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Verizon shuffles IoT biz, Intel’s wing nears $1bn/quarter, Nest burns money

Over the years, there has been much weeping, wailing, and gnashing of teeth, as investors and mouthpieces vented their spleen, upset with the apparent under-delivery of the IoT – something they had collectively hyped into the stratosphere. As the largest players settle into things, their results show that dedicated IoT revenues are fractions of their total, emphasizing that the IoT is evolutionary, not revolutionary, especially when it comes to the balance sheets.

Verizon has reported that its IoT service revenue climbed 13% in Q1 2018, compared to Q1 2017 – a growth rate double that of its other operations. Total revenue growth was 6.6% year-on-year, to $31.26bn, with net income up from $3.45bn in Q1 2017 to $4.55bn in Q1 2018.

Verizon doesn’t disclose the actual amount of IoT revenue anymore. In its Q4 2017 results, Verizon listed ‘Organic IoT Revenues’ as $389m, up 7.8% from Q4 2016, which was listed as $333m. It seems that Verizon chose to move its telematics business from that IoT division, reporting it elsewhere, and now chooses not to outline the remaining IoT revenues.

Verizon’s automotive telematics business, Verizon Connect, hit $234m in Q1 – a little up on Q4 2017’s $230m. That organization combines its Fleetmatics and Telogis acquisitions, and at nearly a billion dollars a year, that would be a pretty impressive business, if it wasn’t housed inside the rest of Verizon. The Connect wing is included in Verizon’s IoT revenues, which is what it says have grown by 13% in the quarter.

Using some back-of-napkin mathematics, this would put Verizon’s IoT revenue in the $150m ballpark, which is probably why Verizon doesn’t want to report it separately – bearing in mind that it has acquired Sensity Systems and LQD WiFi to bolster this market. Verizon has told us it has no comment to add regarding IoT revenues, although pointed to its 10-Q form that says the increase is primarily attributable to telematics.

In terms of connected devices, Verizon lost 24,000 phones and 75,000 tablet subscriptions, but added 359,000 ‘other’ connected devices – most of which were wearables. Verizon is somewhat obfuscating things, as collectively, it refers to “260,000 retail postpaid connections,” rather than pointing out that it is wearables fueling that growth, not lucrative new phone contracts.

In a similar vein, Intel announced its own Q1 results, breaking records. Total revenue for the quarter was $16.1bn, down slightly from the previous quarter but up from Q1 2017’s $14.8bn. Operating income was reported as $4.5bn. The client computing (PCs) segment accounted for $9bn, with the data center segment at $5.2bn. Non-volatile memory solutions (flash storage) clocked in at $1bn, with the programmable solutions group (FPGAs) on $498m.

Intel reported its IoT group as generating $840m in Q1, up 3.5% on the previous quarter and up 17% compared to Q1 2017. As with Verizon, it looks like the IoT business is the fastest growing part of Intel, which is good because Intel is beginning to get flak for delays on its 10nm CPU process – which it has now pushed to 2019, causing product delays.

But it’s very much worth noting that Intel scrapped its low-power IoT chip business, and has also announced plans to offload its wearables group too. It seems that its ‘IoT’ wing is mostly now focused on the embedded space, as the automotive Mobileye division is currently housed inside ‘All Other.’

The other recent results announcement that caught our eye came from Google, or rather its parent company Alphabet. Its quarterly report revealed that while its Nest division generated $726m in revenue in Q1, it still managed a $621m loss. This implies that Google is spending around $500m in order to push Nest into new areas.

Initially, it’s not a good look for Nest – the market leader in smart home thermostats, and a company that Google bought for $3.2bn back in 2014. By now, one would have hoped that Nest would have got its act together, and to be cashing in on its brand value.

Instead, Google is sinking cash into Nest in order to keep it at the forefront of the smart home conversation. While Samsung’s SmartThings seems to have stalled, the other major platform rival to Google is Amazon and its Echo family – which are looking to be the low-cost heart of a smart home. Google does not want Amazon to run away with that market, and so the cash injections are necessary.

Google has a history of such hardware investments. This isn’t new behavior. Its Pixel and Nexus smartphones and tablets are probably the best example, but its Chromebooks and Pixel Buds are other examples. Perhaps most infamous is the Google Glass project.

It is happy to invest in a market position that lets it experiment with new features that will eventually translate into better advertising revenues – which remain its core business. A smart home ecosystem will provide heaps of very valuable metadata, which could be used to serve very precise and affective advertisements. These adverts are big business. Alphabet reported quarterly revenue of $31.15bn, and $9.4bn net income.

So, looking at the IoT numbers of these three companies, all considered leaders in some fashion, doesn’t portray a very insightful picture. This is one of the big problems with viewing the IoT as a standalone thing. IoT technologies or processes, provided by vendors, slot in to existing organizations and businesses. They augment, rather than replace, and while they can have revolutionary impacts on profits or efficiency, they are evolutionary steps.

An example of this is smart metering. New low-power wireless technologies and very efficiency microprocessors mean that a conventional gas meter can now be connected to the internet. However, the fundamental application has not changed – it is still just a method of collecting meter readings. Now, however, we don’t have to rely on a person reading the meter, we can pull it remotely.

Again, building on the gas meter example, those meters allow the utility to provide a better customer experience, as well as make better wholesale purchasing decisions – but those are things it already did. The fresher data might help it better spot leaks in its supply lines, but again, it already hunts for leaks.

So with the smart meters, the utility has simply become a smarter, more connected, utility. It is fundamentally doing the same thing it did before, but these IoT technologies are helping it do a better job of it. Now, with electricity utilities, things like battery storage and distributed energy resources (DERs) sound pretty revolutionary, but the utility is still out there doing utility things. It is still a utility; it should be a better one.

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