Internet of Things (IoT) is the inter-networking of physical devices, vehicles, buildings and other items embedded with electronics, software, sensors and network connectivity that enable the objects to collect and exchange data. In other words, IoT enables any physical electronic device with a valid IP-address to transfer data seamlessly over a wireless network.
According to a recent report by market intelligence firm, International Data Corporation (IDC), total expenditure on hardware, software, services and connectivity to back IoT is expected to increase 16.7% year over year in 2017 all over the world, making this an $800-billion market. By 2021, IDC predicts global IoT spending to be almost $1.4 trillion.
Now let’s take a look at how IoT spending will shoot up in different regions and sectors over the years:
Asia-Pacific excluding Japan (APeJ) will be the IoT investment leader with spending expected to reach $455 billion in 2021, followed closely by the U.S. ($421 billion in 2021) and Western Europe ($274 billion). Manufacturing will lead in terms of IoT investments in all three regions, followed by utilities and transportation in APeJ and Western Europe, and transportation and consumer in the US. Cross-Industry IoT spending will also be among the leading categories in these regions.
The regions that are likely to witness the fastest growth in IoT spending are Latin America (21.7% CAGR), the Middle East and Africa (21.6% CAGR) and Central and Eastern Europe (21.2% CAGR).
The areas/zones that are expected to lure the largest investments in 2017 are manufacturing operations ($105 billion), freight monitoring ($50 billion) and production asset management ($45 billion). Smart grid technologies for electricity, gas and water and smart building technologies are also expected to be injected with $56 billion and $40 billion investments, respectively, this year.
We believe these will remain the largest areas of IoT spending in 2021, with smart home technologies forecast to witness 19.8% CAGR over five years. Fastest spending growth will be seen by airport facilities automation (33.4% CAGR), electric vehicle charging (21.1% CAGR) and in-store contextual marketing (20.2% CAGR).
Industry-Specific IoT Investments
As per IDC, the industries making the largest IoT investments in 2017 are manufacturing ($183 billion), transportation ($85 billion) and utilities ($66 billion). Cross-industry IoT investments, which are common to most markets such as connected vehicles and smart buildings, will likely be $86 billion in 2017 and stand out as the top segments in the five-year forecast.
Consumer IoT purchases is expected to be the fourth-largest market segment in 2017 at $62 billion and move up to the third position in 2021. Meanwhile, industries that will see the fastest spending growth are insurance (20.2% CAGR), consumer (19.4%) and cross-industry (17.6%).
The IoT market is the latest in the line of service and business models, and is quickly gaining market traction. Using IoT to gather data points, helps businesses run more effectively and efficiently, thereby boosting their bottom line. Moreover, IoT hardware and software being less expensive is encouraging the companies to invest heavily. We believe that this is what led to generous IoT investments in the last few months.
Research firm Gartner recently predicted that 21 billion IoT devices will be used globally by 2020, outnumbering laptops, smartphone and tablets. This is because IoT devices do not usually require a lot of computing power. Instead, IoT collects data at the edge, pooling information to drive analytic insights.
From the technology perspective, hardware, especially modules and sensors that connect end points to networks, will be the largest IoT spending category for the first few years, while the services category will come into picture in later years.
The fastest growing areas of technology spending are in the software category, where horizontal software and analytics software will witness five-year CAGRs of 29.0% and 20.5%, respectively. Security hardware and software will also see investments at 15.1% and 16.6% CAGRs, respectively.
U.S. telecom behemoths like Verizon Communications Inc. (VZ - Free Report) and AT&T Inc. (T - Free Report) , and U.S. national wireless carrier T-Mobile US Inc. (TMUS - Free Report) continue to strengthen their footprint in the IoT space by inking deals. Qualcomm Inc. (QCOM - Free Report) , the leading manufacturer of wireless chipsets based on baseband technology,is also well poised to benefit from the IoT boom.
All the four stocks mentioned above currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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