Not content with being the worlds premier designer for smartphone microchips,ARM Holdings(LSE: ARM) (NASDAQ: ARMH.US) is now trying to dominate the microchip market for the Internet of Things.
Put simply, the Internet of Things (IoT) is the term for enabling everyday objects like fridges, telephones, cars, microwaves and even front doors to communicate with one another.
The potential size of the IoT market is huge and not to be underestimated. Figures vary, but its estimated that there are 50 billion devices set to be connected to the internet by 2020. Forecasts show that the global IoT market could be worth $7.1tn by 2020, up from the value of $1.9tn as reported during 2013.
And ARMs low-power, high-performance microchips are perfect for IoT devices.
Pushing ahead
ARMs microchips are already used in some IoT devices, and the company is trying to grab an even bigger share of the market.
To do this, ARM is increasing its dominance over the IoT market in two ways. Firstly, ARM is appealing to customers. In particular, last year ARM gave away some of its software tomanufacturers of IoT in an attempt to gain a foothold before competitors.
Secondly, ARM is broadening its product offering through acquisitions. During February,ARM acquiredOffspark, a Dutch firm thatspecialised in security software for the IoT market. And this week, ARM announced that it had acquiredWicentric, a Bluetooth Smart stack and profile provider, and Sunrise Micro Devices (SMD), a provider of sub-one volt Bluetooth radio intellectual property (IP).
These two companies will be integrated to form what ARM has called theARM Cordio portfolio. ARM claims that the devices it will be able to develop using the technology from its Cordio portfolio will be able to transmit data for up to 60% longer than existing products between battery charges.
Bright future, high price
ARM is really starting to dominate the global technology market. The companys commitment togaining a strong foothold in the IoT market, coupled with the fact that the groupsmicrochips are already being within 90% of smartphones, shows that ARM is a force to be reckoned with.
Whats more, ARM is set to take another leap forward next year when the company launches its new processorblueprint. The new design is three-and-a-half times faster than comparable chips from 2014 and uses 75% less energy than competitors products.
Off the back of this and ARMs other new product launches, City analysts believe that the groups earnings will expand by 69% this year and a further 20% during 2016.
Unfortunately, ARM is one of the most expensive stocks in the FTSE 100. The company currently trades at a forward P/E of 37.7, which may put some investors off. However, ARM is a high-quality business with bright prospects two traits that are worth paying a premium for.
More than meets the eye
So, if you want toown part of a solid business with plenty of cash and a bright outlook, ARM looks to be the best choice.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
