Internet of Things - The Industry Connection

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April 2017
Internet of Things:
The Industry Connection
Internet of Things: The Industry
Connection Apr 2017
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Internet of Things: The Industry Connection Apr 2017
CONTENTS
BMI View .............................................................................................................................. 7

IoT: The Industry Connection ...................................................................................................................... 7
ICT Industry .......................................................................................................................... 8

United States: AT&T-Verizon Rivalry To Heat Up US IoT Market ...................................................................... 8
Table: Cellular And Licensed IoT Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
United States: FreedomPop's IoT Strategy To Drive Further Competition .......................................................... 12
Global: Hutchinson Focuses On Global IoT Market ....................................................................................... 14
South Korea: KT/LG Uplus Alliance To Challenge SK Telecom In IoT ............................................................... 16
Chile: Chile To Be NB-IoT Template Testbed For Telefónica ........................................................................... 18
Autos ................................................................................................................................... 20
Global: Intel Represents The Future Of Autonomous Driving ........................................................................... 20
Table: Why Intel Can Dominate The Autonomous Driving Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Energy And Mining ............................................................................................................ 24

United States: Thermostat-Battery Package Symbolises Smart Energy Evolution ................................................. 24
France: Virtual Power Lines To Boost Grid Management ............................................................................... 27
Europe: Innovative Monitoring To Support Offshore Wind Cost Deflation .......................................................... 29
Global: Investment In Smart Mining To Accelerate ........................................................................................ 33
Table: Key Smart Mining Projects And Collaborations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Agribusiness ...................................................................................................................... 40
Europe: IoT & Big Data In Europe's Agribusiness - Iron Curtain Divide ............................................................ 40
Table: Europe Agribusiness IoT & Big Data Ecosystem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Healthcare & Medical Devices ......................................................................................... 51

Global: Digitalisation To Have A Profound Effect On All Aspects Of The Healthcare Industry ............................... 51
Global: The J&J Strategic Playbook ........................................................................................................... 54
Appendix ............................................................................................................................ 57
© Business Monitor International Ltd Page 5

BMI View
IoT: The Industry Connection
In this edition of IoT: The Industry Connection, we once again focus on sectors as diverse as ICT,
automotives, energy, mining, agribusiness and the medical sector. Some of the biggest developments in IoT
and our key views can be accessed in more detail throughout this report. We highlight:
■ Hue, the Hutchison Group's wholesale arm that provides MVNO and IoT solutions, has agreed a
partnership with Cisco Jasper - supporting enterprise customers as they look to enter the IoT market.
This development is important because it confirms three of our long-term views and one of our IoT key
themes for 2017: the primacy of enterprise solutions, the need for partnerships and cooperation and the
global scale of the IoT market.
■ In South Korea, KT and LG Uplus have announced a music content platform partnership aimed at
improving their IoT and Artificial Intelligence (AI) offerings. In our view, KT and LG Plus are
strengthening their alliance in content, IoT and AI as competition increases with market leader SK
Telecom. Joining forces will enable KT and LG Uplus to gain market share in 2017.
■ In the autos sector, Intel announced it would acquire an Advanced Driver Assist System (ADAS) and
collision avoidance system supplier, Mobileye, for USD15.3bn. We believe that Intel's acquisition will
allow it to differentiate itself as the 'one-stop-shop' of autonomous driving systems in the near future. The
company will provide a strong challenge to Google's Waymo, which is also seeking to be an end-to-end
supplier of autonomous driving systems.
■ In the agribusiness segment, we anticipate that many countries in Europe will increasingly adopt
precision agriculture due to the continent's large and diverse agricultural production, its supportive policy
environment and its strong Agtech ecosystem. EU outperformers include Northwestern Europe as well as
Czech Republic and Slovakia, while the Black Sea region will underperform.
■ In the energy and utilities sector, many of the biggest players will continue to look at smart technology
adoption and the IoT as growth areas amid the decline of traditional fossil-fuelled assets - particularly in
Western Europe. Thermostats, energy storage and virtual power lines will all be supported by the IoT.
■ The acceleration of technological integration in the mining industry will widen the gap between the top
low-cost producers and junior miners and improve the competitiveness of developed markets compared
to underdeveloped markets. Miners will increasingly invest in technology integration, including
automation and internet connectivity, to improve competitiveness in a volatile mineral price environment.
Major diversified miners, with the largest budgets and operating in developed markets capable of
providing widespread internet access and skilled labour, will drive this trend.

ICT Industry
United States: AT&T-Verizon Rivalry To Heat Up US IoT Market
BMI View: The competition between AT&T and Verizon will help drive the US IoT market as it did the LTE
market at the onset of the decade. Both operators see IoT as a crucial new revenue stream, focusing on a
similar premium strategy. The diversification of the US economy means there are multiple opportunities
across different industries for digitisation.
Verizon has announced that it has launched the first Internet of Things (IoT) network in the US, using LTE
Category M1 (Cat M1) technology. It beats its rival AT&T, which has started rolling out its own LTE-M
network, with plans to reach nationwide coverage by the end of Q217. The competition between the two
actors will drive the market as they will both follow the same premium IoT strategy and look to further
develop a new revenue stream, facing pressure in the legacy retail market from Sprint and T-Mobile.
AT&T and Verizon see IoT as a crucial part of their diversification strategy, alongside other areas such as
convergence, content and advertising, which are all more focused on retail consumers. There has been some
pressure on both operators, especially from T-Mobile whose 'Un-Carrier' strategy has strongly disrupted the
market. The IoT focus will be on enterprise, with both companies looking to leverage their existing LTE
networks, where their coverage beats the 97% mark, according to FCC data from the end of 2015. The
competition between the two operators will be good for the IoT market and akin to early competition for
LTE, as Verizon's launch of the technology in December 2010 and subsequent success led AT&T to
accelerate its own plans, launching in September 2011, nine months ahead of its original schedule.

Connected Devices Outperforming

AT&T Net Additions ('000), 2015-2016
2,000
1,000
-1,000
Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416
Connected Devices Postpaid Prepaid Reseller
Source: ATT
The launch also highlights that the companies' strategy will focus on premium services as they have both
chosen technologies leveraging their own cellular and licensed networks. There are different variants of
cellular technologies that can be used for the IoT, depending on the bandwidth required, from 1Kbps to
1Gbps (see table) but both AT&T and Verizon have decided they will not use unlicensed networks, such as
the one developed by Sigfox. AT&T and Verizon want to have the greatest possible control over the devices
they connect to their networks to offer the best quality of service possible and this strategy will be expanded
with the introduction of 5G. The technology is still at the standardisation stage but is expected to make
connected objects a key part of its core capabilities. Both operators have also been pushing the technology,
trialling it as a fixed broadband alternative, and we would expect them to be the first to launch commercial
services once available from 2019 onwards.

Table: Cellular And Licensed IoT Technologies
Technology Devices
Cat-4 Routers;
Network bridges;
Gateways;
High resolution video;
Endpoint concentrators
Cat-1 Video surveillance;
Connected healthcare;
In-car hotspot;
Retail signage;
Digital signage;
In-car infotainment;
Enterprise PDA
LTE-M Asset trackers;
Telematics;
Smart watches;
Alarm panels;
Pet trackers;
Fitness bands;
Point of Sale terminals;
Gas/water meters;
Patient monitors
NB-IoT Smoke detectors;
Parking control;
Smart agriculture;
Smart cities;
HVAC Lighting;
Electric meters;
Industrial monitors
Source: AT&T, Sequans
The US economy is very diversified and there are multiple opportunities for digitisation. Connected cars are
already a big part of the IoT ecosystem and this will develop further with the move towards autonomy. This
will in turn drive the move towards smart cities, with few advanced cities, such as Atlanta, looking to be
early adopters by using sensors to understand specific needs and requirements better. Health, utilities and
smart homes also provide strong opportunities but we believe the earliest prospects may come from
traditional sectors such as agriculture and mining. They only provide 1% each of the overall output but there
is greater need for digitisation, in order to cut costs, with greater automation also boosting overall
productivity.

