for
Apple as they increase stickiness and create a virtuous cycle by which user growth attracts
content and developers which attracts further user growth.
Exposure to IoT
Hardware focus primarily through wearables and iBeacon ecosystem – To date, Apple
does not manufacture any IoT-centric hardware, though they do provide an interface to
communicate with iOS devices through iBeacon. iBeacon is a Bluetooth-enabled
technology that enables location-based awareness. As far as hardware is concerned, we
continue to believe that the company will launch an iWatch in the coming months and
wouldn’t rule out Apple expanding into further wearables categories over time.
Extending the iOS platform into the IoT – The biggest opportunity for Apple within the
IoT exists in extending the iOS platform beyond traditional mobile use cases (smartphones
and tablets) into the IoT. As the near-term potential for substantial hardware differentiation
in Apple’s traditional markets is narrowing, iOS platform differentiation is becoming
increasingly critical. Apple’s innovation focus is likely to skew more towards software-
related enhancements than in the past as the company attempts to both increase platform
stickiness and attract new users. Pushing outward into the IoT is a logical extension of that
strategy as the more aspects of a user’s day-to-day life Apple touches, the more likely that
user is to remain within the Apple ecosystem.
Primary monetization through incremental iOS device volume – Monetization through
additional iOS device volume (namely iPhones and iPads) greatly outweighs the impact of
incremental revenue and profit from IoT-related sensors. As discussed in our May 29, 2014,
note Apple: The “Next Big Thing” isn’t Hardware, a 1% revenue share in the smartphone
market yields 7x the EPS contribution of a 1% share in the watch market. Additionally, in
building out an IoT platform, the opportunity remains for Apple to begin selling more
robust services into its installed base.
HealthKit and HomeKit illustrate development of “sub-platforms” – Within the IoT, the
landscape is likely to split into multiple “sub-platforms” given the vertical-specific needs of
different categories of devices. Apple’s recent announcement at WWDC 2014 of the launch
of HealthKit and HomeKit address this specific need, providing APIs for third-party
developers to link into. While historically IoT device data lived in app silos on iOS, these
sub-platforms will provide a central hub for multiple devices to co-exist and share data.
One home-related example of how this could play out in practice would be a user telling
Siri to “get ready for bed”, which triggers the garage doors to close, the doors to lock, and
the lights to shut off. Within health, there are both consumer-oriented use cases and health
provider benefits. A benefit to consumers would be Nike’s Nike+ app pulling together
sensor data from multiple apps into one place to measure progress towards fitness goals.
With respect to data for medical professionals, the Mayo Clinic app was used as an
example to illustrate how a user's blood pressure reading can be compared with “normal”
levels and automatically notify a care provider if the metric falls outside of normal metrics.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 34
ARM (ARM.L, Buy): Significant potential to capitalize upon the IoT
based on ARM’s low power designs
Company profile
ARM is a leader in processor architecture design for chip manufacturers, which it
monetizes via its royalty model. While ARM has a dominant market position in the handset
and tablet verticals, we expect a rapid acceleration in royalties from non-mobile, including
areas such as Networking, Enterprise and Embedded Systems, to drive almost 50% of
group incremental revenue growth out to 2018. ARM’s licensing and royalty model is
extremely scalable (95% incremental EBIT margins for royalties) and we see the licensing
base as a key platform for continued market share dominance in mobile and share gains in
non-mobile. We estimate a path towards 65% underlying operating margins by 2018, with
a five-year EPS CAGR of more than 20%.
Exposure to IoT
Power efficiency advantages support IoT market share – We see ARM’s IP architecture
as a key enabler for the Internet of Things, with the Cortex M (Cortex-MO, M1, MO+, M3,
M4) series of MPU designs positioning ARM well, in our view, to capitalize upon this
opportunity. We analyze ARM’s IoT exposure in the context of four separate components of
the IoT ecosystem, all of which sit within ARM’s Embedded Systems segment: (1)
Microcontrollers, which conduct local processing and constitute a tool for information
discovery, (these form the greater part of Embedded Systems revenues for ARM); (2)
Embedded connectivity devices (i.e., Bluetooth and Wi-Fi chips), which allow for machine-
to-machine communication; (3) Connectivity hubs, which perform a routing function in the
transmission of information between machines; and (4) Wearable devices, which allow for
wider ubiquitous computing.
We view the power efficiency advantages of ARM’s Cortex-M designs as supportive of
ARM’s market share across designs relating to these four areas, and we see ARM’s blended
share in such areas rising from roughly 30% in 2015 to more than 50% by 2020, driving
30% unit growth in these areas for ARM in 2015-2020 (five-year CAGR).
Large opportunity for Microcontrollers – Microcontrollers, which represent the highest
share of royalty revenues for ARM in its Embedded Systems segment, are one of ARM’s
highest unit opportunities in our view, given licensing momentum and end-market
potential. Historically, MCU producers’ architectures have been based on proprietary
designs; however, over the last few years producers in possession of more than 50% of the
MCU market have announced that they have licensed ARM’s architecture for MCU
production as opposed to internally developed designs. ARM has now signed more than
198 Cortex-M licenses with 40 companies, making the Cortex M0 ARM's fastest licensing
processor design.
Growth of Embedded Systems – We estimate that Embedded Systems were 29% of
ARM’s royalty units in 2013, which in light of rapid market share gains and end-application
growth will increase to 52% in 2018. We forecast ARM’s architecture will feature in 45% of
total MCUs in 2018 (vs. 17% estimated share in 2012). We assume such scope for share
gains despite our assumption that market leader Renesas Electronics is unlikely to utilize
ARM’s technology for the majority of its MCUs (although we noted its recent
announcement of an ARM-based high-performance processing MPU of 300 MHz and
higher).
While the large-scale proliferation of MCUs will have a deflationary impact on ARM’s
average royalty rate (ARR) based on mix, given that they represent low-value chips (vs
ARM’s other end-devices), the MCU unit opportunity remains significant, and we expect
this to translate into a 36% royalty revenue CAGR for ARM in Embedded chips (2013-2018),
driving 19% of group incremental royalty revenues over the period.
Covered by Alexander Duval, European Tech Hardware analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 35
Aruba Networks (ARUN, Neutral): Capitalizing on IoT through Wi-Fi
connectivity and the BYOD trend
Company profile
Aruba is the largest stand-alone enterprise WLAN vendor (with the number-two market
share position, 11% in 2013), offering access points, controllers, and WLAN enhancement
products such as intrusion protection, network management, and layer 4-7 services. Aruba
primarily focuses on being a “best of breed” provider of WLAN products to large
enterprises, but entered the middle market and “distributed enterprise” in 2011 with its
Aruba Instant offering.
Exposure to IoT
Capitalize a more connected generation of workers – As the bring your own device
(“BYOD”) trend, ”), which we expect to include more than the typical computing devices
seen today, is becoming increasingly important, Aruba is in a key position to capture such
demand as the largest standalone Wi-Fi equipment vendor. With the wave of personal
devices, wearable technology, and connected “things” increasing, enterprises continue to
implement and upgrade Wi-Fi technology (including the ongoing transition to802.11ac
standard) to keep up with speed requirements and demand for connectivity. We have
already seen the early effect of this trend as Aruba’s ClearPass (managed software for
BYOD) has been growing double digits and Aruba Instant (controller-less WLAN) bookings
have been growing more than 100% yoy. In addition, Aruba acquired indoor location
company Meridian in May 2013, which could help position the company in retail,
industrials, and public spaces (e.g., stadiums).
BlackBerry (BBRY, Neutral): Leveraging QNX and BlackBerry’s
secure network infrastructure for IoT
Company profile
BlackBerry designs and sells smartphones for consumers and enterprises, with an
increasing focus on providing and expanding set of related enterprise services. BlackBerry
historically differentiated its offerings through their best in class security as a result of the
end-to-end encryption of its architecture. However, its share of the smartphone market has
fallen to under 1% compared to a peak of almost 20% in 2009, as it missed the transition to
touchscreen smartphones and lost share to Apple and Android-based devices. The
company is undergoing a significant strategic and operational restructuring under CEO
John Chen, who joined in November 2013. As part of that shift, BlackBerry is increasing its
focus and investment in its QNX business, which provides an operating system for
automotive and other IoT applications. In addition, BlackBerry is looking for ways to
leverage its network operating centers (NOC) for new services such as BlackBerry
Messenger (BBM), secure enterprise mobility management (EMM), and mobile payments.
Exposure to IoT
QNX secure operating system – In 2010, BlackBerry purchased QNX Software Systems.
QNX is a micro-kernel operating system (OS), which the company used as a foundation for
its revamped BB10 OS. QNX was originally founded in 1982 and has become the
embedded operating system for a host of industries. QNX has experienced particular
success in the auto industry for infotainment systems, where it has been used in over 200
models of cars by about 40 OEMs, including Acura, Audi, BMW, Chrysler, General Motors,
Land Rover, Porsche, and others. More recently, Apple announced CarPlay, which is
essentially iOS for the car and utilizes QNX. Competitive operating systems for autos
include those from Microsoft and Google. Though BlackBerry has not quantified the
revenue contribution of QNX (suggesting it is currently fairly minimal), its leadership in
Covered by Kent Schofield, US Smid-cap CommTech analyst
Covered by Simona Jankowski, US CommTech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 36
gaining a multitude of automotive design wins suggests that revenues will ramp
significantly over the next few years as the new car models ramp. In addition, the company
believes it can leverage QNX in a broader set of machine-to-machine applications, such as
medical, manufacturing, and consumer verticals, and plans to launch its QNX Cloud
platform in December. We expect that in addition to licensing QNX, BlackBerry can
monetize it through upselling its own as well as third party applications and services (e.g.
safety features, tire pressure, infotainment, etc.).
