If you look at the new products in the marketplace, more and more of them are connected to the internet and to your smart phone. Some of them have value, some have convenience, but there is a bigger and bigger trend. The trend is called the Internet of things.

An example of the internet of things is the Nest. It is a device to attach to your thermostat which can be controlled from your smart phone. To do this first – a sensor must determine the room’s temperature. The information has to be converted to something which the device can understand. Another chip converts the information for your home’s heating and cooling supplier to understand. Another chip converts that information to your smart phone where you can do something or nothing. This relatively simple tasks uses a variety of chips to implement.

If there is a trend, there are methods to make money from and one way is to look at the semiconductor companies or the companies that make the chips which power the internet. There are choices, which means some will do better than others, but according to David Milstead writing in the Globe and Mail under the article Semiconductors primed to power the internet of things. Mr. Milstead took the list from 100’s to 12.

Company                        Ticker      Mkt Capital  Revenue    Net Income    EV/EBITDA     P/E       Dividend Yield

(US$Mill)     (US$Mill)     (US$Mil)                                                    %

Ambarella Inc.             ANBA-Q        3,495           248,              64                   27.22x        35.3               n/a

ARM Holdings             ARM-LSE      24,718        1,302            433                                    34.5              0.6

Atmel Corp                  ATML-Q          4,124         1,394             47                  15.58          21.1              1.6

CEVA                           CEVA-Q            404              51            – 2                                       44.6              n/a

Imagination Tech           IMG-LSE         946             262           -13                   18.69         33.8              n/a

Intel Corp                      INTC-Q         151,096        55,887        11,766               6.31          14.1              3.0

Microchip Tech             MCHP-Q           9,639          2,147             369               9.56          16.4              3.0

Nvdia Corp                    NVDA-Q          11,675         4,730            628              10.03         19.6               1.8

NXP Semiconductors   NXPI-Q             24,446        5,868             322               13.7          17.5               n/a

Qualcomm                    QCOM-Q         110,199       27,491           7,157             10.18       14.6               2.8

Silcon Lab                     SLAB-Q               2,412          369                 36              16.87       24.2               n/a

Texas Instruments          TXN-Q              55,805        13,212           2,990           10.92       18.3               2.5

Source  S&P Capital IQ

EV/EBITDA and P/E are based on analyst’s future earnings

E/V is enterprise value which is market capitalization plus net debt

EBITDA is earnings before interest, taxes, depreciation and amortization

Linking to dividend paying stocks, you will see from the above 7 of the companies are paying dividends which allows both money to be invested into the sectors of the economy where more chips are used as well as pay dividends to you. The larger companies tend to be more diversified into products that people are buying and have adapted as people moved from desktop to laptops to smart phones – the chips are different. Every once in a while you need to go into a computer shop or look through a computer magazine to see what opportunities people see in the future. With every trend, there will be winners and losers, some with go on for a period of time, some will be short. Often times with larger companies with cash on had, they will be able to move through the trends a little better than a small cash strapped company.

There are more questions than answers, till the next time – to raising questions.