Growth Themes - Machine-to-Machine Connectivity

We want to share several interesting growth themes that are incorporated in Redwood portfolios. The first of these themes, Machine-to-Machine (M2M) connectivity is introduced below, and Redwood will publish notes on additional themes over the next several months. A new, and we think undiscovered, growth opportunity is M2M connectivity, which Redwood believes is in the early stages of strong secular growth. M2M is the merging of intelligent electronic devices with billions of real-time data points to optimize a process or output. M2M enables the power of the internet to be harnessed by an increasing number of processes and industries. M2M companies manufacture semiconductors, hardware, software and services. Among the companies offering services in the M2M space are Qualcomm, Fleetmatics Group, Numerix, and Calamp. Some examples of M2M implementations include:

  • Fleet Management. M2M enables companies such as Comcast and UPS delivery vehicles to be monitored in real-time to optimize productivity, fuel usage, brake wear and the effect of weather on tire performance. Small and inexpensive internet-enabled devices are attached to multiple points on the vehicle with the resultant data sent wirelessly over the internet for analysis. Routes can be changed, truck maintenance scheduled, driver fatigue determined and cargo tracked.

  • Risk Based Pricing. The auto insurance industry utilizes devices with wireless internet capabilities to customize premiums for safe drivers. Customers install a monitoring device in their car, which records driver activity. The insurance company remotely analyzes the data. For those drivers exceeding required safety standards, insurance premiums are lowered. This can modify driver behavior to promote road safety, reduce fuel consumption and put more money in the consumer’s pocket.

  • Energy Management. Smart energy applications allow remote adjustments of fuel usage based on analysis of actual live weather data (e.g. adjusting the air conditioner not just for heat, but also for cloud coverage, wind speed or changes in dew point). These applications are gaining acceptance in industrial, commercial and consumer markets.

The secular growth rate of the M2M market is estimated to be between 15% and 25% annually over the next 3 – 5 years. Given the synergies with cloud-based interconnectivity, M2M should provide numerous investment opportunities in high growth companies.

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