Project Ion – In May 2014, BlackBerry announced Project Ion, a platform to securely
manage data from millions of endpoints, representing a cloud back-end for sensor data
and analytics. The software will leverage QNX, and Blackberry will open-source parts of
QNX to allow other devices to connect to the QNX cloud. BlackBerry is a member of the
Industrial Internet Consortium (IIC; members include Intel, GE, Cisco, AT&T, and IBM) and a
founding member of the Application Developer Alliance (ADA), an “association that
focuses on advancing application development while helping to solver current challenges
such as security and privacy.” Project Ion is currently in beta, with expected formal launch
by early 2015. Given BlackBerry’s expertise in end-to-end security, its global network of
NOCs, its robust QNX OS, and its direct connectivity to the networks of hundreds of
carriers, we believe the company is uniquely positioned to participate in the IoT.
Broadcom (BRCM, Neutral): Well positioned with connectivity and
broadband portfolio plus developer support
Company profile
Broadcom is a leading provider of semiconductors for wireless and wired communication,
including mobile devices, broadband, and communications infrastructure. Pro forma for its
planned exit from cellular basebands, we estimate that about 35% of revenue is from
connectivity, 35% from infrastructure, and 30% from broadband.
Broadcom has strong market share in several key product categories including connectivity
chips such as Wi-Fi (60-65% share in combo chips), switching (we believe 60-70% merchant
share), and cable broadband (we believe about 45-55% share).
Exposure to IoT
Connected wearables and devices – We believe that Broadcom, as a leader in combo
chips and technologies such as 802.11ac Wi-Fi and Bluetooth, will benefit from growth in
wearables. Some of Broadcom’s connectivity chips for the wearables market have
processing capabilities included, which helps to reduce power. In addition, Broadcom has
introduced related chips for new applications such as wireless charging to complement its
connectivity solutions.
Broadcom is also working to support the ecosystem, and it offers a software development
kit and technical support for the wearables and embedded markets. Broadcom noted in
December 2013 that as part of its WICED (Wireless Internet Connectivity for Embedded
Devices) initiative that it was engaged with about 400 companies (including 14 fitness
companies, 8 home appliance companies, and 7 thermostat companies).
While Broadcom will not directly participate in the cellular baseband market and this will
likely limit its ability to sell connectivity in some devices (as some chips could be integrated
or bundled), Broadcom does plan to partner with baseband providers such as Spreadtrum
to help maintain some of its connectivity sales in lower-cost devices.
Connected home – We believe Broadcom has a broad set of offerings for applications
such residential gateways, set top boxes, and modems and these include Wi-Fi, high
efficiency encoding (which saves on bandwidth), and home networking (such as MoCa).
Covered by Mark Delaney, US IT Supply Chain and Semi analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 37
We believe Broadcom’s breadth of technology, ability to integrate multiple features on a
chip, and strong share in set top boxes and modems position it well for growth in the
connected home.
Cisco Systems (CSCO, Buy): IoT thought leader benefiting through
Wi-Fi and “fog” computing
Company profile
Cisco is a leading global provider of networking technology, including systems, software
and services, with $48.6 billion in revenues in FY13 (FYE July). The company has been a
long-standing leader in the $20 billion switching industry, with about 65% market share,
and switching products drove 30% of total company revenues in FY13. Its second biggest
segment, routing, drove 17% of total revenues, as Cisco has about 40% share in the $10
billion service provider routing market and 75% share in the near $4 billion enterprise
routing market. In addition to its core switching and routing revenues, Cisco has a leading
position in a number of other categories, including service provider video, which includes
set-top boxes, video infrastructure and software ($4.9bn in FY13 sales), collaboration
($4.0bn in FY13 sales), Wi-Fi ($2.2bn), servers ($2.0 bn), and security ($1.3bn). Cisco’s
services business, which was $10.6bn last year, accounted for the remaining 22% of FY13
revenues.
Exposure to IoT
IoT thought leader – Cisco was early to the IoT trend, having started investing in enabling
technology more than three years ago and becoming one of the leading voices on the
importance of the trend. Cisco estimates that the IoT will result in $14 trillion of value
created across all industries over the next 10 years, which it defines as the combination of
increased revenues and lower costs. Moreover, Cisco expects the IoT market to be 5-10X
the size of the Internet. As a result of its early bullish view on this trend, Cisco has invested
$1bn in IoT over the past three years and plans to spend another $1bn in the next three
years. The company now has 800 products that have been enabled for the IoT, for example
by ruggedization for tough environments. In addition, Cisco is building out an internal
consulting and services organization that targets industry verticals to help them enable
their business for the IoT. Cisco is prioritizing the industrial vertical rather than consumer
markets, as that is where the most value is likely to be created and therefore there is the
most significant potential profit opportunity. In particular, Cisco is focusing on
transportation (e.g., rail), smart and connected cities (e.g., automating parking meters,
traffic flows, garbage collections), oil and gas (e.g., oil fields are generating 0.75TB of data
per week), and smart grid (e.g., utilities process 0.5TB per day).
Architecting the network for “fog” computing – Cisco coined the term “fog” computing,
a complement to cloud computing, to reflect the fact that IoT requires distributed
intelligence and analytics in addition to hosting those capabilities in the cloud. This is
because much of the data generated by IoT devices merely needs to be monitored for
events, rather than processed in its entirety. For example, a video camera capturing
footage in an empty home only needs to alert the homeowner when there is an event, such
as an intruder. It is not bandwidth efficient to carry all that video traffic 3,000 miles away to
a cloud data center if the processing of the data can be done locally. There could be an
additional latency reason for processing the data in the edge rather than the cloud –
especially when the response to an event has to be instantaneous, such as slamming on
the brakes of a train in response to an obstacle on the tracks. Cisco addresses the fog
computing paradigm with its IOx application framework, which marries its networking
operating system, iOS, with Linux, in order to enable developers to develop applications on
networked devices in the edge. In addition, in 2013 Cisco introduced its NCS product
Covered by Simona Jankowski, US CommTech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 38
(Network Convergence System), which is a converged optical and packet transport
platform optimized for the IoT. By comparison to traditional optical and routing equipment
that forms the foundation of the Internet, the NCS reduces costs by combining the optical
and packet transport functions into one platform. In addition, it includes CPU blades with
virtualized software for network function virtualization (NFV), such as IP mobile core,
security, session border control, or WLAN control, enabling distributed intelligence.
Wi-Fi leadership in the IoT – We also expect Cisco to benefit from the significant growth
in Wi-Fi, a $2.2bn business in FY13 (Jul) in which Cisco leads the market with about 25%
share in the latest quarter (down from 30-35% in 2012-2013). As discussed above, we
expect IoT to drive a more than 50% increase in the Wi-Fi market by 2020, as we expect
more than 80% of IoT devices to be Wi-Fi-enabled.
Delta (2308.TW, Buy): Big Data trends driven by IoT could benefit
Delta
Company profile
Delta is a global leader in power and thermal management solutions. Its business
categories can largely be broken into three areas. (1) Power Electronics: Delta offers
diversified power supplies, thermal management, and electronic component/systems for
portable device, cloud computing equipment, home appliance, etc. (2) Energy
Management: includes telecom power systems, UPS, drives, EV charging, and industrial
automation products. (3) Smart Green Life: expansive range of environment-friendly
consumer electronics products such as display and visualization, LED lighting, healthcare,
and IP networking product. Delta has gradually transformed itself from a component
supplier into a solution/system provider with rising business focus and exposure in “Big
Data” and automation areas.
Exposure to IoT
The IoT opportunity reinforces our positive view on Delta’s secular growth driven by “Big
Data” given the increasing data traffic generated in a more connected environment. Delta
specializes in providing power management solutions to data center, telecom, and
networking equipment, where power efficiency and thermal management are of growing
importance as cloud equipment processes larger and larger volumes of data. In addition to
power products, Delta also supplies networking equipment such as switch, smart grid,
broadband access, and we expect this to benefit from the growth in data traffic as well.
Delta’s Big Data business accounts for around 46% of 2014E sales and we expect growth of
17%/13% in 2015/2016, with segment contribution growing from 41% in 2013 to roughly
50% in 2016.
Garmin (GRMN, Neutral): Expanding portfolio of wearables and
growing content in connected cars
Company profile
Garmin is a vertically integrated consumer electronics manufacturer that specialized in GPS
technology. Nearly 50% of 2013 revenues came from Auto/Mobile (which is comprised
largely of Personal Navigation Devices or PNDs), though this business has been declining
rapidly due to smartphone cannibalization. Garmin’s other segments include
Fitness/Outdoor, Aviation, and Marine.
Covered by Robert Yen, Taiwan CommTech/Hardware analyst
Covered by Simona Jankowski, US CommTech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 39
Exposure to IoT
Leader in Fitness and Outdoor devices – Garmin is a leader in Fitness and Outdoor
electronics devices, such as watches, bands, and trackers, addressing a wide range of
verticals such as running, swimming, golf, cycling, dog training, hunting, mountaineering,
hiking, and others. The Outdoor/Fitness segment has grown at a 13% CAGR over the past
four years to reach $767mn in revenues in 2013, and we are modeling 16% growth to
$888mn in 2014, representing 33% of our estimated 2014 total revenues for the company.
The segment has very high margins, with gross margins at 63% and operating margins at
36% in 2013; we estimate that it will drive 50% of 2014E operating profits for the company.
