Why the High-Tech “Gold Rush” Started Last Week

25 | By Michael A. Robinson

If you blinked, you might have missed it.

Last week, ARM Holdings PLC (Nasdaq ADR: ARMH) – one of the world’s dominant mobile-device chip companies – said it bought a small Finnish software startup called Sensinode Oy in a deal whose price wasn’t reported.

I’m betting that most folks either missed the announcement – or shrugged it off as just another of the thousands of below-the-radar deals that companies do every year.

But I knew differently.

I knew that ARM’s buyout of Sensinode is the latest reminder that the single-biggest profit opportunity currently on my radar screen is ready to start paying off.

And because we’re talking about a $14 trillion profit opportunity – meaning this newly emergent tech market will actually approach the entire U.S. economy in size – I wanted to make sure I kept you in the loop.

I’m even going to show you the top profit recommendation that I’ve identified.

Billions and Billions

Just this week, IDC Research announced that smartphone shipments will reach 1 billion units this year – the first-time we’ve hit that key threshold. That’s 40% more than last year, and is just the latest sign of the torrid growth we’ve seen in this market.

It was just two years ago that smartphone sales flirted with half a million for the first time ever, meaning shipments of this device have doubled in that span.

In short, everyone has a smartphone these days.

But what a lot of folks don’t realize is that this is just the beginning of a whole new, networked world.

And for investors, it’s like getting a second chance to profit from the invention of the Internet.

If you think back, the Internet revolution started with a proliferation of desktop and “laptop” PCs. Lots of investors made nice money on computers, microchips and software.

But it was when all those PCs were strung together via the Internet that the real fortunes were made.

And that’s just where we are with smartphones.

The next thing we’re going to see is a big “Super Internet” that opens the door to all sorts of opportunities, including:

  • “Wearable” technology like “smart-watches” or intelligent glasses.
  • “Smart shirts” that can monitor your health, and report right to your doctor.
  • So-called “smart homes” that can be configured from afar (you could control your entertainment system, your air conditioner, or safety-monitoring systems.
  • And all sorts of government, industrial, medical and e-commerce capabilities.

This ubiquitous next phase is called the “Internet of Things” (IoT) or “Internet of Everything” (IoE). And it’s much closer than you might imagine.

IMS Research says there will be 30 billion connected devices by 2020. Telefonaktiebolaget LM Ericsson (Nasdaq ADR: ERIC)– one of the largest telecommunications companies on the planet – says there will be 50 billion enabled devices in place worldwide in that same time frame.

The profit potential is massive – and dwarfs anything else I’m following right now.

And one company is perfectly positioned to ride this wave.

I’m talking about ARM Holdings.

Cashing in on Connected Devices

ARM executives view the Sensinode deal as one that’s critical to the mobile chipmaker’s aim to become a major Internet of Everything player.

ARM is part of the new breed of semiconductor firms known as “fabless” players. What that means is that ARM designs chips that are modified and made by others – allowing it to collect hefty royalties for its innovative work.

This strategy is an important one for a couple of reasons. First, ARM’s “factory-less” business model makes it a high-margin operation. Second, ARM really is an innovative player: The company’s microprocessors run nearly all of the world’s smartphones, and roughly one-third of all consumer devices.

Little wonder ARM shareholders have been among the biggest winners of the Mobile Revolution. Over the last five years, ARM Holdings shares are up 602%. In other words, $25,000 invested in ARMH in September of 2008 would be worth $175,000 today.

But before you lament having “missed another one,” let me be very, very clear: The Internet of Everything is going to blast ARM Holdings to a whole new level.

The best is yet to come. And when it does, the investors who start positioning money now are going to smile like they profited from a true gold rush.

You see, a total of 8.7 billion ARM-based devices were shipped last year.

But only a fraction were actually networked.

And that means ARM has a huge opportunity that’s there for the taking.

Networking heavyweight Cisco Systems Inc. (NasdaqGS: CSCO) estimates that there were 8.7 billion Internet-connected devices in place at the end of last year. Cisco says that number will nearly double to 15 billion by the end of 2015 and will approach 40 billion by the end of the decade.

But 99% of all physical objects that will one day join the massive IoE system are not connected today.

Indeed, Cisco’s CEO John Chambers recently estimated that the IoE will be worth $14 trillion. And that’s just on the profit side. Actual sales of IoE products like microchips, sensors and networking gear will be many times that amount.