Ample Digitisation Opportunities

GDP By Output (% Total GVA), 2017-2026
20
15
10
0
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
Other Services Real Estate Wholesale And Retail Trade
Manufacturing Public Administration Human Health Finance
Communications Construction Transport Tourism
Electricity Supply Education Agriculture Mining
Note: All BMI forecasts. Source: BMI, BEA
Related Articles
■ 'Investment In Smart Mining To Accelerate', March 17 2017
■ 'Early 5G Still Needs A Business Case', March 14 2017
■ 'AT&T: Doubling Down On Convergence With Time Warner', February 14 2017
■ 'IoT Key Themes 2017 - Enterprise Drives Focus On Cost Cutting', January 31 2017
■ 'IoT & Big Data In Agribusiness: Driving Future Sector Growth', October 21 2016
■ 'Verizon: 5G, IoT And Digital Content Drive Strategy', August 3 2016
■ 'AT&T Goes Premium With IoT', February 12 2016
■ 'Verizon IoT: ThingSpace And Services The Strongest Opportunity', November 3 2015

United States: FreedomPop's IoT Strategy To Drive Further Competition
BMI View: FreedomPop's USD1 IoT plan is a further indication and confirmation that connectivity will
soon become commoditised and that services are the way to profitability in the market. It will bring further
competition and price pressure in the US market, which is developing more quickly than anywhere else
globally.
Following international expansion in Spain and the UK, FreedomPop is entering new markets domestically
with new enterprise and Internet of Things (IoT) offers (see 'Brexit To Weigh On FreedomPop's New
'Freemium' Model', March 10 2017). The operator wants to offer free services to small businesses if they
use less than 2GB of data per month, but its IoT plan - connecting objects for less than USD1 per month -
will have the most impact. This reinforces our view that connectivity will soon become commoditised in the
IoT market (see 'IoT Key Themes 2017 - Enterprise Drives Focus On Cost Cutting', January 31 2017).
Pure Connectivity Not Profitable

Sweden M2M ARPU (SEK), 2008-2016
30
25
20
15
10
5
2008 2009 2010 2011 2012 2013 2014 2015 H116
Source: PTS
The fact that an operator not using its own network could offer connectivity for USD1 is further indication
that services will be the key component for IoT monetisation. Data from the French and Swedish regulators

have shown that machine-to-machine (M2M) average revenue per user (ARPU) keeps declining, falling
below EUR1 in France and SEK10 in Sweden (both representing around USD1.1). Connectivity will still be
required to offer the right type of services, whether data, software or platform-based, but it is facing the
same threat, at a quicker pace, that voice and data services are facing in the retail segment, where operators
also need to focus on content to monetise their infrastructure investments.
Sprint Relying On Partners

Sprint Connected Devices (mn), 2015-2016
15
10
0
Q115 Q215 Q315 Q415 Q116 Q216 Q316 Q416
Retail Postpaid Wholesale & Affiliate
Source: Sprint
FreedomPop is planning a global service and we expect it is partnering with Hutchison's Hue subsidiary,
having already reached a deal with 3 in the UK for its MVNO service (see 'Hutchison Focuses On Global
IoT Market', March 27 2017). But it is in the US where its strategy will have the most impact as the IoT
market is heating up (see 'AT&T-Verizon Rivalry To Heat Up US IoT Market', April 3 2017). Both AT&T
and Verizon have undertaken premium strategies with IoT, looking to gain some of the profitability they
lost in the consumer market. This is because the level of competitive pressure was lower in the IoT as both
Sprint and T-Mobile have primarily focused their efforts on the retail segment (see 'T-Mobile "Un-
Carries" The IoT', September 19 2016). With a USD1 price tag, that competitive pressure is now coming to
the IoT market and it also highlights an interesting strategy by Sprint, FreedomPop's main wholesale
partner. The operator is using partnerships, instead of its own brand, for connected devices, with 10.6mn out

of 12.6mn subscriptions held by wholesale and affiliate partners. This highlights that Sprint still wants to
primarily focus on strengthening its position in the retail segment before it competes more strongly in the
IoT market but is happy offering low wholesale rates for third parties to do so.
Global: Hutchinson Focuses On Global IoT Market
BMI View: The partnership between Hutchison's Hue and Cisco Jasper confirms and reinforces many of
our views on the IoT market. We also highlight that the evolution and the maturity of IoT markets mirror
what has been happening in the retail segment, as operators first widen and then deepen with more
sophisticated products and services.
Hue, the Hutchison Group's wholesale arm providing mobile virtual network operator (MVNO) and
Internet of Things (IoT) solutions, has agreed a partnership with Cisco Jasper, supporting enterprise
customers as they look to enter the IoT market. The deal confirms three of our long-term views, and one of
our IoT key themes for 2017, regarding the primacy of enterprise solutions, the need for partnerships and
cooperation and the global scale of the IoT market (see 'Key Issues From MWC16: IoT', February 29 2016
and 'IoT Key Themes 2017 - Enterprise Drives Focus On Cost Cutting', January 31 2017).
The deal would provide enterprises with a solution combining Hutchison's connectivity with Cisco Jasper's
Control Centre, its cloud platform managing all IoT devices. This highlights the importance of services as
opposed to pure connectivity when it comes to offering IoT solutions and convincing enterprise customers
to sign up. The combination of the two companies' solutions provides a much stronger product and one
neither would have been able to provide on its own, unless they were prepared to incur much higher costs
by developing their own solutions. But the global aspect of the deal is the most interesting, as it highlights
that Hutchison is looking to leverage its international footprint, with presence in 12 markets, and focus on
companies operating across borders. The ability to provide a single solution to companies present in
different countries and as such simplifying the entire process, is a major advantage for Hue and Jasper, but
they will face competition in what remains a nascent market, from for instance Nokia and its WING
(worldwide IoT network grid) solution.

Europe Provides IoT Opportunites

M2M Connections y-o-y Growth (%), 2014-2015
30
20
10
0
Austria UK Denmark Sweden Ireland
2014 2015
Source: BMI
Hutchison is present in both Europe and Asia and we believe the former region provides some strong
opportunities for IoT services. Latest regulatory data regarding machine-to-machine (M2M) highlight that:
■ In Sweden, as of June 2016, there were 7.57mn subscriptions in the market;
■ In Denmark, as of June 2016, there were 970,000 subscriptions in the market;
■ In the UK, as of December 2015, there were 6.7mn subscriptions in the market;
■ In Austria, as of June 2016, there were 167,560 subscriptions in the market; and,
■ In Ireland, as of December 2016, there were 670,389 subscriptions in the market.
The market is growing but we note two different stages in adoption of M2M and IoT solutions regarding the
maturity of each specific country. On the one hand, early adopters and the most advanced markets already
experience critical scale when it comes to connections, with the main focus being on the provision of more
sophisticated solutions. On the other hand, many markets have yet to fully embrace connected solutions and
there the aim should be at first to highlight the potential of the simpler and cheaper solutions, to make
companies make that first step and look to offer more developed services as the market matures. Sweden is

clearly in the former category, with Austria in the latter and the other markets gradually moving from phase
one to phase two.
This is a very similar paradigm to the one we highlighted in the consumer market, through widening and
deepening processes and strategies, as in this market, Hutchison will face strong competition. The presence
across its footprint of large global players such as Vodafone and Deutsche Telekom, or IoT specialists like
Telenor, Telia and Tele2, means that Hutchison has to catch up, having had less of a focus on the
enterprise segment historically. It puts the company in a similar situation to its rival Telekom Austria,
which is also looking to diversify further into the segment (see 'A1 Digital Necessary For Telekom Austria's
Future Growth', February 15 2017).
South Korea: KT/LG Uplus Alliance To Challenge SK Telecom In IoT
BMI View: KT and LG Plus are strengthening their alliance in content, IoT and AI as competition
increases with market leader SK Telecom. Joining forces will enable them to gain market share in 2017.
KT and LG Uplus, South Korea's second and third largest operators, have announced a music content
platform partnership in order to improve their Internet of Things (IoT) and Artificial Intelligence (AI)
offerings. LG Uplus has acquired a 15% stake in music streaming service KT Music (the second largest
music content provider after Kakao) for USD23mn, making it the second largest shareholder after KT. We
see this move as being positive as it mitigates the need to duplicate investment in assets.
The partnership comes as competition with market leader SK Telecom intensifies as OTT service offerings
become more sophisticated. It signals that cooperation between players is becoming more important in the
telecoms sector as they seek to refine their services. KT is focusing on AI products, starting with its GiGa
Genie speaker launched in January 2017, in competition with SK Telecom's NUGU. Uplus is developing its
smart home IoT services, integrating content into their platforms. Music and video are key content offerings
within the Home IoT and AI service markets and partnerships between operators and with OTT providers
are becoming increasingly necessary to expand in this market.

Competition Intensifies As Operators Invest In IoT

Market Share By IoT Category, % (Q316)
2,000
1,500
1,000
500
0
Remote Fleet Wireless Wearables Other IoT
control management billing
SK Telecom KT LG Uplus MVNO
Source: BMI, MSIP
The two operators will collaborate on the supply and marketing of music content with South Korea's
entertainment agencies and we expect the operators to expand their collaboration beyond music content.
Competition on IoT from SK Telecom, which launched a suite of LoRa-based IoT services in 2016, also
pushed KT and LG Uplus to strengthen their alliance on NB-IoT, with plans to jointly launch services in the
first half of 2017. Jointly sourcing key IoT components such as chipsets and other devices will give the two
operators more weight in the IoT market as the price of such devices is expected to be fall as they gain
scale.
While South Korea's mobile market nears saturation, IoT connections are still growing strongly at a
sustained pace and operators will continue to invest in IoT solutions to ensure long-term survival in this
growth market. SK Telecom leads the wearables market (by 77% in Q216) due to its dominant mobile
subscriber market share and its move to absorb its SK Broadband subsidiary was motivated by its aim to
assert a similar market dominance in wireline broadband for the development of other consumer IoT
applications such as smart home. In the larger enterprise segment however, SK Telecom leads by a smaller

margin (32.6% in Q216). The partnership between LG Uplus and KT will enable them to gain market share
in 2017.
Chile: Chile To Be NB-IoT Template Testbed For Telefónica
BMI View: By leveraging its 700MHz LTE network, Telefónica will come from a position of strength in
exploiting the potential of NB-IoT solutions within the enterprise services market. However, IoT
monetisation is a long-term opportunity and rival providers have the potential to displace Telefónica's
early-mover advantages.
Telefónica is partnering with Huawei Technologies and smart-metering specialist Kamstrup to launch
narrowband Internet of Things (NB-IoT) solutions in Latin America. Beginning with Chile, the trio have
partnered with a leading water utility to monitor residential user data in 300 residences. This is a template
we expect the operator to adopt in seeding its premium IoT offerings across multiple industries and to add
value to its enterprise services business. More specifically, market conditions in Chile will provide a good
testing ground for the new initiative.
M2M Adoption Suggests Large IoT Addressable Market