Garmin most recently expanded into the fitness band category with the vivofit (priced at
$129 and aimed at consumers) and vivoki (aimed at corporate wellness), featuring wireless
sync via USB ANT or Bluetooth. In conjunction, Garmin operates the Garmin Connect
website, which allows users to upload and track the fitness information gathered from their
devices. Another new IoT product category for the company is the VIRB action camera,
which has Bluetooth, Wi-Fi, ANT+, and GPS connectivity, and is targeting a market
segment popularized by GoPro. We expect Garmin to continue to innovate in this market
and expand into adjacency, which makes it well positioned to benefit from strong growth
in the Connected Wearables segment of the IoT.
Auto Infotainment – Garmin is also exposed to the auto infotainment industry. Its K2
infotainment solution provides 3D navigation, location services, media content, and
diagnostic information on a multi-touch console screen. It also has voice control and can
be integrated with smartphones. Garmin’s OEM auto customers include BMW, Chrysler,
Honda, and Suzuki, among others (only Suzuki has factory installed Garmin’s full
infotainment solution). In addition, in 2013 Garmin announced that its navigation will be
integrated into the infotainment system of future Mercedes-Benz models. We believe
Garmin can leverage its navigation and GPS expertise to expand its content in automotive
infotainment systems over time, benefiting from the increased connectedness of cars.
Gemalto (GTO.AS, Buy): Digital security expertise to monetize IoT
in the Machine-to-Machine segment
Company profile
Gemalto is a leading provider of digital security software and platforms. While it has
traditionally focused on supplying smartcards for the telco and banking verticals, it has
progressively diversified its product offering to incorporate areas such as governmental
electronic documents and, through its acquisition of Cinterion, is present in the machine-
to-machine module and SIM (“MIM”) space. As Gemalto evolves its offering across such
verticals to incorporate a more significant platform offering, we see it achieving a double-
digit group revenues CAGR out to 2017 (the duration of its long-term plan), with operating
leverage allowing for an EPS CAGR of more than 20%.
Exposure to IoT
M2M module and SIM growth – Gemalto’s position within the M2M module and SIM
(“MIM”) market, alongside its strength in remote management platforms, will in our view
allow the segment to deliver 10% annual revenue growth for Gematlo over the course of
the company’s long-term plan (out to 2017), accounting for approximately 10% of
incremental growth over the period.
While Gemalto competes with Sierra Wireless and Telit in the US$1bn connected module
market, the former is positioned more on the consumer side while the latter is more
enterprise-focused. Gemalto’s leverage to IoT is especially associated with M2M in the
Automotive OEM segment, where the company is expected to see a growth inflection, and
Covered by Alexander Duval, European Tech Hardware analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 40
newer areas including eHealth/mHealth as well as certain industrial and regulatory driven
segments such as toll collection remote monitoring.
The ASPs for M2M SIMs and M2M modules are a multiple of those seen on its SIM cards
used in handsets. This is because devices such as smartphones are typically in the hands
of users who can adjust settings/troubleshoot if there is a disturbance in the connection,
whereas machines that are deployed in the field in a M2M context are likely to be less
accessible, and hence must be more robust so as to facilitate remote management.
Moreover, security software is more robust vs. that found on telco SIMs, given data in a
machine to machine context may be industrially sensitive.
Competitive differentiation in M2M – Gemalto’s competitive differentiation in M2M
revolves around 1) its high security proposition, 2) the platforms it offers for managing
device subscriptions remotely (e.g., to ensure optimization of connectivity charges for the
end user) and 3) its open nature: it is based on Java and is agnostic as to whether devices
in the field are wired or wireless. Gemalto’s approach also involves driving intelligence into
the edge of the network that can manage a plethora of sensors, and is connected back to
the enterprise. Finally, Gemalto’s platforms allow for modules to be managed remotely in
whichever country they are operating in and regardless of the telco network. We expect
Gemalto’s leading Trusted Services Manager platforms to be increasingly applicable to
M2M remote management – e.g., to manage delivery of electronic car keys and/or for data
collection related to vehicle insurance.
Google (GOOGL, Neutral): Gathering more data, offering more
services
Company profile
Google is the largest online advertising company, with over $55bn in advertising revenues
in CY13 (+16% yoy, 91% of total revenues), driven primarily through the company’s
dominant search engine. According to comScore, Google handled over 67% of US web
search queries and 54% of worldwide queries. Google also develops the Android operating
system which held 78% share (759mn) of mobile devices shipped in 2013, up from 66%
share in 2012 (452mn), according to Gartner. Google has grown its topline +20% yoy for the
past three years, has a strong focus on innovative R&D (14% of revenues in CY13), while
still generating non-GAAP operating margins in the mid-30% range.
Exposure to IoT
For Google, we believe its role in IoT will be focused around developing an open software
platform that can be installed on any hardware device, similar to Android’s evolution on
smartphones. Further, though we expect Google to foster an ecosystem of third-party
developers for IoT, similar to that of Android, we note that to date we have not seen much
from Google in the development of this ecosystem.
A broad array of IoT initiatives – Many view Google’s IoT initiatives as being primarily
focused on home/security and automation to date as a result of the company’s $3bn
acquisition of Nest earlier this year. This deal pushed the company into the thermostat
market, and the company’s recent acquisition of connected camera-maker Dropcam further
solidified Google’s IoT positioning in the home security/automation vertical. That having
been said, we also expect Google to be a leader in emerging areas such as smart watches
and transportation in the future. Google’s development of self-driving cars, where a user
could summon a smart car from a mobile device is one area where the company is a
pioneer alongside Google Glass. We also expect the company to be a player in the area of
smart watches that leverage the Android operating system that ultimately will enable them
to offer vertical specific applications in the area of health and fitness to name a few. Lastly,
Covered by Heather Bellini, US Software & Select Internet analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 41
we see Google Now as a horizontal application that can be leveraged to help manage and
connect all of these devices to each other. For example, in the realm of driverless cars, after
summoning the car using a mobile device, the car would be able to know where one was
heading based on information inputted into the user’s calendar and could take the fastest
route depending on traffic by leveraging information accessed via its Maps applications.
IoT is in line with Google’s broader R&D strategy – In the past, Google has clearly stated
its R&D philosophy of only developing new products that pass the “toothbrush test” – the
product must be used as least twice a day. In this respect, we see Google’s IoT strategy
firmly passing the toothbrush test given that products like thermostats and glasses have
daily consumer use. More importantly, Google’s success to date has been based on its
ability to aggregate information and target its users with relevant advertising. Success in
IoT will clearly be a significant driver of information aggregation and increased targeted
advertising.
Multiple monetization opportunities with IoT – We see Google primarily generating IoT-
related revenue from advertising, but also see the potential for revenue streams from OS
licensing (like Android) and rev share agreements (like Google Play). Success in IoT has the
potential to significantly enhance Google level of targeted advertising, thereby increasing
its CPC. While we see Google’s IoT platform as driver of revenue (through licensing and
revenue share with third parties), we see platform success to be more critical to IoT’s
advertising revenue stream, as the popularity of the platform will drive both information
gathering and targeted advertising.
InvenSense (INVN, Buy): Early design wins on wearables although
still small part of total sales
Company profile
InvenSense is the leading MEMS-based motion sensor provider for mobile devices. The
company’s patented manufacturing process and position on the Android reference design
has resulted in strong market share on Android devices (as well as gross margins that are
well above peers). While motion sensors contribute the majority of its revenue, InvenSense
has expanded its portfolio into optical image stabilizers and microphones.
Exposure to IoT
Connected devices – While about 80% of InvenSense’s revenue came from the
smartphone and tablet markets in FY14, we believe the company is designed into the
Google Glass and Galaxy Gear watch. Given the small form factor of InvenSense’s sensors
as well as the company’s efforts to penetrate new customers and applications, we believe it
will continue to grow its business in the wearables market over time.
Marvell (MRVL, Neutral): Baseband and connectivity products
should allow Marvell to benefit
Company profile
Marvell is a fabless semiconductor company with solutions primarily for the storage,
mobile device, and networking markets. In FY14 (ending February 1, 2014), Marvell derived
49% of sales from its Storage segment, 25% from Mobile and Wireless, and 20% from
Networking. Marvell has a broad portfolio of processing, cellular baseband, connectivity
and networking chips and often integrates multiple technologies onto a single chip. Marvell
has very strong share in the storage market (we believe about 60-70% share of HDD and
SSD merchant controllers) and a smaller share position in the baseband, connectivity, and
networking end markets.
Covered by Mark Delaney, US IT Supply Chain and Semi analyst
Covered by Mark Delaney, US IT Supply Chain and Semi analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 42
Exposure to IoT
Connected homes and devices – Marvell is a leading connectivity and SoC provider for
game consoles (such as the Xbox), the Google Chromecast (provides connectivity,
processing, and power management), and home routers and access points. Marvell’s
technology portfolio includes Wi-Fi, Bluetooth, ZigBee, and NFC, and the company has
historically had 5-10% share of the connectivity market. We believe Marvell’s higher share
in home devices and routers will enable it to benefit from opportunities in the connected
home.
In addition to connectivity, Marvell has been investing in the 4G cellular baseband business,
and we believe it is well positioned to capture more than 10% share of the China 4G LTE
cellular baseband opportunity in 2014 (compared to low-single-digit global 3G baseband
market share). To the extent that connected devices use both cellular and connectivity
standards, this should be an opportunity for Marvell given its broad product portfolio.
Mediatek (2454.TW, Neutral): Tapping into the IoT market
Company profile
Mediatek is a leading fabless semiconductor company, providing integrated chipset
solutions for feature phone, smartphone, tablets, Wi-Fi, HDTV, DVD and Blu-ray.
