2 stocks to play the rise of the machines

The rise of machine-to-machine communications is accelerating

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Machine-to-machine communications (M2M) is coming, and is likely to grow at a prodigious pace in the near future.

The ‘internet of things’ refers to machines/devices communicating with each other. It may raise fears of a Terminator-like world, but even today, we are seeing machines communicating with each other. Eftpos machines, smart energy meters, cars and even shipping containers are now connected to the internet. Jet engines made by Rolls Royce, such as those on Malaysian Airlines flight 370, already stream data back to the parent company.

‘Smart’ cars that monitor our driving, warn us if we change lanes or get too close to the car in front, and even warn us when tyre pressures are low are already here. The next step could be cars communicating with a base station in case of emergencies, accidents or breakdowns, with little or no human input.

Cars are also expected to connect to the internet to download movies and music, and connect to internet radio stations, making up the biggest percentage of global M2M revenue. According to Bank of America Merrill Lynch analyst Sameer Chopra, global M2M revenue will rise from $5 billion in 2012 to $35 billion in 2018. Cars will make up 35% of that total, up from the current 6%.

It’s great news for Aussie telecommunications companies, with the likes of Telstra Corporation Ltd (ASX: TLS) and Optus – owned by Singapore Telecommunications Ltd (ASX: SGT) the biggest winners.

Other winners will be those companies that own fibre networks and lease space on the sea-laid cables connecting Australia with the rest of the world, such as Vocus Communications Limited (ASX: VOC).

Two other IT-related companies could also be big winners.

Netcomm Wireless Ltd (ASX: NTC), more well known for making routers and modems for consumers, is migrating its business to produce M2M devices. In November last year, Netcomm announced a deal with SYNNEX Corporation to deliver wireless M2M devices to Verizon Wireless’ sales channel, as well as other US resellers and system integrators. That could signal a coming flood of major orders for the company’s M2M products.

Another company that could have a bright future is Altium Limited (ASX: ALU). Altium makes software that allows companies around the world to design printed circuit boards, which are used in a variety of industries including aerospace & defence, electronics and high-tech, life sciences, automotive, semiconductors, industrial controls automation, computers and mobile devices. The company’s list of clients includes a virtual smorgasbord of well-known brands, including Boeing, Microsoft, Texas Instruments, Resmed Inc (ASX: RMD), Audi, BMW, Bose, Honeywell and Siemens.

Foolish takeaway

Machine-to-machine (M2M) communications looks to have a bright future. Netcomm and Altium could be two companies set to benefit enormously.

Motley Fool writer/analyst Mike King owns shares in Vocus and Telstra Corporation. You can follow Mike on Twitter @TMFKinga

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