Telefonica Chile, M2M Accesses ('000)
400
300
200
100
0
Q115 Q215 Q315 Q415 Q116 Q216 Q316
Source: Telefónica

We have long held the view that the more advanced South American telecoms markets such as Chile hold
more long-term scalable advanced services opportunities. Affordable broadband connectivity is widely
available, consumer spending on value-added goods and services is relatively high and there is strong
engagement with new technologies. Product monetisation models that prove successful in Chile should be
transferable to similar markets, such as Brazil.
However, smart metering is a proven commercial concept; in order to fully monetise the potential of NB-
IoT, Telefónica must develop applications that move beyond the low-risk, low-value low-hanging fruit. We
believe IoT will become a standard operator service, albeit only in the long term. The substantial subscriber
and revenue growth implications will not become apparent for many years, particularly while operators
have to share revenues with specialised partners. Separating its infrastructure and services businesses - as
Telefónica is doing with the creation of its Telxius unit - as part of the broader operator-as-a-service
paradigm, is the right strategy but one that will only slowly mature.
Telefónica's use of NB-IoT technology is also interesting. The operator has invested in Sigfox, developer of
an alternative, but similar, low power wide area (LPWA) wireless connectivity platform. Sigfox uses
unlicensed spectrum, which is a much lower-cost approach to delivering ubiquitous connectivity than NB-
IoT. However, it makes sense for Telefónica to use NB-IoT where it has 700MHz networks and where end-
users are likely to want to pay a premium. We believe Telefónica should use the most appropriate
technology based on end-user and market requirements; a one-size-fits-all approach would be detrimental to
its IoT ambitions.
Meanwhile, the news should also be seen as Telefónica's response to competitive developments. In
September 2016, Vodafone was granted a mobile virtual network operator (MVNO) licence and made
public its intention to commercialise IoT services in Chile as part of its enterprise-centric strategy. Later, in
January 2017, incumbent Entel partnered with Cisco Jasper with a view to servicing the enterprise IoT
market.

Autos
Global: Intel Represents The Future Of Autonomous Driving
BMI View: Intel's USD15.3bn acquisition of Mobileye will allow it to differentiate itself as the 'one-stop-
shop' of autonomous driving systems in the near future by giving it newfound access to key ADAS and
mapping technologies. The company will provide a strong challenge to Google's Waymo, which is also
seeking to be an end-to-end supplier of autonomous driving systems.
In March, Intel announced it would acquire the Advanced Driver Assist System (ADAS) and collision
avoidance system supplier, Mobileye, for USD15.3bn, well above the company's market cap of
USD10.48bn as of the day before the deal. Intel has been looking for new revenue diversification
opportunities as it combats tougher competition and slowing sales in its datacentre and microchip
businesses with the nascent 'Internet of Things' industries (including connected and autonomous
cars) becoming a key target area (see 'Intel Looks At IoT While Admitting Mobile Defeat', August 18 2016).
Thus, we believe this new acquisition of Mobileye at a premium of more than 30% highlights Intel's
determination to break into the automotive sector and become the major end-to-end provider of autonomous
driving systems. In this piece of analysis, we seek to show how this new acquisition could potentially put
Intel at the forefront of the autonomous car market.

Share Price Premium Highlights Mobileye's Importance To Intel

Mobileye Share Price, USD
Note: Red line indicates date of deal announcement. Source: Bloomberg
Intel Gradually Colonising All Important Technologies
With the acquisition of Mobileye and its sensor, algorithm and mapping capabilities, Intel has greatly
strengthened its ability to become the major provider of a complete autonomous driving system to
carmakers. As we have stated before there are a number of key technologies used in autonomous driving
systems:
■ Sensors (Radar, Camera, LiDAR),

■ Sensor fusion and driving decision making software,
■ Detailed virtual maps,
■ Microchip processing, and
■ Big data storage and processing.
Currently, these technologies are provided to carmakers in a very fragmented way with no major suppliers
offering a simple end-to-end solution. This leaves carmakers in a difficult position, having to negotiate
complex and expensive deals with a myriad of different niche suppliers.

By bringing all these technologies together under one company, Intel can now corner the market by offering
automakers a cheaper, more simple, end-to-end autonomous driving product. To put this into perspective,
we have outlined Intel's control over the full suite of autonomous driving technologies in the table below:
Table: Why Intel Can Dominate The Autonomous Driving Market
Key Technology Intel's Access To Relevant Tech

● In 2016, Mobileye partnered with Delphi Automotive gaining preferential access to Delphi's
Sensors suite of sensor products (Radar, Cameras, LiDAR) (see 'Delphi-Mobileye - The Next Autonomous
Systems Mega-Supplier?', August 23 2016)
Sensor Fusion &
Driving Decision ● Mobileye excels in software and algorithms needed for making sense of data from radar,
Making Software camera and LiDAR sensors and for making driving decisions in response to sensor inputs.
● Intel owns a 15% stake in HERE one of the leading mapping companies in road transport and
mapping for the autonomous future (see 'HERE Maps Out Autonomous Driving Future', January
11). It also has a strategic partnership agreement with the company for developing autonomous
Virtual Maps car products.
● Mobileye is working with HERE in crowdsourcing data from vehicle sensors and using it to
layer virtual maps with far more detailed information on road and traffic conditions as well as
potential hazards; all updated in real-time. BMW and Volkswagen have also already agreed to
allow their vehicles to share this information with Mobileye and HERE.
● Intel is one of the leading semiconductor companies in the world with expertise and capacity
Microchip Processing to develop and manufacture the microchips needed to run the sensor fusion and driving decision
making software onboard an autonomous car.
● Intel holds a more than 90% market share in datacentre server products, giving it a strong
capacity and capability to process and store data from autonomous vehicles and house the
Big Data Storage/ virtual map infrastructure they rely on.
Processing ● Intel has also been prolific in developing its Artificial Intelligence (AI) capabilities which will be
needed for storing and analysing the data generated by autonomous vehicles in real-time and on
a very large and complex scale.
Source: BMI
How Close Are Competitors?
Compared to Intel, no other players currently have the same reach across the full spectrum of technologies
needed for autonomous systems. Waymo, the self-driving car company owned by Alphabet (Google), is
the closest competitor to Intel. It has also placed itself in direct competition with Intel after announcing that
it intends to provide carmakers with an end-to-end self-driving product, which it showcased at the Detroit
Motor Show earlier this year in partnership with Fiat Chrysler Automobiles. The company is arguably the
most experienced and more advanced self-driving car developer with its test fleet having clocked more
miles than any other company testing autonomous cars. It also benefits from Alphabet's strong capabilities
in virtual mapping.

However, automakers have long been sceptical of sourcing products from an industry giant like Google.
Carmakers are wary about being eclipsed by Google in the connected car and autonomous vehicle space,
especially given that being labelled as a customer of Google could threaten to erode their own brand value.
This will make Intel a more attractive supplier given that it does not intend to have much of a consumer-
facing business when it comes to automotive products.
Furthermore, with very limited in-house microchip manufacturing capacity, Waymo and its parent Alphabet
lack the capacity to compete with Intel on the hardware and datacentre side of the business. Thus, while the
company is likely to find willing semi-conductor partners eager to get into the autonomous vehicle industry
such as ARM, Qualcomm, Samsung and NVIDIA, it will have to rely on often shaky and hard-to-manage
partnerships.
Carmakers' Own Efforts Are Not A Major Threat
Offering less of a challenge to Intel will be those carmakers that are trying to develop self-driving car
systems in house. Tesla is one example of a carmaker that has pitted itself against Mobileye after it cut
Mobileye as its supplier of collision avoidance components in 2016 and embarked on what appears to be an
in-house development of its own ADAS system. However, it is unlikely Tesla will seek to offer this system
to other carmakers, which would ultimately undermine its competitive edge over rivals and would go
against its past history of creating exclusivity for its customers as it has done with its supercharger network.