Smartphone SOC (System-On-Chip) contributed 50% of total revenue in 2013 and we
forecast Mediatek to ship 350mn smartphone SOCs in 2014, or 52% share of the Chinese
smartphone SOC market.
Exposure to IoT
Mediatek started to tap into the IoT market and launched a series of new products and a
platform for connected home and wearable devices as follows.
Connected homes – On June 3, 2014, Mediatek announced two SOCs, MT7688 and
MT7681, targeting the smart home segment. MT7688 integrates MIPS CPU and memory,
supports 802.11n Wi-Fi connectivity and is the industry’s lowest power consumption Linux-
based SOC for smart home appliances. MT7681 is the smallest (5 x 5 mm in packaging)
802.11n SOC available for smart home applications, suitable for simple home appliance
such as smart lighting, door locks, and plugs. PMU, PA, and RF are integrated in the SOC.
Both SOCs are in mass production and customers’ products are expected to hit the market
in 2H2014.
Connected wearables – On June 3, 2014, Mediatek launched a platform, LinkIt, together
with an Aster SOC for the wearable and IoT markets. The Aster chip is in a package size of
5.4 x 6.2mm with an integrated ARM7 processor, Bluetooth, PMU, and memory. LinkIt
integrates the Aster SOC and is a developer platform supported by reference designs and
with software modules, which gives the developers flexibility to develop their own devices
and applications for different verticals. Notably, the platform features Mediatek’s own
proprietary OS (MRE, Mediatek Run-time Environment), which was used in Mediatek’s
Smart-Feature phones.
We believe Mediatek is in a favorable position to embrace the opportunity in the IoT market
by leveraging its leadership in cross-platform products (mobile phones, connectivity, TV,
and DVD) with its proved power-efficient and highly integrated solutions. Its solid and
diversified customer base in China could be the potential developers for devices in IoT
segment as well. We think that, by launching the LinkIt platform, Mediatek aims to cultivate
its own ecosystem of device makers, application developers, and service providers apart
from Android.
Covered by Donald Lu, Ph.D., China Technology and Telecom analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 43
Microcontrollers, microprocessors, and analog: Content gains in
auto, industrial and infrastructure
Analog and microcontrollers
Within our US coverage, Texas Instruments, Atmel, Freescale, Microchip, Maxim, NXP Semiconductors, and ON Semiconductor have exposure to secular growth in
MCUs and analog driven by IoT. These companies are broadline providers of analog and
microcontroller chips. As the IoT opportunity evolves, we believe the degree of incremental
growth/profitability that companies realize will be based on: (1) breadth vs. depth, and
whether companies decide to offer a wide range of MCU/analog products or focus on
specific applications; (2) end market exposure, with industrial/auto product cycles typically
being much longer and more profitable than consumer/mobile product cycles; and (3)
strategic uses of cash, with companies increasingly using M&A to improve their traction in
IoT. Recent examples of IoT-centric M&A include Linear Technologies and Dust Networks
(2011, $24 mn), Microchip and ISSC technologies (2014, $317 mn), Atmel and IDT Smart
Metering (2013, $10 mn) and Atmel and Ozmo Wi-Fi (2012, $64 mn). Outside the US,
Renesas, as the largest MCU vendor in the world, is likely to take an important role to
expand IoT devices in various areas, supplying not just to Japanese system vendors but
also to global players particularly in Auto industry and power system industry including
T&D and grid (meters). Since its positioning is very high in Auto already, Renesas may face
challenges to keep its share where it is today so as not to offset the additional growth
opportunity.
Microprocessors
Intel and AMD have been pursuing opportunities in the IoT space with embedded
microprocessors. Intel quantifies its exposure at about 3% today (including software), and
we estimate that AMD’s exposure is similar. Nvidia is targeting automotive applications
with its Tegra applications processor; we estimate its exposure is about 5% today.
Exhibit 36: Several of our companies have exposure to
secular growth in microcontrollers MCU exposure by company
Exhibit 37: MCU market share is fragmented
MCU market share, 2013
Source: Company data, Goldman Sachs Global Investment Research.
Source: Gartner, Goldman Sachs Global Investment Research.
Murata Mfg. (6981.T, Buy): Positioned to benefit most from IoT in
the technology upstream supply chain in Japan
Company profile
Murata Manufacturing is one of the world’s leading passive components manufacturers.
The company has at least a 40% share of the world market for MLCCs and at least a 50%
share in SAW filters. Not only has it grown sales of individual products such as MLCCs and
Exposure Company MCUs as a % of sales
High
Microchip ~65%
Atmel ~65%
Freescale 40% - 45%
Renesas 30% - 35%
Infineon 20% - 25%
NXP ~20%
STMicro 10% - 15%
Texas Instruments 5% - 10%
Low
Renesas, 24%
Freescale, 10%
STMicro, 8%
Microchip, 8%Infineon, 7%
Texas Instruments, 7%
NXP, 7%
Atmel, 6%
Other, 23%
Covered by James Covello and Gabriela Borges, US Semiconductor analysts, and Ikuo Matsuhashi, Japan Semiconductor analyst
Covered by Daiki Takayama, Japan Hardware analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 44
SAW filters, but also rapidly increased sales of communications modules in the last few
years. The number and value of Murata products used in mobile devices such as
smartphones and tablets have been rising. The weaker yen has helped in part to make
Murata’s products competitive against Asian rivals, and combined with its cutting-edge
technologies it is starting to see an increase in its market share. In sales terms, the top
three applications for Murata’s products in FY3/14 were communications (mainly
smartphones) at 51%, PCs (including tablets) and peripherals at 18%, and automobiles at
14%. We expect continued high growth, and our FY3/15 estimates are for revenue of
¥931bn, and operating profits of ¥150bn, up 19% yoy.
Exposure to IoT
Multiple IoT levers – Murata stands to benefit the most from IoT in the upstream part of
Japan’s technology supply chain, in our view. We highlight three reasons: (1) Murata has a
broad range of core technologies such as wireless communications devices, sensors,
passive components, and electrical storage devices; (2) it has a competitive edge in
hardware, including creating products with ultra-small footprints at much lower costs in
large volumes; and (3) it is seeking to add value by providing solutions to transmit required
data efficiently, not merely to send and receive data.
Near and long term adoption drivers – Murata envisages business fields expanding from
wearables, automobiles, and homes (smart homes and energy management) to structures
(buildings and roads) and agricultural crops in the next 5-10 years. For example, the
company is currently in the process of jointly developing with customers a system for
continuously obtaining only key data based on the concept of energy harvesting, which
involves “harvesting” small amounts of energy from external sources and converting it to
electricity, in the areas of roads and agricultural crops. At the same time, we focus on the
expansion of the wearables market in terms of its immediate impact on company earnings
due to scope for greater adoption of Murata products (we estimate Murata’s dollar content
will be US$1-2 per item).
Netgear (NTGR, Sell): The gateway in the home to the IoT
Company profile
Netgear is a provider of networking equipment to consumers, service providers, and small
businesses. The company has a 20% market share in the retail/SOHO Wi-Fi router market
and is considered to be the most premium brand in that segment. The company’s Retail
business unit represents roughly 33% of sales and sells Wi-Fi routers, extenders, and home
video monitoring equipment. The Commercial business unit represents roughly 23% of
sales and sells switches, Wi-Fi equipment, firewalls, and storage to small businesses
through its channel partners. The Service Provider business unit sells cable, DSL, and LTE
home gateways to service providers and represents 44% of sales.
Exposure to IoT
Wi-Fi routers offer gateway to IoT – Netgear’s strong position within the home as the
connection between devices and the internet will allow it to be an enabler of IoT. Smart
appliances, home security, and sensors will need to be connected to the internet through a
home router and Netgear’s products will be the gateway to the internet for these products.
While Wi-Fi routers are already the gateway to the internet inside of homes, the
proliferation of IoT will increase the performance requirements of Wi-Fi routers and
increase the importance of Wi-Fi in the home given that we believe Wi-Fi will be used by
most connected devices. Given Netgear is typically associated with high-performance
routers, IoT could be a modest driver of sales for the company.
Covered by Kent Schofield, US Smid-cap CommTech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 45
IoT for the home and small business – Netgear’s product portfolio includes other
products that play a direct or indirect role in facilitating the IoT at homes and small
businesses, such as mobile broadband gateways, Wi-Fi range extenders, connected
entertainment devices, home video monitoring, wireless IP cameras, and touch panels. We
believe the largest of these products today from a revenue standpoint are the Wi-Fi range
extenders, which extend the reach of the Wi-Fi signal created by the broadband router or
gateway in the home. In addition, Netgear’s acquisition of VueZone gave it a credible entry
in the fragmented home video monitoring (“nanny cam”) market. Netgear’s connected
entertainment devices include streaming players, gaming and home theater adapters, and
wireless display adapters, which all enable users to access entertainment from a multitude
of devices at home.
Home security and automation – Leveraging Netgear’s service provider partners, the
company hopes to bring broadband to more homes, and build out its presence in home
security and automation. Through the Sierra Wireless AirCard acquisition, Netgear brought
more of the technology in-house to produce wireless broadband gateways, which provide
Wi-Fi in homes and small businesses via carriers’ cellular networks. Netgear has won deals
with Bell Mobility in Canada and Sprint in the US for commercial deployments, but we do
not expect this to be a meaningful driver until 2015 or beyond. Additionally, Netgear
provides home video monitoring products that can be offered as a service from a carrier or
cable provider. One of Netgear’s more recent product launches is a home touch panel. This
device enables customers to control security systems, lights, thermostats, etc. as the
central hub of the connected home.