As Chambers sees it, virtually every company in the global supply chain – from trucking firms to auto makers – will tap into the IoE. They’ll use the technology to lower their manufacturing and distribution costs as every machine, truck, forklift, and component has an IoE access point.

And that’s where’s ARM’s new Sensinode unit comes in. The startup has a suite of software products that can be “embedded” in devices so they can connect with the Internet and then communicate with one another.

Sensinode will fit nicely into ARM’s existing “mbed” program, which designs micro-controllers for digital devices used in an interconnected world.

John Cornish, executive vice-president and general manager of the system design division at ARM says the purchase will help his company deploy “thousands of new and innovative IoT applications.”

Added Cornish: “ARM is dedicated to enabling a standards-based Internet of Things (IoT) where billions of devices of all types and capabilities are connected through interoperable internet protocols and web services.”

For its part, Sensinode is now focused on three main IoE markets. They are:

  • Connected Homes: Today, residential systems like energy monitoring, home security, home automation and elderly monitoring are connecting to the Web for more efficient user interface. Sensinode has software that runs wireless devices, routers and smart meters.
  • Lighting Control: Sensinode focuses on mass-scale lighting applications, including those for commercial buildings, street lights and outdoor LED lighting. It offers a street lighting app that includes Google Map integration with real-time monitoring and control, alarms, firmware updates and light-group management.
  • Smart Grid Networking: The company specializes in infrastructure systems for automatic meters. These allow communication with wireless meters, sub-meters and home devices. Sensinode’s software works with low-cost chips that communicate through radio frequencies.

The Next Digital Gold Rush

ARM isn’t yet forecasting the revenue boost it expects to derive from the Sensinode buyout. But new ARM Holdings CEO Simon Segars had only held the job less than two months when he announced the move. So you can bet that the payoff will be huge.

And with the stock trading well below its recent high, the timing couldn’t be better.

That bodes well for the stock’s long-term potential and comes at a time when the stock is trading below its recent high. After gaining more than 115% in a 12-month stretch that ended May 16 – which saw the stock peak at $50.56 a share – ARM’s stock sold off and was recently trading at roughly $41.

Analysts chalked up the decline to profit-taking. But there was also an issue of confusion that’s granted us a chance to scoop up ARM shares on the cheap.

On July 20, ARM said it had increased second-quarter sales 24% from the year-ago period to $213 million. Earnings-per-share rose 37% to reach 8 cents a share.

But many investors were confused by the earnings statement.

You see, ARM Holdings is based in the United Kingdom. As a foreign entity, it has opted to comply more closely with global accounting procedures known as International Financial Reporting Standards (IFRS).

Under IFRS, ARM reported a 73% earnings decline after accounting for overhead and other general expenses.

But as someone who has followed the firm for years, I’m not worried about the company’s underlying operations. In fact, I see the stock’s recent correction as a new buying opportunity.

Because of its dominance in the smartphone and “device” markets, ARM essentially has a “license” to print money. The company has a relatively modest market cap of roughly $19 billion, has roughly $874 million in cash on hand and almost no debt.

ARM even generates $261 million in free cash flow (FCF) a year.

Over the past three years, the company has grown earnings per share by 31% a year, meaning ARM’s profits – and its stock price – could double in about 2.5 years.

Clearly, ARM stands to grow even more in the years ahead as it targets the huge market for the Internet of Everything.

And this is just the first of a number of profit opportunities that will allow us to double our money – or more – as we cash in on this next phase of the Internet.

It will be like a tech-sector gold rush.

And I’ll be honored to be your guide.

[Editor’s Note: I really like hearing from you. Don’t be afraid to post your comments below – to ask questions, make suggestions or report on profits you’ve made from our recommendations. Or drop me a note just to check in. After all … you’re the reason I’m here.]

25 Responses to Why the High-Tech “Gold Rush” Started Last Week

    • Michael Robinson says:

      Hi Ray,

      Thanks for contacting me. I appreciate the support. Now then, getting started in stocks is pretty straight forward. You need to open an account with a brokerage. These days, a lot of investors prefer to do it online and there are quite a few firms to choose from. After you set up the account, you will need to fund it. And then you can begin buying and selling. Hope that helps and good luck,


  1. Stig says:

    You are right in characterizing what Industry is doing and in what you say.
    But, it is not as simple as that … we’ll certainly get there, but as we are woefully ignorant of where ‘There’ is, we might not like it when we get ‘there’!