Energy And Mining

United States: Thermostat-Battery Package Symbolises Smart Energy
Evolution
BMI View: ZEN Ecosystems's move to bundle its smart thermostat technology with Swell Energy's battery
storage systems shows how household energy management could evolve in line with a greater focus on
energy efficiency. In pairing two complementary technologies, the two companies are combining different
product offerings to boost potential household energy efficiency savings and reducing the time take to
recover the initial cost of installing batteries.
A tie-up between smart thermostat company ZEN Ecosystems and energy storage firm Swell Energy is an
early example of how smart, integrated household energy management could evolve to bolster energy
efficiency. The decision to bundle ZEN's smart thermostats and Swell's energy storage offering highlights
the potential to combine energy management and storage technologies in order to improve energy
efficiency across both residential and commercial properties - and a further indication that many companies
are moving to capitalise on major structural changes to the way that energy is generated and consumed (see
'Market Disruption: Big Firms Fight Back Through Services', January 26).
We have highlighted in our previous analysis that there is significant scope for the deployment of demand-
response technology and that increased internet connectivity and the falling cost of household renewables
technologies (primarily rooftop solar) will gradually lead to the fragmentation of the centralised electricity
grid. At the same time, behind-the-meter access to homes via tablets and smart devices, as well as greater
awareness of the Internet of Things (IoT), will facilitate the widespread uptake of smart technology in the
household energy services market. This will occur - and is already occurring - at both a household and
business level (see 'DES: The Future Of Power Provision', September 3 2014).
Complementary Technologies Are Key
These structural changes pose a threat to traditional utilities but are creating a number of opportunities for
investment in energy services. A vast number of small start-ups and all of the major utilities are looking
much more closely at the household energy services market as these transformative trends sweep the
utilities industry. In our view, the decision by Zen and Swell to jointly market and sell their products to
customers in California grants an insight into how different smart technologies can be 'layered' on top of
each other in order to make energy management more attractive and cost-effective for electricity consumers.
We highlight that ZEN and Swell offer different but complementary products:

■ ZEN Ecosystems provides energy management solutions and sells its smart thermostats to homes and
businesses. Its thermostats save customers money by shifting the heating and cooling load in a home or
commercial premises in order to optimise costs savings in line with time-based electricity tariffs (or
demand response events).
■ Swell Energy is a leading energy storage provider in Southern California and in August 2016 it was
commissioned to put in place a fleet of home batteries for local utility Southern California Edison
(SCE).
The fact that these products are complementary is the critical factor and gives insight into how smart home
energy management is likely to evolve to combine a number of energy management platforms.
To this end, smart temperature controls and battery storage technologies both look to achieve the same
objective - energy saving - but via different means. A smart thermostat is, for example, programmed to
know when retail electricity prices are set to rise in line with peak demand periods, or will receive a signal
from a utility to indicate that a demand response event is due to occur. It will then start reducing household
temperatures in anticipation of shutting down air conditioning completely during peak pricing or when a
supply event occurs. At the same time, a smart battery will charge up before peak prices come into play or a
demand response event takes place - so it is ready to discharge and take a household or business partially
off-grid when prices are highest (see 'Batteries And Microgrids To Offer Investment Opportunities',
December 19 2016).

Storage To Play A Greater Role As Grid Fragments

Typical Grid-Optimized Charging Pattern* In Relation To Solar Generation
*Blue curves represent self-consumption of stored solar power; dotted line represents typical peak solar power generation when battery
charging will occur. Source: Bundesverband Solarwirtschaft, BSE-Solar
The complementary nature of the two types of product is clear, with the bundling of the thermostat and
battery giving consumers the chance to 'double up' on energy management products and, by extension,
increase energy savings. One major benefit for households and businesses is that they may, for example, be
able to achieve greater energy efficiency and potentially bring down the time taken to recover the initial
financial cost of buying a battery by pairing it with a thermostat (which has a low initial cost relative to the
battery).
At a grid level, the aggregation of any savings will potentially have an even bigger impact, with greater
energy efficiency savings and more control over energy demand management supporting the integration of
more intermittent renewable sources of electricity generation and allowing for greater flexibility and more
robust energy security. We highlight that this is just one way that energy efficiency may evolve, but it does
highlight that household energy systems are likely to be multi-layered and depend on communication
between different products - in line with our views on the IoT (see 'IoT Key Themes 2017 - Enterprise
Drives Focus On Cost Cutting', January 31).

France: Virtual Power Lines To Boost Grid Management
BMI View: Smart battery storage solutions and greater use of domestic and international interconnection
capacity will be critical to preparing the French power grid for an increasingly intermittent renewables
power supply.
France's push to create a smarter and more robust power grid will be crucial when integrating a rapidly
expanding intermittent solar and wind power supply. This strategy will entail integrating power storage
solutions to smooth intermittency curves and increasing the capacity to transmit power supplies from
regions with good wind and solar potential to power demand centres. Boosting integration with other
countries in Europe will also be a crucial in utilising French renewables capacity efficiently - we expect
cooperation between European transmission system operators (TSOs) to strengthen over the next five years.
Grid Development Key To Facilitating Renewables Growth
We expect France's TSO - Le réseau de transport d'électricité (RTE) - to focus its grid development
efforts on preparing the country's power system for the integration of larger volumes of intermittent wind
and solar power. We have a constructive forecast for both of these renewables sub-sectors, as growth has
been driven by supportive policy, ambitious targets and political resolve to decarbonise the French power
sector in the wake of COP21 (see 'Onshore Wind Picking Up Momentum', January 18; and 'To Be
Renewables Outperformer', November 23 2015)

Renewables Playing An Increasingly Important Role

France - Non-Hydropower Renewables Generation (LHS) And Power Mix Share (RHS)
100 20
15
50 10
0 0
2022f
2023f
2024f
2025f
2026f
2010
2011e
2012e
2013e
2014e
2015e
2016e
2017f
2018f
2019f
2020f
2021f
Geothermal, TWh (LHS) Wind, TWh (LHS) Solar, TWh (LHS)
Tide/Wave, TWh (LHS) Biomass and Waste, TWh (LHS)
Non-Hydropower Renewables, % of total electricity generation (RHS)
e/f = BMI estimate/forecast. Source: EIA, BMI
As a relative latecomer to the European renewables growth boom, France is able to learn from other
countries' mistakes. As such, we believe the push to boost the domestic grid system will be informed by
structural imbalances that have emerged in Germany - where the country lacks the capacity to connect huge
wind power surpluses in the north to power demand in the south. RTE will look to avoid such a predicament
by boosting the grid in two ways:
■ Power Storage Flexibility: According to RTE's 'RINGO' research project, France will look to install
100MW battery storage projects in five French cities by 2020. This would enable the TSO to store power
supply surpluses and feed it back into the grid when demand outstrips power generation - thus mitigating
some of the issues associated with an intermittent power supply. Batteries can also alleviate grid
congestion by enabling the storage of electricity excesses close to the point of generation - while
simultaneously feeding in previously stored power from batteries that are located close to the point of
consumption. This method of creating 'virtual power lines' mitigates grid bottlenecks during periods of
peak demand and peak generation by curtailing the need to transmit power.
■ Boosting Interconnectivity Domestically: Crucially, we do not think battery capacity in the French
power sector will be sufficient to create enough 'virtual power lines' to singlehandedly prevent grid
bottlenecks. The expansion of transmission capacity to connect regions with surplus wind and solar
power generation to power demand centres is therefore essential. As a case in point, RTE commissioned
the Cotentin-Main interconnection in 2013 to link up wind and marine renewables to places where power
demand is highest. We also note that RTE is planning to deploy a series of new generation power

substations that can better incorporate smart grid solutions that enable a more efficient response to
renewables intermittency.
European Integration Efforts To Intensify
Greater interconnectivity between European power markets will also become a focus of European TSOs
over the coming years as the share of wind and solar power in the European power mix increases. This
would enable excess power to be sent to cross-border demand outlets, whilst regional power generating
assets could be leveraged during periods of less wind and solar power generation - by extension improving
energy security. As such, we note that the TSOs of France, Germany, Belgium, Spain, Switzerland, Italy
and TransnetBW in Germany (one of four TSOs) have established a joint action plan to ensure efficient
and harmonized utilisation of power generation resources across borders in the region. We believe this will
be a key component of efforts to integrate more renewables into the European power system. Highlighting
this trend, private investment firm Aqind is pushing to develop a new 2GW interconnector between France
and the UK, given the strong business case for the project despite 'Brexit'.
Europe: Innovative Monitoring To Support Offshore Wind Cost Deflation
BMI View: The use of unmanned vehicles for offshore wind farm monitoring will become a key component
of cost reduction efforts in the sector over the coming decade.
The monitoring of offshore wind farms by using remotely operated and autonomous vehicles will become
an increasingly important manner through which offshore wind farm operators reduce their operation and
maintenance (O&M) costs, and boost their competitiveness in an increasingly crowded offshore wind
landscape. This will enable wind farm developers and operators to cut the costs associated with human
monitoring - related to transport, security risks and errors - and keep human intervention at a minimum.

