One of the most used buzzwords in the technology sector is IoT or IoE, which stand for Internet of Things or Internet of Everything. Technology research company Gartner (NYSE:IT) defines IoT as “the network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment”. In other words, after we added computing capabilities to our phones, televisions, watches, glasses, cars, etc. and turned them into mobile computers, the next phase is to computerize more objects like refrigerators, air conditioners, washing machines, ovens, boilers, clothes, plants, etc.

• Adesto develops NVM chips for the IoT and Wearables market.
• The market is expected to grow by 38% CAGR up to 2020.
• Attractive pricing will make this a very compelling long-term investment into the IoT market.

Once these objects have computing capabilities, they could interact with each other, improve aspects of our lives, inform us of certain actions we need to take, and add a data-based decision-making process to our everyday lives. According to Gartner,  the installed base of IoT units is expected to grow by up to 25 billion units in 2020, with an impressive 38% CAGR, as shown in chart 1 below.

All of these new computing systems have hardware and software requirements different from those of the computing systems we have known so far. The new systems require processors that can deliver more information faster, under lower power, and at a lower cost. In 2014, to address the changing needs of computing components, microprocessor giant,Intel (INTC)  introduced its Edison CPU, targeted for the IoT and wearables markets. Edison is unique because of its tiny size (only 35.5 x 25 x 3.9 mm) and broad capabilities compared to its size (WiFi, Bluetooth and USB controllers). Intel was obviously the most notable company to offer hardware solutions tailor-made for the IoT market. However, many other hardware companies spotted the trend and started developing ultra-low-power solutions for the IoT market. Now even GE has sights set on IoT, and with the recent announcement of GE Digital, GE's push in that direction could get more focused. IBM also recently announced a new initiative to bring connected cars to the Internet of Things (IoT) cloud.

Adesto IPO Filing With The SEC

Adesto (IOTS), an ultra-low-power memory developer, is one of those companies and focuses solely on ultra-low-power memory solutions for the IoT and wearables markets.Adesto filed for an IPO last week and offered an interesting entry point into the emerging IoT / Wearables market. The company developed an innovative, proprietary, low-power memory solution based on a type of Resistive RAM technology called Conductive Bridging RAM (CBRAM), which enables memory customization, tailoring it for a specific use or application. According to the company, its CBRAM technology drives ultra-low-energy consumption and ultra-fast write capabilities, making it a natural fit for Internet of Things, wearables, and other energy-conscious applications.

Adesto is a small company with only 84 employees, seeking to raise only $50M. However, this small cap memory maker is one of the growing IoT-focused tech companies set to benefit from the expected rise of the IoT boom. Adesto increases the number of design wins every year: the company achieved 32 in 2013, 65 in 2014, and already 88 in the first half of 2015. Even though the company presented a decent increase in design wins, it struggles to translate this growth into revenue, and its quarterly revenues have hardly changed in the last six quarters. Adesto generated revenues of $41M in 2014, which were totally offset by operating expenses and cost of revenues, yielding a net loss of almost $9M in 2014 as shown in chart 2 below.

Even though Adesto’s growth until now hasn't been very impressive, the IoT trend has just started to take off, and there are very few Wearable devices out there, so the company is heavily dependent on future sales and market size growth. Adesto operates in the Non-Volatile Memory (‘NVM’) market, which is expected to grow by a 25% CAGR by 2019. The company competes with Micron (NASDAQ:MU), STMicroelectronics (NYSE:STM), Amtel, and a few others in providing memory chips for the IoT and Wearable products of the future. The only real chance to benefit from an emerging trend in technology is to invest in a pure-play company poised to surge, and Adesto is a great example of such companies. Adesto’s value proposition is that it will succeed in leveraging its IoT/wearables expertise, gain a significant market share in the NVM market for IoT and wearable devices, and benefit from the organic growth of the market and sales.

Adesto has yet to price its offering. However, an attractive price would make this IPO a long-term investment for the 4- to 5-year horizon. Once the company submits its initial IPO price, I will update my thesis and revisit my bullish perspective.

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