    Without going into detail, various Trends and Pronouncements we see coming together in this scenario combine into a hodgepodge of conflicting signals. Some look at the world as fully distributed, others say ‘Big Data’ as if it is ‘old IBM’ on Steroids, and there are lots of Variations, Segments, and Opinions in between …

    The other difficulty, especially among ‘know it all’ Computer Scientists lacking skills for High Volume Real-time critical Traffic and Physical Interaction… it is no longer ‘pure logic’ … It models the Real World, where things are not ‘that simple’ and where simple things tend to spin out of control and become very Complex. Just look at DC these days.

    Somebody wiser than all of us said something like this: ‘In Science and Technology we must make things as Simple as possible … not any simpler!
    Have Great Day,

    • Michael Robinson says:

      Hi Gloria,

      Thanks so much for contacting me. ARMHF is a version of the stock that is traded over the counter. It’s lower priced at about $14 a share. The performance of the two change from day-to-day but are pretty similar over longer periods of times, such as one year and five years.


  2. Kirsten says:

    For someone who is not and does not follow the stock market I am intrigued by your article and would like to know more about how I would get involved or invest in ARM?

  3. John Brodi says:

    Your analysis of ARM sounds very similar to things I read about Raxspace Hosting ( RAX) over the last year or two. RAX was touted to have a large head start with its open stack and other technology.
    RAX stock price did appreciate for a while and then over night it lost 40% of its market value on a downgrade from analysts. You make a compelling argument to buy, but you need to expand your article to include who are its competitors and how they compare to them and what are the large tech companies doing with this technology and is ARM a take over candidate by one of these big boys. Mike i’m a very new subscriber and enjoy the articles I have read; keep the information coming!

  4. John Capece says:

    Just want to say I look forward to reading your letters .i find them very informative and insightful. Keep up the good work

  5. masa nakamura says:

    Your ARM article was interesting but before I buy, I Iwould like to see you provide a side by side comparison of ARM vs other competitors out there. Can do? Thank you.

    • Michael Robinson says:

      Hi K.,

      Boy does it ever. As a design firm, ARM has something like a 90% market share in low-power chips suitable for mobile use. The focus on low-power was very smart as those chips allow for better battery life. To me, it seems the biggest threat would be some type of disruptive technology but it’s hard to predict what that might be or from where it would emerge. Thanks for your question. I hope this helps.



  6. Wayne says:

    Hi I have also never invested in stocks before . I have about $3000.00 to invest . I was just wandering if you could give me a suggestion on how I should divide this money up ? I would really appreciate your advice . I am very excited to get started . Thanks

  7. Roy Danner says:

    Where does a company like ALU come into play with all of this? I started accumulating this company when nobody wanted it for a buck a share.

    • Michael Robinson says:

      Hi Roy,

      That’s a good question. Alcatel-Lucent hasn’t been talking about the Internet of Everything as much lately. Right now, the company is focused on its reorganization and has a new management teach. Under its “Shift Plan,” ALU is converting to a bigger focus on industrial Internet Protocol operations for networking and ultra broad band access. However, it’s not clear to me at this point how much IoE will contribute to ALU’s sales and earnings over the next two to five years. Hope that helps.



    • Michael Robinson says:

      Hi Dane,

      Yes, ARMH pays a very small dividend. The payout is something like .5% at current prices. So, this is not really a dividend play per se. It’s more about growth. Hope that helps,


  8. Richard Waldren says:

    Michael, as always I really enjoy, value and respect your intellect and wisdom on the technology side. Because of you we have probably made close to $5,000 and we are not done yet. Will now be looking at ARMH. Many thanks again Michael. May the Lord bless you.

  9. Magda says:

    I have been in the IoT world now for several years, and am very familiar with Sensinode (know the CEO, Adam)… What makes it really interesting is their standards play into the 6loWPAN internet protocol for minimal embedded devices. ARM has the “muscle” to push that standard going forward. I am totally sold on the IoT, and agree that this will finally be a major growth area, and it will be both in the consumer world, as you say in the managed home, but even more so in the management of resources like vehicles, trains, individual freight items, and the factory floor. Also, look for the vehicle to vehicle and vehicle to infrastructure connectivity! But software platforms behind these will be very important as well! Telit recently acquired M2M Platform company ILS Tech! And IBM is getting into the connected car area. And remember Verizon acquired nPhase and Hughes telematics recently!

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