XPED Ltd (ASX: SPE) saw its share price soar more than 20% today to 8.8 cents, after the company announced that it had signed what could be a hugely lucrative agreement.

XPED signed an agreement with Telink Semiconductor to license its intellectual property to Telink with Xped to receive a licencing fee worth 17.95% per chipset sold containing its ADRC technology.

ADRC – or Auto Discovery Remote Control technology allows anyone to use their smartphone to connect to and control any electronic device containing the technology. According to Xped, ADRC is being rolled out in indistrial sensors to data centres in Asia, as well as various chips manufactured by the likes of Telink and chip giant Intel.

As you might imagine, electronic devices containing chips are likely to number in the billions or trillions in future – with many of them being controlled via apps on peoples’ smartphones. The market is likely to be huge – worth an estimated US$1 trillion, with US$347 billion if that in consumer devices in the home. Consider things like electronic doors in our homes that don’t require keys – just your smartphone to open them.

Xped makes its money via licencing third parties to use technologies such as ADRC in their products. If Xped can make a percentage of each chip or product sold, the revenues could be enormous.

However, investors should also note that there are many risks facing Xped. Competing technologies could become the defacto standard; third parties may baulk at the expected costs or revenues Xped wants, and then there’s the fact that Xped may not become profitable.

It’s also worth noting that giant companies like Telstra Corporation Ltd (ASX: TLS) are also entering the home automation space, and may muscle in on Xped’s turf.

What now for Xped?

The company says it expects first revenues sometime after August this year, but that’s a long way from being profitable – and it could take more than a few years to become profitable – resulting in several capital raisings from investors in the meantime.

Foolish takeaway

There’s no denying that Xped’s technology is exciting and could revolutionise the way we interact with numerous electronic devices. This is one company to watch – but perhaps a bit early to speculate on.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.