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Investing in the future

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on Jan 4 – 10, 2016.
Published on The Edge Markets on Jan 13, 2015

Internet of Things

The IoT may seem like a new concept, but it has been around for decades. The application of computing and communications capability into everyday items has existed in things like automated teller machines since 1974. However, the term IoT was only coined in 2009 by British innovator Kevin Ashton.

This industry has been gaining momentum in the last few years due to factors such as cheap and widely available broadband internet access as well as lower technological costs. This, in turn, has spurred the development of more items and devices with wireless internet capabilities.

Today, the IoT can be found in a variety of household and everyday items such as washing machines, lamps, wearable devices and cars. The Internet of Things World Forum held recently in Dubai estimates that this revolution has a potential to generate revenue of US$13.3 trillion.

And the growth is set to continue. In a November press release, Gartner Inc, a US information technology research and advisory company, forecasts that “6.4 billion connected things will be in use worldwide in 2016, up 30% from 2015 … In 2016, 5.5 million new things will get connected every day.”

The company projects connected devices will reach 20.8 billion by 2020. Industry experts predict that the sector would soon require a change in its moniker from the Internet of Things to the ‘Internet of Everything’.

There are very few global listed companies with an IoT segment in their business, says Devan Linus Rajadurai, founder and chief investment officer at Malayan Traders Capital. He names Apple, Intel and Google as the few that count.

Intel has been considered at the forefront of this industry ever since it rolled out its own IoT platform in December 2014. Last year, the sector accounted for US$2.1 billion in revenue — 10 times more than the revenue earned by its mobile and communications division. While it is traditionally known for manufacturing microprocessors for computers and other devices, Intel recently expanded its product range to include three Quark chips intended for IoT devices. It also introduced the Curie software platform to facilitate the development of wearable technology.

Devan says Intel makes for a safe investment bet as its chips are a need that others would depend on. “Intel produces the microchip processors and sensors that are going to be put in these everyday things. While companies like Google and Apple produce the software and come up with new product ideas, some products don’t come to fruition. That’s why these two companies are riskier when it comes to IoT.

“There are a lot of private players that come up with IoT products from a software perspective. They will have to collaborate with companies like Intel which produce the microchip processors that power the new IoT products.”

Nevertheless, those who want to ride the trend can still consider looking at Apple. “Apple would be an obvious pick as it is not highly valued and it has a few IoT products already released such as the Apple Watch, Apple CarPlay and Apple Pay. Plus, it is an innovation machine that is constantly looking for the next revolutionary IoT product. It could change the dynamics of television if it wanted too,” says Devan.

Another stock Devan is bullish on is Google, which may seem like an unusual choice for a value investor. “But there are some arguments for it. Google is one of the best IoT companies in the world. It is really looking at how to put the internet into things. That’s why it bought Nest Labs Inc in January 2014, a company that manufactures devices that monitor your heat and fans in the home. That works very well in the US where the issue of how to reduce your energy bill is being discussed. Google is also putting software in cars and so many other things.”

Those who want to take advantage of these stocks can consider the iShares US Technology ETF. As at Dec 18, its top holdings included Apple, Alphabet (parent company of Google) and Intel.

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