Rapidly Growing Offshore Wind Sector Ripe For Technological Innovation

Europe - Wind Power Capacity, MW
15,000 4,000
3,000
10,000
2,000
1,000
5,000
0 -1,000
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Cumulative Capacity (LHS) Annual Added Capacity (RHS)
Source: Wind Europe
Cost Reduction Drive To Incentivise Innovative Approach To Monitoring
The offshore wind power sector has registered substantial cost deflation over 2016 - in large part due to
larger wind turbines enabling offshore wind project developers and operators to cut installation and
maintenance costs (see 'Wind Turbine Manufacturer Competition To Centre On Size', July 13 2016). This
dynamic translated into record low tender bids for new offshore wind capacity submitted over 2016, first in
the Netherlands, then twice in a row in Denmark (see 'Cost Deflation And Interconnectivity To Ensure
Kriegers Flak's Development', November 11 2016; 'Low Tender Bid To Boost Offshore Wind Expansion',
July 21 2016). We also note that the UK announced in January 2017 that it had reached its GBP100/MWh
2020 goal four years early, based on final investment decisions taken over 2015/2016 (see Increasingly
Attractive Offshore Wind To Unlock New European Markets', November 2 2016)

Huge Scope For Scaling Smart Monitoring

Global - Offshore Wind Project Pipeline By Status, MW
100,000
75,000
50,000
25,000
0
MW
Completed Under Construction Pre-Construction
Source: BMI Key Projects Database
In the wake of this intensifying competition, curbing operation and maintenance costs will assume an
increasingly important role in maintaining competitiveness in the offshore wind power sector. Key cost
saving activities can be divided into two themes, namely Unmanned Aerial Vehicles (UAV) and Remotely
Operated and Autonomous Underwater Vehicles (ROV/AUV).
■ UAVs - in the form of commercial grade drones - will become the preferred method for wind turbine
inspection. This will help wind farms operators identify wind turbine deterioration in its early stages,
preventing reduced energy production and, in the worst case, costly blade collapses. These vehicles will
also reduce the need for on-site human monitoring to a minimum - with intervention only required when
anomalies are spotted, as opposed to for routine checks.
■ ROVs/AUVs will play a similar role in underwater monitoring. This type of technology is already
essential to the monitoring, repairs and maintenance of underwater oil and gas installations. In the
offshore wind sector, this will translate into more efficient health monitoring and maintenance of sub-sea
power cables and underwater rig installations. We note that this informed the UK government's decision
to award a GBP4mn grant to five universities to develop 'human-robotics hybrid solutions' for offshore
wind farms in February 2017. A total of GBP1mn of these funds were contributed from companies vested
in the sector, the most notable being Dong Energy, Siemens Wind and GE Energy Solutions,
illustrating the potential of the technology.

Monitoring New Offshore Wind Farms Becoming More Complex

Europe - Average Water Depth And Distance For Wind Farms Completed, Or Partially Completed
50
40
30
20
10
0
2012 2013 2014 2015 2016
Average Water Depth (metres) Average Distance To Shore (km)
Source: Wind Europe
Oil & Gas Overlap To Boost Transition
We expect expertise in the Oil & Gas sector to be a key enabling factor for innovation in the offshore wind
power sector. In line with low oil prices over the last two years, offshore oil & gas service providers have
intensified their efforts to diversify into the offshore wind power sector, given limited opportunities in their
core sector. This move will be supported by the substantial overlaps between the way these service
providers monitor the integrity of offshore oil and gas installations and similar operations in the offshore
wind power sector. As such, we believe the competitive servicing landscape in the sector will firm up,
accelerating the integration of more innovative solutions in a cost-competitive manner.

Global: Investment In Smart Mining To Accelerate
BMI View: Miners will increasingly invest in technology integration, including automation and internet
connectivity, to improve competitiveness in a volatile mineral price environment. Major diversified miners,
with the largest budgets, operating in developed markets capable of providing widespread internet access
and skilled labour, will drive this trend.
The acceleration of technological integration in the mining industry will widen the gap between the top low-
cost producers and junior miners, as well as improve the competitiveness of developed markets compared to
underdeveloped. Following the first wave of installing sensors, equipment and employee monitoring
devices, the next phase of modernisation in the industry will be the collection and analysis of data to
streamline operations and anticipate problems - the application of big data, Internet of Things (IoT) and
automation (see 'IoT: The Future Of Mining', February 16 2016).
The benefits of applying technology to mining operations are clear: increased efficiency lowers costs,
improved safety records and lesser waste and environmental impact. Over 2015-2016, at the bottom of the
commodity price bust, miners turned to technology to cut costs and improve performance to better
withstand future price volatility. For instance, in 2016, top copper miner Codelco increased the 'innovation
budget' to USD75mn from USD60mn in 2015 and in December of 2016 created the Codelco Tech unit to
drive innovative efforts. In September 2016, top gold miner Barrick Gold partnered with Cisco to develop
a flagship digital operation at the Cortez mine in Nevada which will inform the eventual global rollout.
Industry leader Rio Tinto rolled out the Processing Excellence Centre in Brisbane, Australia, and
autonomous fleet utilisation in 2015.

Technology To Give Low-Cost Producers Additional Edge

Select Companies - Gold Mining All-In Sustaining Costs (USD/oz), 2016
1,200
1,000
800
600
400
200
Kinross
AngloGold
Polyus Gold
Barrick Gold
Agnico Eagle
Goldcorp
Yamana
Newmont
Sibanye
Gold Fields
2016 Average
Average based on Bloomberg Senior Gold Miners data. Source: Bloomberg
As miners keep spending levels low compared to previous levels, technology will be the key to extracting
additional value from ageing assets facing declining ore grades and outdated machinery (see 'Diversified
Miners: Capital & Supply Discipline To Persist Despite Better Performance', March 3). Extending mine
life spans will often entail shifting from open pit to underground operations, which provides access to
higher-grade reserves and less visible environmental damage. Underground mines, as opposed to open pit
mines, require additional machinery for complex ventilation systems, area and local ground support, and
bringing ore up from significant depths, thus raising costs which miners will be looking to offset with
advanced technology.

Technology To Extend Value Of Each Dollar

Select Miners - Average Age Of Assets (Years) & Total Capital Expenditures (USDbn)
40 14
30 12
20 10
10 8
0 6
2010 2011 2012 2013 2014 2015 2016
Capex (LHS) Age of Assets (RHS)
Source: Bloomberg
Positive Externalities: Improving Safety And Environmental Records
While cost-cutting will be the top priority for miners adopting IoT and automation technology, the added
benefits of improving social and reputational standing will also prove important incentives. For instance,
Goldcorp's plan to incorporate Microsoft's HoloLens virtual and augmented reality at remote mining
locations will not only reduce travel costs, but also improve safety as workers will not need to travel deep
underground to identify a problem or check on operations. Moreover, increasingly stringent environmental
regulations will raise costs through fines, required preventative measures and project delays, meaning that
investing in green technology will both improve reputational standing and directly reduce costs (see
'Canada Gold Goes Green', January 10). Rio Tinto's RenewAl programme combines renewable energy
(hydropower) and the latest technology to produce aluminium with one third the carbon dioxide footprint of
the industry average.

Modernisation Includes Considering Social, Environmental Impact

Select Companies - Total Greenhouse Gas Emissions ('000 tonnes)
50,000
40,000
30,000
20,000
10,000
0
2010 2011 2012 2013 2014 2015
Rio Tinto Glencore BHP Billiton Vale Anglo American
Source: Bloomberg
Tech Firms To Gain Market Share From Traditional Mine Services
As the integration of technology in mining moves beyond machinery with sensors and into IoT, virtual
reality and data processing platforms, miners will turn to leading technology firms to supply the latest
innovations. For instance, Goldcorp has partnered with IBM for artificial intelligence capability, Microsoft
for virtual reality technology and Accenture for big data analytics, none of which are traditional mine
services firms. This will translate to declining market share for machinery providers such as Caterpillar
and Komatsu. As of September 2016, BHP Billiton's relationship value as a customer with
General Electric totalled USD43.5mn, nearly equal to the USD44.8mn spent on Caterpillar. Alternatively,
major diversified miners may invest in internal research and development to produce patented technology,
such as Codelco's new Tech unit or Rio Tinto's 'Mine of the Future' and RenewAl programmes.

Changing Spending Patterns To Hurt Mine Services

Caterpillar - Resource Industries Revenue (USDmn) & Share Of Total Machinery Revenue (%)
25,000 35
20,000 30
15,000 25
10,000 20
5,000 15
0 10
2010 2011 2012 2013 2014 2015 2016
Resource Industries (LHS) % (RHS)
Source: Bloomberg
New Paradigm For Low-Cost Mining To Favour Developed Markets
Important country-level factors that will facilitate the use of IoT and advanced technology in the mining
industry will include the availability of strong network connectivity, power, highly skilled labour and
government support for mining innovation. Over the coming years, lower labour costs will have less of an
impact on providing a competitive advantage in mining costs. This shift will benefit developed markets over
the traditional low-cost producers. Australia stands out as a global leader in IoT integration in mining, with
the country accounting for approximately 60% of mining software produced. Moreover, supportive public
policy for mining technology innovation in Australia, not yet of significant interest in most countries,
provides an additional edge through government assistance through programmes such as the 'Accelerating
Commercialisation' initiative (see 'Australia To Lead, Emerging Asia To Lag In Mining IoT Adoption',
October 26 2016).