Nokia (NOK1V.HE, Not Rated): Leveraged to the Automotive
vertical with the HERE mapping platform
Company profile
Following the announced disposal of Nokia’s handsets business to Microsoft, the majority
of the group’s revenue base comes from its Networks business, which occupies the
number-three position globally in the wireless infrastructure market, behind peers Ericsson
and Huawei. Alongside this, however, Nokia’s mapping IP business, HERE, represents
about 8% of ex-handsets revenues. The company’s strategic review announced at the time
of 1Q14 results stated that this asset will remain part of Nokia’s business.
Exposure to IoT
HERE mapping and automotive – Nokia’s exposure to IoT stems predominantly from its
ownership of the HERE mapping platform, and the latter’s strength within the Automotive
vertical. Nokia and Google are the only major players in the automotive mapping market,
and HERE is considered to have the best map production engine and the most accurate
maps (as its data probes for feedback into the mapping database are the highest quality).
HERE has captured roughly 80% of the total automotive mapping market.
Nokia sees great potential for in-dash mapping which has a penetration of close to 25% in
Western markets and is expected to rise significantly over the next five years. Nokia sees
its future growth in this area not only as a function of addressable end units growing (as a
function of rising penetration of in-dash) but also of scope to increase ASPs by moving up
the value stack to provide more content and services, rather than just maps. Nokia has
already invested $100mn in the development of connected car technology.
Covered by Alexander Duval, European Tech Hardware analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 46
Qualcomm (QCOM, CL-Buy): Extending cellular and connectivity
leadership from smartphones into the IoT
Company profile
Qualcomm is the leading smartphone cellular chipset and application processor provider,
with an estimated market share in the high 60%s of CDMA/WCDMA/LTE devices. Its
customers include essentially all major handset and tablet companies, and many of the
emerging handset vendors as well. Over the past three years, Qualcomm has led the LTE
cellular baseband market, sustaining over 90% share in that segment. The company also
has a leading presence in the Wi-Fi market as a result of its 2011 acquisition of Atheros.
Beyond handsets and tablets, Qualcomm’s end markets include Wi-Fi access points,
automobiles, small cells, and healthcare, to name a few. Over two thirds of company
revenues come from the sale of chipsets. Qualcomm’s licensing business accounts for the
remaining one third of revenues; however, this segment accounts for over two thirds of
operating profit given its high margins. Owning most of the IP behind CDMA/WCDMA and
much of LTE, Qualcomm gets a royalty from every device that uses its technology. We
forecast 9% revenue and 13% EPS CAGR from FY13 to FY16 as a result of Qualcomm’s
market leadership and leverage to continued smartphone growth and LTE expansion.
Exposure to IoT
Qualcomm stands to benefit from the proliferation of IoT from both a chipset and licensing
standpoint, as it can leverage its leadership position in wireless connectivity (3G/4G, Wi-Fi,
Bluetooth, GPS, etc.) in a wide range of new applications from wearables to smart homes
to automobiles.
Connected cars – Qualcomm is emerging as the leader in cellular chips for automobiles;
for example, BMW will have LTE connections in 100% of its cars starting with the 2014
model year, and all of its LTE chips will be Qualcomm’s. In addition to BMW, Qualcomm is
working with Audi and GM, among others. While some car manufacturers (e.g., Tesla) use
3G connections, demand is rapidly shifting to 4G/LTE, given the expected 10-year-plus
lifecycle of a car. Given the long design cycle of 3-4 years, we believe that Qualcomm is
well positioned to lead the auto 4G chipset space, as it translates its 90%-plus market share
in LTE for handsets over the past two years to a similar market share in cars. Beyond LTE
use for diagnostics and safety, Qualcomm’s content opportunity in cars extends to the full
system-on-chip (SoC) for infotainment, including the baseband, application processor, Wi-
Fi, and Bluetooth. Longer term, active driver assistance systems (ADAS) present a new
adjacency that will drive incremental content.
Connected homes – Qualcomm is leveraging its strong presence in home networking
through its Atheros acquisition for its expansion into home automation. In November 2013,
Qualcomm announced the IPQ (Internet Processor Qualcomm), which aims to convert the
home router to a smart router – similar to the feature phone to smartphone transition. IPQ
SoCs are integrated CPU/GPU chips specifically designed for home network functions such
as home gateways, routers, and media servers. Essentially, the IPQ is a low-power, high-
performance processor to handle the growing number of devices in a home. More broadly,
Qualcomm can pair processors and connectivity together with smart appliances, connected
TVs, or other devices. In addition, Qualcomm is also actively pursuing new connectivity
technologies and standards, such as 802.11ah and MU-MIMO (multi-user multiple-input
multiple-output) Wi-Fi.
Connected wearables – Qualcomm is also targeting the connected wearables space, such
as smart glasses, watches, trackers, body sensors, and wearable cameras, with its
application processors and Wi-Fi chips.
Small cells – By leveraging its leadership in connectivity and 3G/4G, Qualcomm is also
targeting the small cell opportunity. Small cells enhance both coverage and network
Covered by Simona Jankowski, US CommTech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 47
capacity by distributing the burden of cellular connection away from macro cells.
Qualcomm has launched a number of SoCs (FSM90xx, FSM99xx) designed specifically for
small cells by bringing LTE and Wi-Fi together with the Qualcomm IPQ. We expect small
and Wi-Fi cells to proliferate as the key network infrastructure enabler of IoT.
Smart grid – Qualcomm has formed partnerships with Itron, Landis+Gyr (part of Toshiba),
Honeywell, and GE in the smart meter market and is currently discussing connecting smart
meters through cellular networks with utilities in the UK and Japan.
Quanta (2382.TW, Neutral): Rising data flows create growth
opportunity in cloud computing
Company profile
Quanta designs and manufactures diverse IT products including PC, tablet, server,
consumer electronics mainly on an ODM basis serving global top-tier IT vendors such as
Apple, HP, Dell, ASUS, Acer, etc. Quanta is currently the largest NB ODM in terms of
shipment with global market share at around 24% in 2013. Quanta’s server/storage/switch
business has become its most significant sales/profit growth drivers when it has
transformed its server business from ODM project to direct account sales (shipment made
directly to end user instead of branded server vendors). Quanta has also been engaged in
development of wearable device and we expect to see more meaningful sales contribution
from 2014 on several project wins.
Exposure to IoT
We expect the emerging IoT trend would increase the demand for server and storage as
more and more data collected by connected devices needed to be stored and analyzed on
the cloud. Currently the cloud infrastructure is mostly provided by service/content
providers (such as ISPs like Google, Amazon, Baidu) or private cloud built by enterprise.
We see growth opportunity for Quanta’s cloud business, as it has increased its direct
engagement with global top ISPs and also enterprise customers, supplying customized
server systems to international ISPs or even comprehensive data center solutions
according to customer’s demand. Quanta’s server-related business accounts for around
10% sales and 28% profit in 2014E and we expect sales and profit contribution to reach
13%/37% in 2016E.
Ruckus Wireless (RKUS, Buy): Pure-play Wi-Fi vendor in the sweet
spot of IoT
Company profile
Ruckus is a provider of Wi-Fi access points (AP) and controllers to both service provider
and enterprise customers. Roughly two thirds of its revenues are derived from enterprises,
and the other one third from service providers. Ruckus is a leader in the service provider
Wi-Fi market with roughly 20-25% market share (Cisco is the other leader with a similar
level of share). Within the enterprise vertical, Ruckus has about 5% share, which makes it
third behind Cisco and Aruba Networks. Within Enterprise, Ruckus primarily addresses the
hospitality, K-12 education, retail, and warehousing verticals. From a technology
perspective, Ruckus differentiates with its adaptive antenna technology to reduce
interference, improve throughput, and lower total cost of ownership. The company, which
went public in late 2012, grew revenues at a three-year CAGR of 52% to reach $263mn in
2013, and we are forecasting a 2013-2016 revenue CAGR of 27% to $539mn in 2016.
Covered by Robert Yen, Taiwan CommTech/Hardware analyst
Covered by Simona Jankowski, US CommTech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 48
Exposure to IoT
Enterprise and service provider exposure – We view Ruckus as the networking
equipment vendor most leveraged to IoT, given its pure play exposure to Wi-Fi, which we
view as the dominant IoT access technology. As we discuss above, we estimate that Wi-Fi
attach of IoT devices could drive an incremental 50% growth in the Wi-Fi access point
market by 2020, representing a 6% CAGR. Ruckus’ strong technology differentiation
positions it well for future adoption, which is further supported by key customer references,
such as Time Warner Cable, Boingo, Google, KDDI, Telefonica, Orange, AT&T, and others.
New products expand addressable market – Ruckus has recently launched a number of
new technologies that further differentiate its product offering and expand its addressable
market. Most importantly, the virtual Smart Cell Gateway (vSCG) virtualizes Ruckus’
carrier-grade and highly scalable controller technology, and thus enables the company to
sell it as licensed or subscription software that runs on standard x86 servers in service
providers’ data centers. In addition, earlier this year Ruckus launched SPoT, a location-
based service targeting retail customers, and SAMs, a hosted public cloud Wi-Fi service,
both of which are subscription based.
