Fabless Semiconductor Companies: The Brains Behind Edge Computing

Setting the Stage: Billions of Devices, Billions of Data Points

Every day, more devices—from home appliances and cars to industrial machinery—are connected to the internet. Known as the Internet of Things (IoT), this vast network of connected devices is projected to reach over 29 billion by 2030. Each device generates a constant stream of data, which, if managed correctly, can greatly enhance the functionality and efficiency of these devices.

The Vast Network of Connected Devices is Projected to Reach Over 29 Billion by 2030

Source: Statista, as of June 2024. ^*Projected numbers.

Imagine a smart refrigerator: This isn’t just a cooler for your groceries; it’s a connected device that monitors the freshness of your food, tracks expiration dates, and even suggests recipes based on available ingredients. To function effectively, the fridge needs to process data quickly, like recognizing when food is added or removed, analyzing if something is about to spoil, and alerting you.

Without edge computing, which stores data close to the device, the smart fridge would rely entirely on the cloud for this data processing. This means every time you add a new item, that data would need to travel to a distant server, be analyzed, and then return with the updated information. Not only could this introduce frustrating delays, like when you’re rushing to prepare a meal—but it also can slow down functionality and strain network resources because the fridge has to send and receive constant data.

With edge computing, however, the fridge can process data locally and on-site. It can recognize items, track expiration dates, and send notifications in real time. This local processing power allows the fridge to operate with true “smart” capabilities, rather than relying on a distant cloud server, which could slow down responsiveness. In this way, edge computing enables the fridge to deliver instant results and real-time alerts, overcoming the potential lags or bandwidth issues that a cloud-only approach could cause.

The Number of IoT-Connected Devices is Growing Rapidly

Number of IoT-Connected Devices Worldwide (2019 to 2033) by Vertical (in Millions)

Source: Statista, as of May 2024. ^*Projected numbers.

Why Cloud Alone Isn’t Enough

While cloud computing is invaluable for storing and analyzing massive data sets, it can introduce challenges when it comes to real-time decision-making:

1. Latency: Cloud processing can be too slow for applications that need split-second responses. A smart fridge that relies solely on the cloud might take too long to respond to an action—like adding something to a shopping list—if there’s network congestion or a distant server response delay.
2. Bandwidth Constraints: Constantly sending data to the cloud for analysis puts pressure on network bandwidth. For a house full of smart devices, this can mean slower performance as devices compete for bandwidth, especially during peak times.
3. Privacy Concerns: Edge computing allows sensitive information (like your grocery preferences) to be analyzed right on the device, reducing the need to send it to the cloud and minimizing data exposure.

In essence, while the cloud is critical for overarching data storage and big-picture analysis, edge computing is essential for real-time, on-device functionality. This combination allows IoT devices to reach their full potential, delivering faster, more reliable performance that enhances user experience and preserves network efficiency.

Edge Computing: From the Data Center to Your Device

Source: VanEck.

Fabless Chip Designers Are Powering Edge Computing

The companies building the brains for these edge computing devices are fabless semiconductor firms. Unlike traditional semiconductor companies, fabless firms focus exclusively on designing the advanced chips needed for edge computing and IoT. By outsourcing production to specialized manufacturers, they can stay agile and focus entirely on creating cutting-edge technology.

Here are examples of companies that are positioned to thrive as edge computing grows:

• ARM Holdings¹: A major player in mobile and IoT device chips, ARM designs energy-efficient processors that are ideal for low-power, high-performance devices at the edge, from refrigerators and smart home devices to industrial sensors.
• Ambarella²: Known for its work in AI and computer vision, Ambarella develops chips that allow devices like security cameras and autonomous vehicles to “see” and interpret their surroundings in real time without needing to connect to the cloud.
• Synaptics³: Focused on IoT and edge computing, Synaptics designs chips for smart devices, wearables, and other IoT applications. Their processors power everything from voice recognition in smart speakers to touch sensors in connected devices.

These companies don’t just make chips—they create the specialized “brains” that enable edge devices to think and act independently, providing faster, more secure data processing.

How to Access Fabless Companies As They Lead the Edge Revolution

With the world moving toward more connected, data-driven devices, fabless semiconductor companies are uniquely positioned to meet this demand. Their design-focused model allows them to create advanced chips for a variety of edge applications, from consumer electronics to industrial automation.

As IoT and AI continue to grow, edge computing will play an essential role in powering the connected world of the future. For investors looking to capture this trend, the VanEck Fabless Semiconductor ETF (SMHX) holds leading fabless semiconductor companies that are well-positioned to benefit from this shift. SMHX provides a targeted way to invest in the future of edge computing by focusing on fabless chip designers—companies that are truly powering the next generation of technology.

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