In Vegas, Imagining the Wonders of the Internet of Things

The Consumer Electronics Show is now a creative muddle, but some firms, like Silicon Laboratories and Atmel, may emerge as winners.

The Internet of things, which is basically the next step in the computer revolution, is a bit of a mess and a muddle of products at the moment, many with dubious appeal.

But it is a creative mess, driven by intriguing new companies with plenty of imagination. Some will fail, others may contribute useful, lasting innovations. The mess and the inklings of promise were on full display last week at the Consumer Electronics Show in Las Vegas, one of the biggest electronics trade shows in the world.

One key point of interest for tech-stock investors: The simplest kinds of chips, called microcontrollers, may triumph in these early days of the Internet of Things, or IoT. That could make winners out of Silicon Laboratories (ticker: SLAB) and Atmel (ATML), among others. The IoT involves cramming chips and sensors into all manner of objects. The experiments at the show were equal parts thrilling and absurd.

THE HIGH POINT OF the absurd was a keynote from Samsung Electronics (005930.Korea) chief executive Boo-Keun Yoon. Some of his ideas had the quaint time-saving appeal of the washing machine in the 1950s. The average home of the future will automatically dim the lights when you put on a movie, and help you pick out a bottle of wine from your automated “smart” cellar.

Some of his other visions resembled the ultimate nanny state—a world of devices that suffocate with their helpfulness. He described a connected hat that would measure your brain waves, send the data to the Internet, and diagnose if your brain is failing. Yoon’s visions are lofty speculations: What actually exists right now in the IoT is a chaotic soup bubbling with ideas—stuff the show’s lead economist, Shawn DuBravac, has referred to as “fragmented innovation.”

Consider some of the exhibits. If your child is sick at home, your phone can act as a wireless thermometer using technology from start-up Vivalnk, with the help of chip maker NXP Semiconductors (NXPI). The phone scans a disposable plastic sticker you place on the child’s forehead. The sticker has a heat sensor that relays his temperature to the smartphone, all without the need to burden the child with an old-fashioned, oral thermometer.

There is also a newfangled personal beer-making machine—a godsend for the college dorm—that can be monitored and controlled from your smartphone.

There is an iPhone app that will let you adjust the heat in your Hyundai from inside your house, so it’s already toasty or cool when you get in for a drive.

There is a small sensor the shape of a doggie bone that clips to your puppy and sends constant updates to your phone about how much exercise the canine is getting. If you’re too lazy to wear a Fitbit or another fitness tracker, make the dog do it!

The show also featured a gaggle of flying drones that can follow you on your bike ride and take a video of your journey. Drones are big: DuBravac estimates the drone market will see revenue rise by half this year, to perhaps $130 million, on sales of some 425,000 drones.

And there’s some serious money going into the more prominent of these efforts.

A start-up in Taipei called Gogoro is developing a nifty-looking electric scooter for dense urban markets. Unlike the Tesla (TSLA) sedan, it doesn’t take hours to charge its battery. Rather, Gogoro plans to deploy ATM-style battery depots around town. You ride your scooter over, swap in a new battery, and you’re on your way in minutes.

The company’s CEO, Horace Luke, has received $50 million from prominent Taiwanese investors and says he’s working to close a further round of $100 million. The IoT aspect consists of the scooter’s 30 onboard sensors and the 25 sensors on the battery. By uploading the sensor data, each scooter helps a central Internet data center model, in real time, the patterns of all scooters on the road and determine the number of battery stations to deploy in an area to accommodate demand.

It’s hard to know which of these quixotic projects will produce major revenue for existing electronic-component vendors such as Intel (INTC). Intel’s CEO, Brian Krzanich, made a pitch at the show for how Intel’s technology can make drones savvier and able to fly through obstacles with no human input. For the moment, though, Intel’s best opportunity is selling the chips that power the Internet data centers that support the IoT.

The variety of IoT devices really look less like Intel’s complex PC chips and more like the humble microcontroller. Microcontrollers have been around for decades. They form the brains of industrial equipment and various automobile functions. That highly fragmented market looks a lot like the new IoT, says semiconductor analyst Craig Ellis, of B. Riley, who thinks Silicon Labs could be a winner. The company is best known for its chips in the Nest smart thermostat that was acquired last year by Google (GOOGL).

Silicon Labs has amassed an excellent portfolio of parts for the IoT, Ellis tells me, including wireless chips for connectivity, and very low-power microcontrollers for tasks where battery life is constrained, such as smart watches.

Unlike most other chip vendors, Silicon Labs already gets a meaningful part of its revenue—20%—from chips going into IoT uses, says Ellis. “For other vendors, the revenue contribution of IoT is materially lower,” he says.

ATMEL COULD BE ANOTHER winner. Its chips go into a family of hobbyist electronics kits called Arduino. These kits have becoming increasingly popular as a way to experiment with all manner of applications. This places Atmel directly in the path of experimentation that is the rage in IoT.

Makers of more-complex chips, microprocessors, may take longer to see the real payoff from IoT. But over time, their chips could end up providing more-profound uses of the IoT. Nvidia (NVDA) has long supplied chips for supercomputers, for instance. Nvidia’s CEO, Jen-Hsun Huang, tells me that cars using his chips within three years will be able to navigate a parking garage entirely on their own.

NXP has even more significant usages in its sight beyond wireless thermometers. The company is helping to develop wireless technology that will tell drivers when a driver three cars ahead of them has suddenly hit the brakes, thus reducing collisions.

Yes, the IoT is a muddle, but in time some of the cream will rise to the top, and it will probably produce meaningful new products and businesses.