Canada, Australia To Lead The Charge In High-Tech Mining

Select Countries - Broadband Internet Subscribers (Per 100 Inhabitants), 2015 & Mining Industry Value (USDbn),
2017f
100 300
200
50
100
0 0
Canada
Australia
US
Russia
Kazakhstan
Chile
Brazil
South Africa
China
Peru
India
Indonesia
Internet Subscribers (LHS) MIV (RHS)
f = BMI forecast. Source: National Sources, Bloomberg, BMI
Table: Key Smart Mining Projects And Collaborations
Capex
Country Company Mine (USDmn) Notes
Roadheader (mechanical cutting to bore tunnels),
autonomous loading with smart conveyance system will
US Barrick Gold Cortez 153 drive AISC below USD580/oz
Underground Short Interval Control project - app that
provides location data for personnel and equipment in real-
time, collect data on 24 pieces of equipment to run April-
US Barrick Gold Cortez - June 2017
Online shipment auctioning platform receives bids from
vessel owners and operators via secure and confidential
portal to transport commodities around the world. January
25 - First e-auction attracted 13 participants placing more
Australia BHP Billiton na - than 50 bids to transport 170kt of iron ore from WA to China
Codelco Tech unit created December 2016 committed to
innovation; lower power costs through mix of diesel, water
Chile Codelco na 75 and secret third element to fuel trucks
IBM Watson (AI) will make predictions and provide
recommendations on where to explore based on
geophysical/geological surveys, drillhole datasets, reports,
Canada Goldcorp Red Lake - academic papers etc

Key Smart Mining Projects And Collaborations - Continued
Capex
Country Company Mine (USDmn) Notes
Microsoft's HoloLens virtual and augmented reality applied
to mine planning, training and safety to reduce travel costs,
improve safety record and increase collaboration. Expected
Global Goldcorp na - deployment at mine late 2017-2018
Partnering with Accenture to consolidate big data, improving
Global Goldcorp na - exploration, safety and operational efficiency
Increasing global rubber screening media (used in minerals
processing) manufacturing capacity with 3 new injection
presses in facilities in Australia, India and Sweden. Expected
Global Metso na 1.8 2018
Resistate Indicator Minerals technology uses automation to
generate high-quality trace element analyses of mineral
Australia Rio Tinto Bundoora - grains
RenewAl advanced AP technology for aluminium smelting,
supported by carbon-free energy from hydropower,
produces aluminium with one-third the carbon dioxide
Global Rio Tinto na - footprint than industry average
Mine of the Future automation and innovation programme -
Mine Automation System and RTVis orebody visualisation
Global Rio Tinto na - software implemented at 85% of surface mining sites
Automation network controls all variables involved,
deactivating unnecessary equipment and consumption
points in case of low demand or load; uses frequency
inverters to replace conventional couplings which increases
energy yield; drones will carry out aerophotogrammetric
Brazil Vale S11D 14,300 survey work; simulators will train wagon load operators
na = not available. Source: Company announcements, BMI

Agribusiness
Europe: IoT & Big Data In Europe's Agribusiness - Iron Curtain Divide
BMI View: Europe will see strong adoption of precision agriculture due to its large and diverse
agricultural production, its supportive policy environment and its strong Agtech ecosystem. EU
outperformers include Northwestern Europe as well as Czech Republic and Slovakia, while the Black Sea
region will underperform. Flexible access to data generated by IoT devices in the region as well as limited
barriers to storage will be paramount to enable precision agriculture to take off in Europe.
Key Views
• EU member states are well-placed to integrate and benefit from Agtech over the coming years due to large
and diversified agricultural production as well as elevated subsidies. Countries in Northwestern Europe as
well as Czech Republic and Slovakia are set to outperform.
• The combination of a large budget devoted to agriculture and the relative ease to implement public-private
partnerships across the bloc is a key strength of the EU. Moreover, the EU hosts a strong ecosystem of
research institutions, start-ups and established private players active in ICT and agriculture.
• The Black Sea region will underperform as revenue per farm is low and farmers lack adequate access to
traditional inputs (fertiliser, machinery). Moreover, state support and access to credit are limited for farmers
in the region.
• Connectivity is one area where we see limited disparities between Western and Eastern Europe, which will
support a more homogenous adoption of Agtech than in other regions, Asia in particular.
• Flexible access to data generated by IoT devices in the EU as well as limited barriers to localisation and
data storage will be paramount to enable precision agriculture to take off in the EU.
Building on our previous research on the integration of information and communication technologies (ICT)
in agriculture (Agtech), we examine trends and implications in Europe.
In our global industry primer, we defined key concepts including 'Internet of Things' (IoT), 'big data', 'smart
farming' and 'precision agriculture', as well as the outlook for ICT uptake by agribusiness players, lower
demand for fertilisers and the smart farming competitive landscape (see 'IoT & Big Data In Agribusiness:

Driving Future Sector Growth', October 21 2016). On a regional level, we outlined our positive views on
Agtech adoption in Asia in the coming years due to strong ICT fundamentals while contrasting the level of
government support in China and Australia (see 'IoT In Asia's Agribusiness: Australia & China In The
Lead', November 1 2016).
Scale Of EU Agricultural Output To Benefit ICT Integration

Select Commodities - European Union Share Of Global Output (%)
60
40
20
0
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
2010/2011
2011/2012
2012/2013
2013/2014
2014/2015
2015/2016
2016/2017
2001/2002
2002/2003
2003/2004
2004/2005
Apples Barley Cheese Cherries Peaches & Nectarines

Grapes Pork Meat Rapeseed Wheat
Source: USDA, BMI
EU: Fertile Ground For IoT And Big Data In Agriculture
We hold a positive view on the outlook for Agtech uptake and integration in EU agriculture over the
coming years. This is due to the EU's large and diverse agricultural production, a supportive policy
environment and a strong ICT-agriculture ecosystem.
The EU is a large agricultural producer and accounts for a significant share of the global output of
numerous commodities (see chart above), notably being a world leader in cheese, barley, rapeseed and
cherries. This diversity of products will support the integration of different technologies depending on the
sub-sector while the scale of EU's production will enable uptake at a competitive cost and result in sizeable
productivity gains. Regarding the policy environment, EU farmers receive generous subsidies (see chart

below) and the EU will increasingly favour and reward farmers integrating technologies that reduce waste
and pollution (see below). Finally, the EU hosts a strong ecosystem of research institutions, start-ups and
established private players active in ICT and agriculture (see below).
Nevertheless, we expect the EU to underperform the US in terms of ICT integration in agriculture despite
EU farmers benefiting from higher subsidies and funds targeted to production improvements. This is
because the EU agricultural sector is less competitive than the US, with elevated subsidies and guaranteed
market prices favouring a more pedestrian uptake of ICT by EU farmers. In contrast, US farmers have
stronger incentives to invest in cost-saving technologies as they mainly compete on price and have limited
buffer from subsidies.
Generous EU Subisdies To Support Spending On Agtech

Select Regions - Producer Support Estimate (PSE) % Of Gross Farm Receipts
70
50
30
10
-10
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
EU North America Developing Asia Japan-Korea

Australia - NZ Black Sea Latin America South Africa
Source: OECD-FAO, BMI
EU Outperformers: Northwestern Europe, Czech Republic And Slovakia
Within the EU, we highlight a number of countries we expect to outperform in terms of Agtech uptake and
integration. This is because farms in these countries combine two key features that enable effective use of
IoT and Big Data at the farm-level: size and income (see chart below). Regarding hardware, large and

profitable farms are better placed to afford Agtech equipment and deploy it at a sufficient scale for the
productivity gains to offset the technology's cost. Regarding software, large and profitable farms will be
able to generate sizeable amounts of data which is key for successful use of IoT and Big Data.
Member states we expect to outperform broadly fit within one of three profiles.
First, member states where farms are significantly more profitable than elsewhere in the EU: the
Netherlands, Denmark and Belgium. This is due to agricultural production being focused on high-value
commodities rather than bulk crops: dairy, livestock and horticulture.
Second, member states where farms are significantly larger than elsewhere in the EU: Czech Republic,
Slovakia, Sweden, Norway, Finland and the UK. Sweden, Norway and Finland have large and sparsely
populated territories where farmers focus on area-intensive commodities including fish and forestry as well
as grains and oilseeds. Farms in Czech Republic and Slovakia are much larger than in other Eastern EU
member states, making the two countries the only non-Western outperformers. Their agricultural profile
comprises field crops including grains, oilseeds, sugar beet, potatoes and tobacco as well as extensive
grazing livestock activities. The UK has a similar profile with specialisations in grains and oilseeds as well
as cattle and sheep.
Finally, France and Germany fit in-between member states with a clear income or size advantage. This is
due to their highly diversified agricultural profile, with both countries being regional leaders in grains,
oilseeds, sugar beet, dairy and livestock. Consequently, we expect drivers of Agtech uptake in French and
German farms to vary depending on their main commodity: area will be a clear advantage for farms
producing grains and oilseeds while income will drive technology integration in more specialised and
higher-value products such as cheese, pork and grapes.