Samsung Electronics (005930.KS, Buy): Widest hardware reach in
IoT
Company profile
Samsung Electronics (Samsung) is the largest memory semiconductor, AM OLED panel,
smartphone, and flat panel TV manufacturer globally and also has strong positioning in
logic semiconductors, TFT-LCD panels, and home appliances. The company has enjoyed
robust earnings growth over the past few years as it has taken advantage of the growth of
smart devices. Samsung’s EPS has grown by a CAGR of 49% from FY11 to FY13. Although
smartphone unit growth is expected to slow, we see new opportunities for Samsung in the
upcoming years. New trends such as IoT and wearable tech combined with the ability to
commercialize new technologies such as flexible AM OLED display and V-NAND before
competitors should help to continue to differentiate Samsung’s products. We believe that
this should help to play an important role in our forecast revenue and EPS CAGRs of 6.2%
and 7.4% from FY13 to FY16, respectively.
Exposure to IoT
As the largest maker of mobile smart devices (smartphones and tablets) Samsung is well
positioned for the growth of IoT. However, unlike other smart device makers, Samsung has
added advantages in that (1) it dominates high traffic hardware real estate in the home as
the largest TV maker in the world and a leading appliance maker and (2) it has software
capability that can address platform and security opportunities. We outline several
opportunities for Samsung below.
Smart device market share leader – Samsung is the largest maker of smart devices
(smartphones and tablets) with 362mn devices shipped in 2013 for an estimated market
share of 30%. With unmatched scale, design times, in-house component development &
sourcing, and distribution, we expect Samsung to maintain its leadership in smart mobile
devices. We expect this to be especially true as Samsung introduces plastic-based AM
OLED displays in late FY14 which could open the door for new smartphone/tablet form
factors (bended and bendable) and more sophisticated wearable smart devices.
Ownership of hardware in the home – Samsung is the largest TV maker in the world
(22% market share in 2013) as well as a leading white goods maker. This is especially
relevant in IoT because these are devices that are among the most used in the household
and are always connected to a power source. Therefore, these types of devices have
Covered by Michael Bang, Korea Tech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 49
potential to act has a gateway to the house or hub for the connected home but also make
Samsung more relevant with consumer mindshare.
Platform and security a unique advantage – With leading market shares in mobile smart
devices and key high traffic devices in the home, Samsung is well positioned to create a
hardware platform of Samsung devices. While Samsung has indicated that it plans on
creating an open platform where all makers are welcome, it goes without saying that
communication and integration between Samsung devices could be more efficient than
between devices created by other makers. Of note, this does not mean that Samsung is
abandoning Android. We interpret Samsung’s development of an independent platform as
the fact that Android may have not well equipped for connected homes at the time
Samsung started connect home/IoT development. In addition, Samsung introduced the
KNOX container security for smartphones in 2013. KNOX could also be used on Samsung’s
IoT platform.
Revenue opportunity needs development – At this point, we believe that Samsung’s
positioning within IoT will help Samsung to sustain and/or increase market share within its
specific device verticals. Subscription revenue opportunities have yet to be developed for
KNOX or other IoT type services. Successful commercialization of subscription services
could result in upside risk to our estimates. Nevertheless in our view, we believe that these
opportunities are secondary as Samsung is more interested in increasing its hardware
footprint in the home and mind share among consumers.
Silver Spring Networks (SSNI, Buy): Connected city pure play –
smart meters, street lighting, and beyond
Company profile
Silver Spring Networks is a provider of smart grid networking solutions designed for utility
power grid management. The company produces standards-based, Internet Protocol (IP)
communication modules that are installed into meters (manufactured by other companies
like GE and Landis+Gyr), which connect wirelessly via radio frequencies. Silver Spring has
networked nearly 19mn endpoints and has a backlog of about $1bn. In addition to the sale
of communication modules, Silver Spring offers professional services such as network
planning, installation, and maintenance (about 11% of total revenues) and managed
services, where Silver Spring will collect, manage, and analyze a network of endpoints on
behalf of its customers (about 10% of revenues). At the end of 2013, Silver Spring had 35
total customers. BG&E and ComEd represented 27% and 11% of 2013 billings, respectively.
Exposure to IoT
Smart grid communication modules – Silver Spring is a market share leader in smart
grid, having won over 50% of the end points awarded in the US in 2013, bringing its
cumulative market share to about 33%. In addition to the 19mn networked endpoints,
Silver Spring has a backlog of about 9mn endpoints or $1bn. Furthermore, it estimates an
additional 26mn endpoints in its pipeline of pilots and partial deployments. We believe
Silver Spring’s connectivity technology (which spans 900MHz, 2.4GHz, cellular, ZigBee, and
Wi-Fi) combined with its full platform approach (managed services and applications such
as Distribution Automation and Demand Side Management) position it well within a very
large smart meter addressable market of approximately 1.5bn homes and business
endpoints (implying penetration is still only about 15%).
Expanding into street lighting – In mid-2013, Silver Spring leveraged its smart meter
communication technology to enter the smart street light vertical. It estimates the market is
about 300mn endpoint global opportunity. Silver Spring already has achieved a number of
Covered by Simona Jankowski, US CommTech analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 50
reference customer wins, including Copenhagen, Dublin, Miami, Oslo and Paris, and
Dongguan and Foshan in China.
TE Connectivity (TEL, Buy): Auto and industrial connector exposure
with increasing focus on sensors
Company profile
TE Connectivity is a leading provider of connectors and components with a focus on the
automotive (about 40% of sales), industrial (20-25% of sales), and networks (20-25% of
sales) end markets. TE’s revenue comes primarily from connectors but its product offerings
also include sensors, relays, antennas, and subsea communication.
TE is the largest connector company globally based on sales, and it has nearly 20% share
of the approximately $50 bn global connector market. TE’s share in other end markets is
smaller. For example, its organic sensor business (tied to auto and industrial) drives about
$200 mn of revenue in a $40 bn addressable market. However, TE’s proposed acquisition of
Measurement Specialties (which TE expects to add well over $500 mn of sales in year one
if the deal closes) would significantly expand TE’s exposure to the sensor market.
Exposure to IoT
Connected cars, cites, and industrial equipment – We expect TE to benefit from growth
in connected cars, cities, and industrial equipment. While we view the IoT as a continuation
of the long-term trend of increased auto and industrial connector content per unit, we
believe the addition of new electronic features and connectivity will drive more power and
data connections. Given TE’s high exposure to industrial and auto, we believe that TE will
be a primary beneficiary.
Expanding presence in sensors – Additionally, TE’s sensor business would increase to a
mid-single-digit percentage of total revenue pro forma for the proposed Measurement
Specialties acquisition, and this would give TE a broad portfolio of pressure, position, force,
temperature and humidity sensors. Measurement specialties is exposed to the trucking
(39% of sales), industrial (39% of sales), medical (10% of sales), consumer (6%), and A&D
(5%) markets. Its end applications include areas that could benefit from IoT such as traffic
pattern sensing, healthcare monitoring, and exercise equipment.
Toshiba (6502.T, Neutral): Top supplier of smart meters
Company profile
Toshiba is an integrated electronics maker, particularly well known for its leading position
in NAND flash memory, Nuclear systems, and Power meters. For NAND, together with its
partner SanDisk, it is the top share player in the market. For Nuclear, with the acquisition of
Westinghouse in 2006, and for Power meters, with the acquisition of Landis+Gyr in 2011,
Toshiba has become a global leading player for both with 30% market share.
Exposure to IoT
We expect Toshiba (L+G) to remain the top supplier of smart meters and believe it could
benefit from any incremental acceleration in the shift to smart meters from legacy meters.
Leveraging the L+G channel, Toshiba also targets selling its T&D systems, which are back-
end systems, to grid companies, which contributes to building out smart grid networks.
The CO2 reduction targets set in the US market should drive the development of smart
grids, which in turn could trigger the actual usage of smart meters that are already installed
and provide further opportunity.
Covered by Mark Delaney, US IT Supply Chain and Semi analyst
Covered by Ikuo Matsuhashi, Japan Integrated Electricals/Semiconductors analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 51
Wistron NeWeb (6285.TW, Neutral): Expert in wireless solution
embracing IoT trends
Company profile
Wistron NeWeb (WNC) designs and manufactures wireless connectivity products on
ODM/JDM/OEM bases with a wide range of end-applications, including home devices,
mobile, automotive, and enterprise applications. WNC is also a global leading supplier of
satellite communication systems such as LNB (low-noise block) for satellite TV, satellite
radio, and HD Radio receiver systems. WNC has recently shifted more of its resources to
focus on home and automotive applications to catch up the connectivity trend in smart
homes and motor vehicles by leveraging its core strength in RF technology.
Exposure to IoT
IoT wireless modules – We expect WNC to benefit from the rising IoT trends, as wireless
connectivity is an essential ingredient for IoT, enabling ubiquitous wireless communication
between external data/service and end devices. WNC is experienced in supplying wireless
modules with different connectivity technologies covering Bluetooth, Wi-Fi, Cellular,
ZigBee/Z-Wave according to the different requirements of the “things.”
Home and Automotive – Its current IoT exposure mainly lies in two categories: (1) Home
products include Wi-Fi/Cellular products (IAD, small cell), wireless modules (Wi-Fi,
Bluetooth, Cellular), and connected smart devices (Energy management, automation, and
security etc.) that enable consumers to establish a well-connected environment in the
home and (2) Automotive products mainly include Telematics boxes, Bluetooth + Wi-Fi
modules, and Cellular M2M modules inside the vehicle that enable passengers to connect
their own devices to the car and connect the car to parties such as other vehicles or
external data services from third-party service providers.
For 2014E, we do not expect WNC’s IoT exposure to be significant, as it still has a large
portion of sales coming from its legacy Satellite product (TV and Radio). We estimate the
IoT-related revenues to be approximately 12% from Smart Home (excluding commodity
wireless product such as routers and Wi-Fi-Bluetooth modules) and approximately 6% from
Automotive. We expect that Home/Automotive connectivity sales could rise to 20%/17% in
2016E on the rising trend of IoT, as WNC has penetrated into several key customers in
Smart Home device vendors and top-tier car module makers.
