What the microcontroller market tells us about IoT

As many analysts and enterprise strategies look to IoT as the third wave of the internet, one way to assess the potential of IoT is to take a look at how the connecting of the physical world is impacting hardware manufacturers today.

When Goldman Sachs released its IoT report last fall, one of the striking data points in that report was the comparison between microcontroller growth and the overall semiconductor market. While growth was comparable between the two between 1998 and 2005 at about 7-8 percent, the graph begins to deviate significantly in 2006 as microcontrollers reach 11 percent compound annual growth and semis clocked in at around 3 percent.

So what was happening? Microcontrollers are low cost, low power, embedded chips that have programming and data memory built onto the system. They’re critical to simple processing tasks. They’re in your car, your DVD player, your microwave. Clearly much of the microcontroller growth over the past 7-8 years is a result of the continued proliferation of both consumer and industrial devices.

Silicon Laboratories Thomas Barber put it succinctly last year when he told NewElectronics UK, “Estimates suggest there may be 30 billion edge devices. They can’t all consume 1W because we don’t have enough energy, so they need to consume microWatts and they need to be inexpensive.”

And as Cisco pencils in 50 billion connected devices by 2020, microcontrollers will have an important role to play in the networking of the physical world, particularly as they have favorable power envelopes. In fact, despite chip designers ARM’s incredible success in capturing the mobile market, CEO Warren East has continually spoken favorably about the embedded market, noting that he thinks the growth opportunity is strong enough to warrant continual investment in microcontrollers.

ARM’s DNA as a company comes from designing microchips with an excellent power envelope, which allowed it to capture the mobile market. Similarly, the IoT driven microcontroller market requires low cost, low power chips to power the proliferation of devices, which often must rely on battery power. Consider a Bluetooth connected smart lock, for example, where the batteries must be switched out every six months or the laying out of remotes sensors in a smart city scenario to aid in traffic flow. Every microWatt counts.

Last fall ARM launched a new core, a microcontroller that added performance traits favorable for handling sensor information. Such a microcontroller would be ideal for a sensor hub, the smart home, or a number of industrial applications. Another significant driver of microcontroller growth is smartcard adoption. Microcontrollers are now appearing in everything from student IDs to credit cards offering higher degrees of security. Clearly the microcontroller opportunities will be diverse and have garnered the attention of ARM and others.

Market leaders in microcontrollers include Freescale, Infineon Technologies, Atmel and Japan based Renesas. And all are banking on the growth of IoT to help get their products into edge devices or hubs as they ramp up efforts to put greater integration on the chip, like wireless connectivity.

When I did research for Wall Street investors, we were often asked to track market trends by looking at how the component makers for those trends were doing. Where did they see the opportunities and what could they tell us about shifting end market behavior? We did this because it’s the companies making the components for next generation of devices that tend to see market shifts before anyone else.

All this is a good reason to pay attention to the microcontroller market (along with other IoT bellwethers like sensors and communications chips). Keeping an eye on the growth of integrated microcontrollers that come with NFC, Bluetooth or ZigBee capabilities will tell us whether manufacturers foresee market demand for communications integration on the microcontroller itself. Whether the market winds up finding value in so many different connected devices is another question, but for now the microcontroller market tells us that the demand is here and growing.