Investing in the Internet of Things

Written By Brian Hicks

Posted February 4, 2015

Follow the leaders, right?

Well, the leaders are pointing squarely at the Internet of Things.

Tim O’Reilly, for example, is a huge name in Internet technology. He’s been a major force in predicting and shaping the direction of data communications for as long as there’s been a commercial Internet. For nearly 40 years, his company O’Reilly Media has published handbooks on programming, open-source ideologies, and Internet technology.

His list of accomplishments is long. O’Reilly published the first popular book about the Internet in 1994 and created the first Web Portal (GNN), a design that was widely imitated in the early days of the Web.

He’s often credited with popularizing the term “Web 2.0” and has generally been calling the trends early.

O’Reilly thinks the Internet of Things could be the most important development to hit Internet technology yet, with major consequences not just to communications but also in how human decisions are made.

We tend to agree with him.

And it appears the industry does, too. Every week, more news about IoT investments hits the wires. Companies involved in the hardware that will bring non-computer machines online are growing at a rapid pace.

This week, a Texas-based company that makes microcontrollers and sensors for the IoT announced it has broken its own records in revenue and that it is acquiring a company that specializes in the all-important communications vehicle: wireless modules.

It’s yet another indication of the direction of the tech business and an obvious indication that some companies are putting lots of their eggs into the IoT basket.

Silicon Laboratories Inc. (NASDAQ: SLAB)

Once again, Texas-based Silicon Labs has beaten revenue guidance. For the fourth quarter of the year, its revenue exceeded the top end of guidance and set a record for the company at $162 million for the quarter.

Of this, its GAAP gross margin was 59.7%, its operating income was 6.8% of revenue, and its EPS was $0.23.

silicon labs slab earnings fourth quarter 2014

The chipmaker has been pretty undervalued over the course of the last year, but it’s just now getting near its aggregate target value of $51 per share.

The company expects a 17.28% increase in its revenue over the next year thanks to an acquisition it announced this week.

Silicon Labs has adopted a long strategy on growing its Internet of Things platform, and it aims to become a “one-stop shop” for energy-friendly IC solutions.

To make that a reality, it appears the company has been combing Scandinavia for small companies to acquire.

This week’s acquisition was of Finnish tech company Bluegiga Technologies Oy. The company makes low-power Bluetooth and Wi-Fi radio solutions for industrial automation, consumer electronics, automotive, and other applications.

Silicon Labs put down $61 million in cash to acquire Bluegiga and expects it to contribute $25 to $28 million to the company’s revenue this year.

In 2013, Silicon Labs acquired a Norwegian company called Energy Micro AS for its portfolio of microcontrollers and radio frequency (RF) solutions that dealt with ZigBee and sub-GHz wireless products.

These wireless protocols are somewhat less common than Bluetooth and Wi-Fi but are nonetheless important in the broader scheme of the Internet of Things. At the time of that acquisition, Silicon Labs expected its IoT properties to make up 15% of its revenue.

In 2014, it expected 20% of its revenue to come from IoT.

That percentage is only going to increase over the next couple of years.

Good Investing,

  Tim Conneally Sig

Tim Conneally

follow basic @TimConneally on Twitter

For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.

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