Covered by Robert Yen, Taiwan CommTech/Hardware analyst
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 52
Exhibit 38: Summary of ratings, price targets, and price target methodology
Source: Goldman Sachs Global Investment Research.
Company TickerPrice
6/25/2014Rating
12-month Price target
Methodology Risks
Aerohive Networks, Inc. HIVE $8.99 Buy $13.00 EV/S Risks include competition, vertical exposure, and large venture ownership.
Advanced Micro Devices, Inc. AMD $3.96 Sell $2.50 EV/EBITDA, M&A Key risks relate to PC and gaming units, market share, margins, and M&A.
Amphenol Corp. APH $96.13 Neutral $92.00 Normalized P/E Orders, M&A integration, and margins.
Apple Inc. AAPL $90.36 Buy $103.00 P/E Downside risks include delayed product cycles, supply chain difficulties, product price erosion, and a slower pace of product innovation.
ARM Holdings plc ARM.L £8.86 Buy £14.00 DCF Increased competition, slowing innnovation, and market share limits.
Aruba Networks, Inc. ARUN $17.36 Neutral $24.00 P/E Key risks include market growth and gross margin expectations.
Atmel Corporation ATML $9.23 Neutral $8.50 Normalized P/E Market share, margin trajectory, cyclical dynamics.
BlackBerry Limited BBRY $9.98 Neutral $10.00 Sum of the parts Upside risks include M&A or a turnaround. Downside risks are deteriorating smartphone market share and declining service revenues.
Broadcom Corporation BRCM $37.16 Neutral $37.00 Normalized P/E Market share, execution on baseband divestiture.
Cisco Systems, Inc. CSCO $24.72 Buy $29.00 P/E Primary risks include a deteriorating macro environment, heightened competition, commoditization trends in technology, and execution.
Delta Electronics 2308.TW NTD 205.00 Buy NTD 208.00 P/B Global economic slowdown, rising raw material prices.
Freescale Semiconductor Ltd. FSL $23.38 Buy $27.00 Normalized P/E Market share, cyclical dynamics.
Garmin Ltd. GRMN $59.95 Neutral $60.00 P/E Upside risks include share gains and diversification. Downside risks include PND declines and Fitness competition.
Gemalto GTO.AS € 76.15 Buy € 123.00 EV/EBITDA, M&A Key risks include slower-than-expected rollout of LTE/4G, mobile payments and/or EMV technology.
Google Inc. GOOGL $585.93 Neutral $600.00 DCF, EV/EBITDA, and P/E
Material acceleration in search volumes, better-than-expected display and mobile growth, faster than expected cost growth, and increasing competition.
InvenSense, Inc. INVN $21.99 Buy $20.00 Normalized P/E, M&A
Market share, pricing pressure.
Intel Corp. INTC $30.88 Sell $18.00 Normalized P/E PC market trends, change in strategy, lower capex.
Marvell Technology Group Ltd. MRVL $14.49 Neutral $17.00 Normalized P/E Market share, pricing pressure, capital allocation.
Maxim Integrated Products MXIM $33.97 Buy $41.00 Normalized P/E Market share, cyclical dynamics.
Mediatek 2454.TW NTD 505.00 Neutral NTD 441.00 P/B Faster or slower-than-expected LTE transition in China, competition.
Microchip Technology Inc. MCHP $48.84 Neutral $49.00 Normalized P/E Market share, cyclical dynamics.
Mitsubishi Electric 6503.T ¥1,274 Sell ¥1,170 P/B Yen decline, high smartphone investment.
Murata Mfg. 6981.T ¥9,390 Buy ¥10,700 EV/GCI vs CROCI/WACC
Risks of slowing growth on smartphone maturation or forex fluctuations.
Netgear, Inc. NTGR $34.15 Sell $31.00 P/E Upside risks include capital allocation, better AirCard ramp, and SP customer wins.
Nokia NOK1V.HE € 5.66 Not Rated
NXP Semiconductors N.V. NXPI $64.58 Neutral $51.00 Normalized P/E Market share, cyclical dynamics.
ON Semiconductor Corp. ONNN $9.07 Neutral $9.50 Normalized P/E Trajectory of margins, execution on M&A, SSG growth and profitability.
QUALCOMM, Inc. QCOM $78.05 Buy $95.00 P/E Unfavorable license negotiations, lower than expected ASPs, macroeconomic weakness, and increasing competition.
Quanta Computer 2382.TW NTD 84.30 Neutral NTD 77.00 P/B Market share shift; non-NB business; FX gains/losses.
Renesas Electronics 6723.T ¥800 Sell ¥590 P/E Smaller-than-expected contraction in sales from product withdrawals, penetration of broad-based price hikes for products such as MCUs, further yen depreciation.
Ruckus Wireless, Inc. RKUS $11.42 Buy $18.00 EV/S, M&A Competition, execution, and lumpiness of deployments.
Samsung Electronics 005930.KS � 1,320,000 Buy � 1,600,000 EV/GCI vs CROCI/WACC
Weaker smartphoine units/margins & memory prices, slow new business growth, unfavorable litigation rulings, and sudden currency movements.
Silver Spring Networks, Inc. SSNI $13.40 Buy $22.00 EV/S, M&A Downside risks include competition, lumpiness, lack of new customers, regulatory and legal developments.
STMicroelectronics STM.PA € 6.77 Neutral € 7.40 EV/EBITDA Adverse cyclical dynamics, market share loss, capex intensity, and currency.
TE Connectivity Ltd. TEL $61.04 Buy $66.00 Normalized P/E Revenue, margins, and capital allocation.
Texas Instruments Inc. TXN $48.04 Neutral $42.00 Normalized P/E Market share, cyclical dynamics.
Toshiba 6502.T ¥471 Neutral ¥460 P/B Larger-than-expected increases/decreases in NAND price and forex fluctuations.
Wistron NeWeb Corp. 6285.TW NTD 71.00 Neutral NTD 70.00 P/B Penetration rate of in-car and home connectivity; market share shift.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 53
Emerging Technology Research: Private Companies to Watch
Exhibit 39: List of private IoT focused companies (not a complete list)
Source: Company data, TechCrunch, Cisco, Goldman Sachs Global Investment Research.
Company DescriptionWearablesAmiigo Activity tracker band, compatible with iOS and AndroidBasis Health tracker and wrist bandEvado Filip Locator and phone designed for children, with GPS, Wi-Fi, and GSMFitbark Dog activity monitorFitbit Health and activity trackerGibi Technologies Dog tracker, virtual fences, real time updates and GPS location servicesJawbone Fitness bands and wireless speakers and headsetsPebble Smartwatchremee Lucid dreaming sleep maskThimble Bioelectronics Portable pain management technologyWahoo Fitness Wearable monitors, bike computers, and sports bandsWithings Activity trackers, blood pressure monitors, smart scales
Connected CarsDashlabs Bluetooth pairing between car and smartphone; vehicle diagnosticsMojio Cellular and GPS module that connects to car's diagnostic portOpenXC Hardware module and open source API platform for automobiles
Connected HomesAlarm.com Cloud-managed, home automation and security platformAyla Networks Communication modules, software, and services for home controls, HVAC, and appliancesBelkin WeMo home automation, Echo water and power solutions, and Linksys home networkingBitponics Wi-Fi sensors for hydroponic garden managementCanary Home security in a module, with video, sensors, and connectivityEcobee Wi-Fi thermostatElectric Imp Wi-Fi and processor module that connects to a variety of home devicesGood Night Lamp Home lighting solution, without the need for Wi-Fi or home internet connectionHomeMonitor Wi-Fi video cameraiGrill Bluetooth enabled grill thermometeriSmartAlarm Connected video cameras, contact sensors, and motion sensorsKoubachi Wi-Fi planet sensor, plant analytics and diagnosticsKwikset Connected locks, use smartphones as key or grant remote accessLapka Sensors to detect radiation, humidity, nitrates in food, or electromagnetic fieldsLIFX Wi-Fi enabled, multi-color LED light bulbsLively Custom activity sensors attached to keys, medication boxes, refrigerators, etcLockitron Connected locks, use smartphones as key or grant remote accessNetatmo Remote home thermostat and indoor weather beaconNinjablocks Temperature and humidity sensors, motion sensors, window/door sensorsOort Bluetooth hub and software to control sensor systems (beacons, power strips, thermometers, Rediator Labs Wi-Fi controlled home radiator coverRevolv Wi-Fi hub to control other connected devicesSmartThings Smartphone app to control and monitor connected home devicesTado Smart thermostatUbi Wi-Fi enabled, voice operated computer that plugs into an outletWovyn Wireless sensors for home automation
AdhereTech Wireless medication bottlesBigBelly Solar Modules for city-wide trash and recycling collection dataBit Stew Systems Advanced metering management systemC3 Energy Smart grid analytics softwareEnlighted Sensor and analytics platform for commercial environments, targets energy cost savingsEuclid Wi-Fi, location based customer analytics for retailersNomi Location based services and connectivity designed for retailers, restaurants, hospitality, and morePlacemeter Video surveillance analytics, provide insight into real-time traffic and movementTelcare Cellular enabled blood glucose meterTrilliant Smart meter communication modules and analytics
PlatformsAxeda Cloud-based service for managing connected devices and machinesEVRYTHNG Platform to discover and track internet connected devicesJasper Purpose-built IoT IT platform for Cars, Devices, and EnterprisesMesh Systems M2M communication software and wireless sensor networkPhunware Consumer web portal for location based experiences (shopping, traveling, museums, etc) via Wi-Fi, GPS, BluetoothZonoff Software to enable home automation, energy management, and safety monitoring
Connected Cities / Industrial / Medical
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 54
Disclosure Appendix
Reg AC
We, Simona Jankowski, CFA, James Covello, Heather Bellini, CFA, Michael Bang, Ikuo Matsuhashi, CMA, Bill Shope, CFA, Daiki Takayama, Mark
Delaney, CFA, Donald Lu, Ph.D, Robert Yen, Gabriela Borges, Alexander Duval, Kent Schofield, Doug Clark, CFA and Balaji Krishnamurthy, CFA,
hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or
their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or
views expressed in this report.
