The Internet of Things technology known by the acronym IoT is designed to connect all devices and things, forming a network to optimize production processes, logistics and improve the overall quality of life and benefits of devices. The Internet of Things can be compared to a giant virtual network that, through detailed analysis and integration, can shorten decision-making processes, speed up and optimize production, enable data analysis and eliminate errors in infrastructure.
IoT can create almost anything, from home air conditioning and 'smart' central heating through traffic lights, a car that chooses the shortest available route to its destination and a smartwatch that analyzes the heart rate to solving complex problems in industrial production or global supply chains.
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The Internet of Things is becoming one of the main topics of conversation among CEOs of listed companies overtaking topics such as the invasion of Ukraine, recession, cloud computing, digital transformation or Covid in popularity. Source: IoT Analytics
How does IoT work and why is it needed?
Although the very name Internet of Things was first used only in 1999 by Kevin Ashton, the whole concept of IoT has managed to acquire a multidimensional meaning due to the possible scale of application and adoption among the billions of new devices integrated into the network. We will therefore focus on two spaces: industry and supply chains, which can drive its further development.
All sensors and devices provide data on the state they are in. What matters, however, is how this data is emitted, where it is aggregated and how to analyze it. Therefore, the IoT network creates a cloud into which information described in a common language goes, so that devices can communicate with each other and analytics systems can collect and integrate data from multiple sources enabling communication and accurate analysis with the help of AI or teams of analysts.
IoT fundaments are:
Tools - hardware or machines capable of emitting and aggregating data without external intervention
Communication - sending and receiving data over any distance, including beyond Earth in real time
Software - IT systems that process, collect and secure the data received
Integration - enables devices to work together as part of IT systems
Two key sectors
Industry - Industrial Internet of Things includes connected and collaborative devices through IT. This collaboration includes industrial control systems, computers, mobile devices and sensors. By integrating IoT implementing the new technology, companies are reducing production risks, optimizing internal processes and accelerating data exchange between plants. IoT technology in manufacturing and industry interacts closely with other modern technologies such as artificial intelligence, machine learning, big data analytics, edge computing and cloud computing.
Supply chains - despite the passing of the covid pandemic into the background, the challenges facing logistics are still present amid changes in geopolitics, the energy crisis and the downturn in China's economy. The Internet of Things reduces risk and costs which positively impacts margins and can create asymmetric competitive advantages. With devices communicating at all stages from production to shipping, tracking and deep analytics, IoT enables, among other things: intelligent fleet and goods management, automation of replenishment processes, performance assessment and bottleneck analysis. It also enables real-time asset control and remote diagnostics.
Who stands to gain?
While IoT technology can accelerate digitization and efficiency in almost any industry, the direct beneficiaries of its adoption are companies that provide software and solutions within the new virtual infrastructure. We have selected three technology companies that we believe can benefit from the growth of the Internet of Things.
Cisco Systems
Cisco is a global giant in providing enterprise networking equipment, which directly subjects the company to exposure to the development of highly advanced IoT solutions. One of Cisco's flagship projects is the Kinetic platfotma, which enables the distribution of data between devices and applications used in a given business and a central network connecting the entity's IT infrastructure. But that's not all, the American company's proprietary IoT solutions are widely used in managing the efficiency of production lines (Nissan Motor is just using Cisco's solutions in automating robots on assembly lines), urban transportation systems (guiding traffic in such a way as to reduce the risk of inconvenient traffic jams) or freight transport (Cisco's IoT solutions are implemented, among others, by the Port of Rotterdam, one of the largest transshipment centers in the world).
A key question for the continued valuation of Cisco's shares is how demand for IT infrastructure will be created at a time of heightened concern about the global recession. Nevertheless, demand for IT infrastructure transformation in companies continues to grow, and future years may accelerate this trend. The growing adoption of remote work is forcing companies to invest in increasing network capacity and efficiency. Currently, the P/E ratio is 15.11 (for the S&P 500 index, it is currently 20.24). The dividend yield is 3.48%.
Samsara
Samsara is a technology company that operates directly in the Internet of Things industry, debuting on the NASDAQ in the fall of 2021. The company focuses on enhancing customer productivity through its Connected Operations Cloud technology platform, which enables IoT data aggregation and utilization. Its partners range from large companies like Ford Motor to government entities like the City of Boston, among others. The company provides end-to-end solutions for both government agencies and small corporations, and aims to integrate as many customers as possible from multiple industries into the COC platform.
Through data analysis, Samsara's users are able to analyze and develop practical conclusions and various types of optimization of their businesses and operations. The aforementioned Connected Operations Cloud finds applications in manufacturing, transportation, energy, healthcare and commerce.
Samsara's stock looks risky compared to other companies offering IoT services, but it could potentially yield high returns if the company succeeds in creating an optimal business model and attracting an increasing number of customers. Samsara's current P/B ratio is 7.50, which means that the company is trading at a high premium especially considering that it is not yet profitable. At the same time, it illustrates that market expectations around its future remain high.
Xerox
The company has slipped significantly from its record valuations during the dot-com boom, when it benefited from the rise in popularity of photocopiers. Xerox held a number of patents used by the likes of Apple and Microsoft and still has broad intellectual property value (Palo Alto Research Center). Now it has ambitions to recapture its former glory with 3D printing technology, which has applications in manufacturing and industry. The company is developing energy-efficient, high-tech sensors. The company's flagship product is the ElemX 3D printer, which debuted in July of this year as the first device of its kind in the US Navy. Xerox entered into a strategic agreement with Siemens in April 2022. Key to the company's future will be the continued adoption of its proprietary technologies, which may be especially needed in an era of supply chain problems and shortages.
On July 1, Xerox CEO John Visentin passed away at the age of 59, and as a result, Xerox will be faced with building a strategy. The company's influential shareholder remains billionaire Karl Icahn with a 22% stake, who is known for his influence over the companies he owns. In the near future, the question of a takeover by HP may resurface again, probably with the support of Icahn, who has tried to make it happen in the past.
The company has an attractive P/B ratio of 0.54 for investors based on fundamental analysis, and a P/E ratio of 12 with the S&P 500 average at 20.24.
From a technical point of view, Xerox shares are currently trading in the area of resistance marked by the 50-day exponential moving average (blue curve) and the retracement of the 23.6% Fibo of the downward wave initiated in March 2021. Source: xStation 5
XTB Research
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