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Silicon Plays on the Internet of Things
06/22/2016 7:00 am EST
If the Internet of Things (IoT) weren’t reality, it would sound like the plot of a science fiction movie. Silently, and all around us, our devices are starting to talk to each other asserts growth stock expert Benjamin Shepherd in Investing Daily's Personal Finance.
Globally, the IoT market is about $700 billion today, and will grow to $1.7 trillion in just four years, according to research firm IDC.
But riding that trillion-dollar boom can be frustratingly elusive for investors, because IoT technology is a part of so many companies.
Then there’s Silicon Laboratories (SLAB). With a market cap just shy of $2 billion, Silicon Labs isn’t the biggest IoT player, but it makes micro-controllers, the little chips that power the IoT in a host of devices and low-power sensors.
Silicon is a smart way to capitalize on IoT because the company addresses many of IoT’s potential limitations, including power, connectivity and flexibility.
Silicon products are used in big applications, like infrastructure controls and factory automation, and in all kinds of smart devices — TVs and radios, cars, factories and data centers. And like IoT, Silicon is ready to break out.
Silicon Laboratories has been cash-flow positive since 2000, though its earnings have been lumpy. That’s a function of the company’s heavy investment in R&D, which typically eats up about 30% of revenue.
I have no doubt that Silicon Laboratories will take a nice slice of that $1 trillion IoT pie over the next four years.
All that IoT data needs to be stored and processed somewhere, so demand for Silicon Laboratories’ microchips, sensors and data-center equipment will only continue growing.
But also, the company is a takeover target. As a pioneer of mixed signal and radio frequency technology, the company is rich in intellectual property, with more than 1,500 patents.
Those patents are already valuable, but as the number of smart devices grows, someone will want to own those patents instead of paying Silicon to use them.
Because Silicon Labs invests so much in research, its intellectual property value will only grow, making the company even more attractive to a buyer.
By Benjamin Shepherd, Editor of Investing Daily's Personal Finance
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