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ARM (NASDAQ:ARMH) just acquired SensiNode, a Finland-based start-up developing software for the Internet of Things ("IOT"). While the acquisition seems small, the stakes are huge: The Internet of Things reflects a huge number of new devices that will need chips. And huge means huge - predictions range from 30 Billion to 50 Billion IoT devices by 2020. ARM is in a race to this market with Qualcomm (NASDAQ:QCOM), Intel (NASDAQ:INTC), Texas Instruments (NASDAQ:TXN) and many other chip makers.

The idea of the Internet of Things is simple and in many ways appealing: Put a tiny computer chip, and some form of wireless communication, inside thousands of every-day objects, appliances and sensors, and the Internet and mobile apps will extend to real-world things that matter to us. We'll be able to navigate on our smartphones to our lost key chain just as we navigate to a store. We'll be able to turn on our air conditioning from our smartphones just as we make a bank transaction. We'll get a notification when our cash drawer at home is opened just as we get notifications of chat requests. Our bathroom lights can turn on automatically when our toddler gets out of bed, just as they turn on by a timer when we're on vacation. And we can start our coffee maker with our tablets while we're still in bed just as we check the morning's headlines.

Dozens of technology companies are in a race to capture pieces of the Internet of Things market. Mobile companies like Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) want the Internet of Things to center around, you guessed it, our mobile devices. Cisco (NASDAQ:CSCO) is focusing on the network routers that ties the "things" together. General Electric (NYSE:GE) is focusing on the appliances that will connect to the Internet of Things. And IBM (NYSE:IBM) is focusing on the servers that will power the analysis and integration of huge quantities of data. All of these companies and many others are actively researching Internet of Things technologies in their respective areas.

But the common denominator of all the views of the Internet of Things is that the "things" will need computer chips for processing and wireless connectivity. Some things will do simple things, like respond to wireless signals with their identities. Some will do slightly more, such as digitizing sensor data and transmitting it wirelessly. Some will be more interactive, such as receiving wireless commands to turn something on or off or otherwise take action. And some will be more intelligent, interpreting sensor data and transmitting only when specific conditions are met, or giving information only to wireless queries that meet security requirements. All of these require chips.

But the Internet of Things brings new requirements for chips. Just as smartphones and other mobile devices have to consume a lot less power than PC and laptop chips, chips for the Internet of Things will need to consume much less power, lasting months or years on a single battery rather than being recharged routinely. Their wireless connectivity will need to idle on low power and communicate using a wider variety of protocols than Wi-Fi and Bluetooth, including RFID-like passive protocols. They will need to offer a variety of levels of capabilities and specialization. All these considerations and more make the Internet of Things as different a chip market from mobile devices as mobile devices were from PCs.

ARM's success in the smartphone and mobile device chip markets is well-known. The vast majority of such devices use processors that are either made by ARM or based on technology licensed from ARM. While other companies were aiming their chips at higher-end computers, requiring more power and space, ARM transitioned their technology to fit the requirements of mobile devices. But ARM's competitors have learned from ARM, and are transitioning their chips to be more mobile-friendly.

Moreover, most of ARM's success has been in licensing the intellectual property that drives the chips, but not in making the chips themselves. Most of the ARM chips in smartphones and tablets today are made by Qualcomm. This leaves ARM out of the actual supply chain, and leaves them vulnerable to companies like Qualcomm doing their own research for the next generation of chips.

In this context, ARM's acquisition of SensiNode makes a lot of sense. SensiNode's software allows optimized access to embedded devices through Web services, and enables developers to rapidly deploy and manage applications across large networks of things. Their service platform offers Web-service-like access to IoT applications. Their systems handle a variety of wireless protocols, and are specifically built to support routing between simple wireless protocols for sensors and other simple devices and the more complex wireless protocols used between digital devices. Lastly, SensiNode's technology is based on standards, and the company is a leader in the definition and implementation of the standards.

With SensiNode's technology integrated into its product line, ARM will have a lot more competitive advantage for IoT chips than just power consumption and size. ARM is now poised to beat others to supporting and integrating the new wireless protocols that are likely to drive the Internet of Things, and to connecting their chips to the services that IoT objects will be delivering.

With Qualcomm and Intel both focusing strongly on the Internet of Things (which those two companies call the Internet of Everything), ARM's acquisition is a bold move towards a practical end-zone of integrating chips with higher-level services and lower-level protocols.

SensiNode is just one of over twenty five start-ups that are bringing the Internet of Things to market, many of which have technology that would be equally valuable for chip companies. Some have software for embedded devices, some have server systems for gathering data from sensors and controlling connected devices, some sell hubs that connect nearby simple objects to the Internet, and some sell appliances that connect to the Internet. Are some of them soon to be acquired by Qualcomm, Intel or other chip companies?

Most importantly, which of the chip companies will win the race to capture the early market for IoT chips? SensiNode gives ARM a big push, but will it be enough to capture the IoT chip market the way they've captured the mobile device chip market?

Source: ARM Acquisition Races Qualcomm And Intel To The Next 50 Billion Devices