Investment Profile
The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and
market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites
of several methodologies to determine the stocks percentile ranking within the region's coverage universe.
The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows:
Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate
of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend
yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.
Quantum
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in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
GS SUSTAIN
GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list
includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and
superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate
performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the
environmental, social and governance issues facing their industry).
Disclosures
Coverage group(s) of stocks by primary analyst(s)
Simona Jankowski, CFA: America-Communications Technology. James Covello: America-Semi Device, America-Semiconductor Capital Equipment.
Heather Bellini, CFA: America-Software. Michael Bang: Asia Pacific Media, Korea Technology. Ikuo Matsuhashi, CMA: Japan-Integrated
Elec./Semicon, Japan-Telecom & IT Services. Bill Shope, CFA: America-IT Hardware/Systems. Daiki Takayama: Japan-Electronic Components. Mark
Delaney, CFA: America-IT Supply Chain: Components, America-IT Supply Chain: Distributors, America-IT Supply Chain: EMS, America-Semi Device.
Donald Lu, Ph.D: China Technology, China Telecoms. Robert Yen: Asia Pacific Technology. Gabriela Borges: America-Semi Device. Alexander Duval:
Europe-Communications Technology, Europe-Semiconductor & Tech Hardware. Kent Schofield: America-Communications Technology.
America-Communications Technology: ADTRAN, Inc., Aerohive Networks, Inc, Aruba Networks, Inc., BlackBerry Limited, Broadsoft, Inc., Brocade
Communications Systems, Calix, Inc., Ciena Corp, Cisco Systems, Inc., Corning Inc., Cyan, Inc., F5 Networks, Inc., Finisar Corp., Garmin Ltd.,
Gigamon Inc., Infinera Corp., Infoblox Inc., JDS Uniphase Corp, Juniper Networks, Inc., Motorola Solutions Inc., Netgear, Inc., Polycom, Inc.,
QUALCOMM, Inc., Riverbed Technology, Inc., Ruckus Wireless, Inc., Silver Spring Networks, Inc..
America-IT Hardware/Systems: Apple Inc., CDW Corporation, EMC Corporation, Emulex Corp., Fusion-io, Inc., Hewlett-Packard Co., Ingram Micro Inc.,
International Business Machines, Lexmark International Group, NetApp, Inc., Nimble Storage, Inc., QLogic Corp., SYNNEX Corp., Seagate
Technology, Tech Data Corporation, Western Digital Corp., Xerox Corp..
America-IT Supply Chain: Components: Amphenol Corp., CommScope Holding Company, Inc, Sensata Technologies Holding N.V., TE Connectivity
Ltd..
America-IT Supply Chain: Distributors: Arrow Electronics Inc., Avnet, Inc..
America-IT Supply Chain: EMS: Flextronics International Ltd., Jabil Circuit, Inc., Plexus Corp., Sanmina Corp..
America-Semi Device: Advanced Micro Devices, Inc., Altera Corp., Analog Devices, Inc., Atmel Corporation, Avago Technologies Ltd, Broadcom
Corporation, Freescale Semiconductor Ltd., Hittite Microwave Corp., Intel Corp., International Rectifier Corp., InvenSense, Inc., Linear Technology
Corp., Marvell Technology Group Ltd., Maxim Integrated Products, Microchip Technology Inc., Micron Technology Inc., Microsemi Corp., NXP
Semiconductors N.V., Nvidia Corp., ON Semiconductor Corp., SanDisk Corporation, Texas Instruments Inc., XILINX Corp..
America-Semiconductor Capital Equipment: Advanced Energy Industries, Inc., Applied Materials, Inc., KLA-Tencor, Lam Research Corp., MKS
Instruments, Inc., SunEdison Semiconductor Limited, Teradyne, Inc..
America-Software: Adobe Systems Inc., Akamai Technologies, Inc., Autodesk Inc., Citrix Systems Inc., Facebook, Inc., Google Inc., Jive Software, Inc.,
Microsoft Corp., Oracle Corp., Red Hat, Inc., Rovi Corp., Sabre Corporation, Splunk, Inc., Tivo Inc., VMware, Inc., Workday, Inc., salesforce.com, Inc..
Asia Pacific Media: Astro Malaysia Holdings Berhad, Autohome Inc, Baidu.com, Inc., CJ E&M Corporation, Changyou.com, Ctrip.com International,
Daum Communications, Dish TV India, Info Edge India Ltd, Jumei International Holding Limited, Just Dial Ltd, Makemytrip Ltd, NAVER Corporation,
NCSOFT, New Oriental Education & Technology Group Inc. (ADR), Nord Anglia Education, Inc., Qihoo 360 Technology Co. Ltd., Qunar.com, SINA
Corporation, Sohu.com, SouFun Holdings Limited, Sun TV Network, TAL Education Group, Tarena International, Inc., Television Broadcasts, Tencent
Holdings, Vipshop Holdings Limited, Weibo Corporation, Xueda Education Group, Youku Tudou Inc., Zee Entertainment Enterprises.
Asia Pacific Technology: AAC Technologies, ASUSTeK Computer, Acer, Advanced Semiconductor Engineering, Inc, BizLink Holding, Career
Technology, Chipbond Technology Corp., Compal Electronics, Coolpad Group Ltd, Delta Electronics, Flexium Interconnect, HTC Corp., King Yuan
Electronics Co. Ltd, Kinsus Interconnect Technology, Largan Precision, Lenovo Group, Lite-On Technology, Merry Electronics, Quanta Computer,
Siliconware Precision Industries Co. Ltd., Synnex Technology International, Unimicron Technology, Wistron, Wistron NeWeb Corp., Zhen Ding
Technology Holding.
June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 55
China Technology: Accelink Technologies, Anhui USTC iFLYTEK, Beijing Ultrapower Software, Comba Telecom Systems, Fiberhome Telecom Tech,
GoerTek Inc., Hangzhou Hikvision Digital Technology Co., Ltd., Hermes Microvision, Inc., Hunan Talkweb Information System, Mediatek, Nationz
Technologies, NavInfo Co, Parade Technologies Ltd, Shenzhen Tat Fook Technology, Sunny Optical Technology Group Co Ltd, Sunsea
Telecommunications, TSMC, TSMC (ADR), United Microelectronics (ADR), United Microelectronics Corp., ZTE Corporation (A), ZTE Corporation (H),
Zhejiang Crystal-Optech Co., Zhejiang Dahua Technology Co., Ltd..
China Telecoms: China Communication Services, China Mobile (HK), China Mobile (HK) (ADR), China Telecom, China Telecom (ADR), China Unicom,
China Unicom (ADS), China United Network Communications.
Europe-Communications Technology: Alcatel-Lucent, Alcatel-Lucent (ADS), Ericsson, Ericsson (ADR), Gemalto, Nokia, Nokia (ADR), Spirent
Communications Plc, Technicolor.
Europe-Semiconductor & Tech Hardware: ARM Holdings plc, ASML Holding NV, Infineon, Ingenico SA, Pace, STMicroelectronics, STMicroelectronics
(ADR).
Japan-Electronic Components: Alps Electric, Hirose Electric, Ibiden, Japan Aviation Electronics Industry, Kyocera, Mabuchi Motor, Minebea, Mitsumi
Electric, Murata Mfg., NGK Insulators, NGK Spark Plug, Nichicon, Nidec, Nippon Chemi-Con, Nitto Denko, Shinko Electric Industries, TDK, Taiyo
Yuden.
Japan-Integrated Elec./Semicon: Fujikura, Fujitsu, Furukawa Electric, Hitachi, Mitsubishi Electric, NEC, Oki Electric Industry, Renesas Electronics,
Rohm, Sumitomo Electric Industries, Toshiba, Yamaha.
Japan-Telecom & IT Services: Itochu Techno Solutions, KDDI, NS Solutions, NTT Data, NTT DoCoMo, Nippon Telegraph & Telephone, Nomura
Research Institute, Otsuka, Softbank.
Korea Technology: Advanced Process Systems, LG Display, LG Electronics, LG Innotek Co., SFA Engineering, SK Hynix Inc., Samsung Electro-
Mechanics, Samsung Electronics, Samsung SDI Co., Samsung Techwin, Seoul Semiconductor.
Company-specific regulatory disclosures
Compendium report: please see disclosures at http://www.gs.com/research/hedge.html. Disclosures applicable to the companies included in this
compendium can be found in the latest relevant published research
Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
Rating Distribution Investment Banking Relationships
Buy Hold Sell Buy Hold Sell
Global 32% 53% 15% 53% 47% 40%
As of April 1, 2014, Goldman Sachs Global Investment Research had investment ratings on 3,662 equity securities. Goldman Sachs assigns stocks as
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Price target and rating history chart(s)
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June 25, 2014 Global: Technology
Goldman Sachs Global Investment Research 56
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