Intel And Amazon Could Be Sitting On A Huge Opportunity With General Electric

General Electric's (GE) "Industrial Internet" is gradually gaining momentum as evident from the 14 applications related to the platform that the company introduced this year. GE has brought on board companies like Amazon (AMZN) for its Amazon Web services, Intel (INTC), IBM, Cisco, AT&T, Accenture, and Pivotal to spread the applications of the Industrial Internet. These companies are stalwarts in their own fields and would be contributing their bit in the entire operational chain of the Industrial Internet.

The ten "predictivity" products that GE launched last year in the Industrial Internet segment have contributed $290 million toward revenue this year. This revenue will increase further going forward as GE introduced 14 more new products in October for the healthcare, energy, mining and manufacturing and transportation markets. The company said it has 14 new customers for the 14 products.

Industrial Internet and transportation

GE had introduced three "predictivity" products for the transportation market - Rail connect 360 monitoring, Flight efficiency services, and Shipper Connect to run on the Predix platform. Much like the healthcare and energy sectors, even the transportation sector is ripe for Industrial Internet and big data analytics. For example, Boeing's 787 Jet creates a terabyte of data on one round trip.

By analyzing the data, service providers can predict when various parts are likely to fail and take preventative maintenance actions. This preventive maintenance increases the fleet availability and hence, has a positive impact on revenue and profitability of the airliner. Preventive maintenance based on big data analytics also brings down cost of maintenance.

According to the chairman and CEO of GE, Jeffrey Immelt:

"We are developing more predictive solutions and equipping our products with sensors that constantly measure performance so our customers see major productivity gains and minimize no unplanned downtime. Observing, predicting and changing this performance is how the Industrial Internet will help airlines, railroads and power plants operate at peak efficiency."

Amazon and the Industrial Internet

Amazon is the provider of the online cloud service on which GE started creating the Industrial Internet to tap a market that analysts say could be worth hundreds of billions of dollars by the end of the decade as shown in the table below.

(click to enlarge)

According to technology research group Wikibon, industrial data is expected to grow at two times the rate of any other big data segment over the next decade. This is a big market for Amazon going forward as Industrial Internet data would need cloud storage facility and Amazon is known for its secure cloud storage. This huge opportunity will be an additional source of revenue for Amazon. Moreover, since this is a service catering to niche segment, Amazon could enjoy higher margins from this business.

Intel and the Industrial Internet

Intel is on the lookout for new avenues to grow revenue since the PC market is on the decline and it hasn't made much headway in the volatile mobile computing market so far. Intel recently launched a family of intelligent gateways for the Internet of Things, or IoT, providing a series of middlemen between embedded sensors and the data they will store and analyze in the cloud.

Intel has said that its new Atom E3800 embedded processor (codenamed "Bay Trail-I") will work with Intel's recently-announced Quark SoC X1000 embedded processor to provide ultra-low-power intelligence. The unnamed gateways which are due in the first quarter of 2014 will be designed as two models, one each around the Atom and Quark processors. The IoT versions of both processor families will include error-correction code (ECC), industrial-level temperature certification, and integrated security.

According to Ton Steenman, vice president and general manager of Intel's Intelligent System Group, there is now a "critical mass" of IoT devices being connected to the cloud, a development that he identified as a "precursor for IoT to become real." He also said that Intel can make money from these chips in more than one way and he went on to say:

"If you look at the industries that are largely affected in the short-term horizon by the advantages and the potential of the Internet of Things, those industries spend about thirty-six trillion dollars on operating costs."

Going forward, these products are going to present a huge opportunity for Intel because the number of IoT devices on the horizon are expected to multiply in the future. Intel has often cited the figure of 15 billion such devices in place by 2015, but Steenman upped the ante by citing research from IDC, Intel, and the United Nations who expect that number to be 200 billion by 2020. GE has already brought Intel onboard for its ambitious Industrial Internet project.

Predix platform

Predix is GE's software platform for the Industrial Internet that connects machines, big data and people in a secure way and it enables asset and operations optimization by providing a standard way to run industrial-scale analytics. Deployed on machines, on-premise, or in the cloud, Predix combines an industry-leading stack of technologies for distributed computing and big data analytics, asset management, machine-to-machine communication, and mobility.

Investment options

So, Industrial Internet is expected to become huge by 2020 and General Electric is a good way to benefit from it. General Electric's P/E ratio is 20 and the forward P/E is 16, indicating earnings growth. GE's earnings are expected to grow at a CAGR of almost 10% for the next five years. But this estimation could increase because GE is spearheading the Industrial Internet revolution. GE's dividend yield is also quite nice at 3.20% while the payout ratio is 57%, indicating that the company can raise its dividend further.

Intel, on the other hand, is more cheaper at a trailing P/E of just under 14. Intel is under pressure due to the weak PC market but it could receive a shot in the arm due to the Industrial Internet. Also, Intel has a juicy dividend yield of 3.50%, which looks good enough to keep investors happy till the company starts benefiting from the Industrial Internet revolution.

Amazon could also be a choice for investors but the company is quite expensive with a P/E of 1,465 and there could be competition from other cloud service providers.

Conclusion

Industrial Internet is a big market and General Electric is looking to get the most out of it by bringing different partners on board. Hence, investors should keep a close eye on how this particular market is developing and how GE and Intel are benefiting from it.

Source: Intel And Amazon Could Be Sitting On A Huge Opportunity With General Electric

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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