Bigger And Richer Farms Better-Placed For ICT Integration

European Union - 2013 Area (hectare) & Revenue ('000EUR) Per Farm
Note: 'EU-15' = Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain,
Sweden, United Kingdom. 'EU-13' = Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland,
Romania, Slovakia and Slovenia. We discarded Malta from the analysis. 'AUT' = Austria; 'BEL' = Belgium; 'CZE' = Czech Republic; 'DEU'
= Germany; 'DNK' = Denmark; 'ESP' = Spain; 'EST' = Estonia; 'FRA' = France; 'GBR' = United Kingdom; 'IRL' = Ireland'; 'ITA' = Italy;
'LUX' = Luxembourg; 'LVA' = Latvia; 'NLD' = Netherlands; 'NOR' = Norway; 'SWE' = Sweden; 'SVK' = Slovakia. Source: Eurostat, BMI.
Eastern Europe: Structural Challenges To ICT Uptake
We hold a less favourable view on Eastern Europe due to a number of structural challenges that will impede
the integration and uptake of ICT in agriculture. Indeed, Eastern Europe is lagging Western Europe in terms
of agricultural productivity, policy support, access to inputs and financing while the Agtech ecosystem is
much weaker.
Eastern EU Members: Within the EU, there are key differences between EU-15 and EU-13 member states
which underpin our expectations for EU-15 to outperform. EU-15 refers to the member states that were part
of the bloc prior to 2004, most of them being located in Western EU, while EU-13 are the newer member
states and mostly located in Eastern EU. Farmers in EU-13 countries are generally less productive and
receive fewer subsidies than their EU-15 counterparts, which translates into lower revenue for EU-13

farmers. Moreover, EU-13 farms are smaller than those in EU-15 countries, which limits the opportunity for
ICT technologies to operate at a cost-effective level. Finally, most of the EU ICT-agriculture ecosystem is
based in EU-15 countries, effectively shielding EU-13 farmers from the latest innovations and a network of
players that could help to speed their uptake of ICT.
Black Sea: Apart from the EU, we expect other large European producers of agricultural commodities to
underperform. In particular, our positive view on grains and oilseeds production in Russia and Ukraine does
not translate into supportive conditions for ICT integration. Although farms in the Black Sea region are
large, revenue per farm is low and farmers lack adequate access to traditional inputs, which makes the use
of ICT for input-saving purposes less relevant. Indeed, we expect the Black Sea region to increase its
consumption of fertilisers significantly over the coming years due to a current low base (see 'Europe
Fertiliser Outlook', November 16 2016). Similarly, Black Sea farming is constrained by low mechanisation
while machines in use are often outdated, which limits the ability of farmers to use recent technologies such
as sensors on machines and automation (see 'Europe Machinery Outlook', January 18). Finally, Black Sea
farmers will struggle to access funds required to invest in ICT as state support is low and access to bank
financing for regular operations is already a challenge.

Low Input Usage In Eastern Europe To Limit Scope For Input-Saving Agtech
Europe - Fertiliser Consumption By Region (mn tonnes nutrients)
Note: 'Western Europe' = Albania, Austria, Belgium, Bosnia-Herzegovina, Croatia, Denmark, Finland, France, Germany, Greece, Iceland,
Ireland, Italy, Macedonia, Netherlands, Norway, Portugal, Serbia, Slovenia, Spain, Sweden, Switzerland, United Kingdom. 'Eastern
Europe' = Belarus, Bulgaria, Czech Republic, Hungary, Republic of Moldova, Poland, Romania, Russian Federation, Slovak Republic,
Ukraine. Source: IFA, BMI
Connectivity: Limited Disparities Across Europe
Connectivity is one area where we see limited disparities between EU-15 farmers and their EU-13 and
Black Sea counterparts, which will support a more homogenous adoption of Agtech than in other regions,
Asia in particular. According to our Telecommunications team, the gap in 3G penetration between the EU
and countries in the former Soviet Union is limited, apart from Southeastern Europe and Western Balkans
underperforming and connectivity will increase steadily over the coming years (see chart below). This
contrasts with Asia where connectivity differs starkly across the region, with players as diverse as Japan,
Australia and Indonesia. Although Europe is more uniform in terms of connectivity, we highlight that both
Western and Eastern Europe will face the need to invest in broadband coverage in rural areas in order to
favour a smooth integration of ICT in agriculture.

Europe Relatively Homogenous In Connectivity

Europe - 3G Penetration By Sub-Region (% of population)
150
120
90
60
30
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017f
2018f
2019f
2020f
2021f
CIS States Baltic States Central Europe South Eastern Europe
EU-27 Western Balkans
f = BMI forecast. Source: BMI
EU Policy Environment Supportive For ICT Integration
We now examine a range of EU policies, programmes and projects supporting the integration of ICT into
agriculture.
The EU's Common Agricultural Policy (CAP) in its current form, effective from 2014 to 2020, mentions
ICT and innovation in the context of two of its priorities: increasing the competitiveness and sustainability
of EU agriculture and promoting rural development. In particular, we believe most opportunities for ICT
integration under the current CAP lie in input efficiency (fertilisers, soils, water etc) as environment is the
key focus of the CAP's second pillar (see 'European Agriculture: The Future Of The CAP', November 20
2014). Indeed, precision agriculture will help EU farmers to produce more efficiently and enable the EU to
measure more accurately the environmental impact of agriculture, making it possible to regulate and
implement its policies more effectively. Moreover, promoting access to Agtech in EU-13 member states can
support rural development, another feature of the second pillar, and help to bridge the productivity gap with
EU-15 countries.

Looking further ahead, we highlight that Agtech will play an increasingly important role in the next CAP
(2021-2027). Early discussions mention explicitly precision agriculture and its opportunities, with the
CEMA, the European Agricultural Machinery lobby, calling for more funds to be allocated to precision
agriculture and innovation as well integrating ICT tools into the CAP management to reduce costs.
Reformed CAP Hosts Opportunities For Precision Agriculture

Historical Development Of The CAP
Source: European Commission, BMI
Beyond the CAP, the EU offers a number of funds, research programmes and public-private partnerships in
support of precision agriculture. We believe that the combination of a large budget devoted to agriculture
and the relative ease to implement public-private partnerships across the bloc is one of the EU's key
strengths supporting uptake and dissemination of precision agriculture in the region.
Funds are mainly at the EU level with the European Agricultural Fund for Rural Development (EAFRD)
and the European Regional Development Fund (ERDF). The EAFRD allocates a budget of EUR96bn over
the 2014-2020 period to projects that improve the competitiveness of EU agriculture, its resource efficiency,
or support rural development. The ERDF allocates a budget of EUR200bn over the same period to support
projects that reduce imbalances between regions of the EU, with a particular focus on innovation, ICT and
environmentally-friendly projects.
Looking at research programmes and partnerships, we highlight Horizon 2020 and the European Innovation
Partnership 'Agricultural productivity and Sustainability' (EIP-AGRI). Horizon 2020 is a large generalist

EU research programme allocating about EUR80bn over 2014 and 2020 to support research projects and
partnerships between public and private institutions. Focusing specifically on agriculture, the EIP-AGRI
aims to accelerate transfers of innovation with public-private partnerships involving famers, research and
businesses, including projects that promote input efficiency.
Table: Europe Agribusiness IoT & Big Data Ecosystem
EU policies and initiatives Industry associations Agricultural Public-private Network

supporting IoT active in agricultural technology start-ups initiatives companies
technology
CAP Pillar 2 CEMA - European Farm software: Agrivi, European Deutsche
Agricultural Machinery Vital Fields, Innovation Telekom
trecker.com, Agrostis, Partnership on
fieldmargin, eVineyard, 'Agricultural
Agroop, Agroptima, Productivity and
Cropti Sustainability' (EIP-
AGRI)
European Agricultural Fund for Rural Agricultural Industry Input Efficiency: Horizon 2020 Orange
Development (EAFRD) Electronics Foundation Azotic Technologies, Business
(AEF) WIDHOC, evja, Services
Agricolus, SoilCares,
Wingssprayer, Dacom
European Regional Development European Seed Crop Monitoring: European
Fund (ERDF) Association Gamaya, Pycno, Technology
GrassOmeter, Platforms (ETPs)
CropDiagnosis,
FieldSense, Agry Eye
European Crop Precision Livestock/ European Research
Protection Association Dairy: Mastiline, Area - ERA - ERA-
(ECPA) Connecterra, Poultrics, NET scheme: ICT-
Smartbow AGRI-2
European Liaison Logistics: Centaur Alliance for Internet
Committee for Analytics of Things Innovation
Agricultural and Agri- (AIOTI) Working
Food Trade (CELCAA) Group 06: Smart
Farming and Food
Security
Urban agriculture:
ECF Farmsystems,
PlantLab, Agricool
Note: This is a sample of companies involved in IoT and data analytics-related activities for the agribusiness sector in
Europe. Source: BMI, European Commission, Crunchbase
Data Ownership And Access: Key Issues To Shape EU Precision Agriculture
Flexible access to data generated by IoT devices in the EU as well as limited barriers to data storage will be
paramount to enable precision agriculture to take off in the EU. Indeed, the core principle of applying
technologies such as 'big data' and 'machine learning' in agriculture is that high-precision tools can be

calibrated using insights gathered from a vast number of field applications. Limiting access or storage of
data generated by devices in EU fields would significantly impair the effectiveness of such technologies in
the bloc.
The EU is traditionally more restrictive than the US in terms of data sovereignty, cybersecurity and privacy.
Although the EU aims for data to travel within its borders as seamlessly as goods, implementation of data
protection regulations is left to member states which can have varying appetites for data sovereignty (see
'Data Sovereignty A Risk To Cloud Market', January 23). Moreover, data relating to food security is
particularly sensitive for most governments, which could act as an obstacle to free movement of precision
agriculture data in and out of the EU. Yet, a December 2016 scientific study on precision agriculture
commissioned by the EU parliament recognised the need for access to free and accurate data regarding
precision agriculture in the bloc. The study advocates for data ownership to rest with farmers producing it
while promoting data sharing and avoiding centralisation.

Healthcare & Medical Devices

Global: Digitalisation To Have A Profound Effect On All Aspects Of The
Healthcare Industry
BMI View: The developments at HIMSS underpin the rapid adoption of IT within healthcare, particularly
among providers. Digitalisation in healthcare will enable hospitals to streamline their information
processes, which will have a direct positive impact on patient care. The range of developments announced
at HIMSS highlights the evolving nature of the sector. Important themes include cloud computing,
cybersecurity and medical imaging and these will have a profound effect on all aspects of the healthcare
industry.
At the 2017 Healthcare Information and Management Systems Society (HIMSS) Conference, held February
19-23 in Orlando FL, a number of healthcare companies showcased their latest technological advancements.
Here, we feature some of the key highlights from the event.
Samsung ARTIK Collaborates With T-Mobile
Samsung ARTIK Cloud, part of the Samsung ARTIK Smart IoT platform, used HIMMS to announce a
collaboration with T-Mobile to enable the launch of Breezie, an Internet of Things (IoT) platform for senior
care. The combination of Samsung ARTIK and T-Mobile will allow healthcare solution platforms to get to
market faster and implement connected services.
The collaboration will support platforms like Breezie in achieving interoperability with other connected
devices and services. The interoperability of Samsung ARTIK Cloud allows connected devices - such as
Amazon Alexa, Samsung SmartThings, iHealth Feel Wireless Blood Pressure Monitor and the Pulse
Oximeter - to communicate with each other.
IBM Unveils Its Expanded Watson Platform For Health Cloud Capabilities And Introduces The
Watson Health Consulting Services Unit
IBM unveiled its expanded capabilities for the Watson platform for health cloud and a specialised Watson
health consulting services unit dedicated to cognitive computing in healthcare. The Watson health cloud
offerings and capabilities include enhancements to the HIPAA-enabled data-platform-as-a-service, a GxP
edition of the platform, and new data centre locations.

Philips Launches IntelliSpace Enterprise Edition, A Managed Service For Hospital-wide Healthcare
Informatics
Royal Philips introduced the IntelliSpace enterprise edition, a scalable healthcare informatics platform,
enabling health systems to manage the growth and cost of their clinical enterprise with a managed service
and pay-per-use model. The Philips IntelliSpace enterprise edition offers a full suite of interoperable
healthcare informatics applications and services for hospitals and integrated health networks.
The IntelliSpace portfolio consists of clinical tools for radiology, cardiology and oncology departments,
intervention suites, as well as dose and data management solutions. The solution ensures interoperability
with cross-industry connectivity standards, single sign-on and integrated workflows.
IntelliSpace enterprise edition leverages HealthSuite, an open, connected health ecosystem of products,
programmes and services, to enable key services with the aim to further expand its enterprise-grade
capabilities. IntelliSpace enterprise edition will be available in H117.
Ambra Health Launches First Cloud Development Platform For Medical Imaging
The increasing interest in imaging at HIMMS was highlighted by Ambra Health, which announced the
launch of Ambra for Developers, a cloud development platform for medical imaging. Built around RESTful
web services, this is a cloud development platform designed specifically for medical imaging.
With these application programming interfaces (APIs), IT departments at health systems and hospitals can
extend imaging and imaging data into other applications such as population health or reporting tools. In
addition, third-party developers can rapidly incorporate Ambra imaging technologies as part of a wide
variety of healthcare applications, providing users with new capabilities for better patient care.
Ambra's cloud development platform facilitates solutions around deep learning, diagnostic decision support,
teleradiology, specialised image analysis and second opinion portals. Ambra for developers enables partners
to incorporate the company's image management solutions into their application architecture faster.

ZirMed Launches Cloud-based Contract Performance Technology To Optimise Payer

Reimbursement
Zirmed used the HIMMS conference to launch contract management, modelling and payment variance
solutions. ZirMed's end-to-end platform of cloud-based revenue cycle management solutions - including
patient access, charge integrity, claims management, accounts receivable (AR) management, patient
responsibility and population health management - enables healthcare organisations to optimise value-
driven and fee-for-service reimbursements while streamlining workflows and increasing operating
efficiencies.
In addition, ZirMed's technology enables health systems to create, maintain and model contracts in real-
time. The platform accommodates both government and commercial payer contracts and terms, while
providing visibility into payer performance at the enterprise and facility level.
Siemens Healthineers Establishes Global Digital Ecosystem To Drive Digitalisation Of Healthcare
Finally, Siemens Healthineers unveiled a digital platform for healthcare providers as well as for providers
of solutions and services, aimed at covering the entire spectrum of healthcare. The platform is designed to
foster the growth of a digital ecosystem linking healthcare providers and solution providers with one
another as well as bringing together their data, applications and services.
In the Siemens Healthineers Digital Ecosystem, data from imaging, in-vitro diagnostics (IVDs) and medical
documentation is combined and assessed. It will allow its users to exchange data and knowledge with other
experts beyond their own institution.
With its Digital Ecosystem, Siemens Healthineers plans to contribute to value-based healthcare by enabling
fast, simple and seamless interaction between providers of data and knowledge. At HIMMS Siemens
Healthineers presented an initial prototype of its digital platform, with single sign-on access to its partners'
applications and services. The platform is planned to be commercially available in H217.

Global: The J&J Strategic Playbook
BMI View: The underperformance of J&J's Medical Devices segment is the root of the company's slow
growth. Pressure will be alleviated by the operational divergence of its hospital/consumer categories, a
cost-cutting restructuring plan, overinvestment in priority platforms, the embrace of disruptive technologies
and a targeted corporate transactions programme.
We have identified five key strategies that will define the performance of Johnson & Johnson (J&J)'s
Medical Devices segment over the next three to five years. The segment has endured a challenging period
and has reported positive revenue growth in just five of the last 14 quarters stretching back to Q313. While
these results are partially due to macroeconomic flux and divestments, a large element is also
underperformance relative to the wider medical device market. In 2016, J&J's senior management team
reinforced a number of strategies designed to combat this trend and return the segment to sustainable above-
market growth. Note that all five strategies are interconnected and not necessarily mutually exclusive. They
must be understood and considered by anyone trying to assess the J&J business and what is coming for the
future.
Strategies Needed For Challenging Times

J&J: Medical Devices Segment Revenue Growth* (%, y-o-y), Q313-Q416
-5
-10
-15
Q313
Q413
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Q316
Q416
*Reported revenue growth. Source: J&J, BMI

1. Divergence Of Hospital/Consumer Medical Devices
In 2016, J&J confirmed the strategic divergence of its 'hospital medical devices' and 'consumer medical
devices' categories. This was a fundamental shift in the way J&J thought about the medical device industry,
and addressed the mixed incentives of the two categories. J&J traditionally held all its medical devices sub-
divisions under a single Medical Devices segment umbrella. This structure remains for financial reporting
purposes; but operationally, the Medical Devices segment is now considered as two distinct businesses. The
hospital category includes J&J's Surgery, Orthopaedics and Cardiovascular sub-divisions. The consumer-
facing category includes J&J's Vision Care and Diabetes Care sub-divisions.
J&J believes this operating model will better serve the needs of the business. This is particularly relevant for
the consumer-facing category; here, J&J can leverage branding in a way that the hospital category cannot,
because the revenue from eye care and diabetes patients is often generated in a consumer context. J&J has
highlighted the increasingly active role that consumers have in their care (especially for chronic, progressive
diseases); patients will choose products for daily use to meet the demands of their lifestyle and this builds
brand loyalty.
2. Restructuring To Drive Cost Savings
In 2016, J&J announced a formal restructure of its Medical Devices segment to strengthen its business
model and streamline operations. The programme is a long-term initiative; a three-year action plan means
the majority of the cost savings (USD0.8-1bn) will be realised by the end of FY18. The restructuring will
result in the elimination of approximately 4-6% of the Medical Devices segment's global workforce, or
approximately 3,000 eliminations from the segment's global headcount of 60,000 (as of year-end
FY15). The actions impact J&J's hospital category, and not the consumer category (which, as noted above,
has become increasingly separate from the traditional Medical Devices segment).
3. Priority Platforms Will Dictate Hospital Device Investment
Since H215, J&J has repeatedly reinforced its priority growth platforms that will receive disproportionate
investment in the coming years. These are:
■ endocutters (Surgery sub-division);
■ energy instrumentation (Surgery sub-division);
■ robotics (Surgery sub-division);
■ knees (Orthopaedics sub-division);

■ trauma (Orthopaedics sub-division); and
■ electrophysiology (Cardiovascular sub-division).
The common denominator among these product areas is the potential for market leadership, large absolute
market size and strong revenue growth. In addition, J&J intends to sustain growth in the core platforms of
biosurgicals (Surgery sub-division), hips (Orthopaedics sub-division), wound closure (Surgery sub-
division) and sterilisation (Surgery sub-division). These core areas are expected to record mid-range growth
and so do not warrant the same scale of investment.
4. Disruptive Tech Will Underpin Healthcare Transformation
In a 2016 strategy update, J&J explained that the trends threatening the traditional healthcare paradigm
intersect with the rise of technologies that will support the transition from old to new. The company
specifically highlighted mobile, cloud, robotics, Internet of Things (IoT), 3D printing and advanced
analytics, as being key determinants of the changing healthcare paradigm. J&J's approach to robotics
epitomises its outlook on the integration of industry and technological trends. It has partnered with Verily
Life Sciences (Alphabet) to form Verb Surgical, a joint venture focused on building robotic systems for
advanced surgery. The company has taken a similar approach to 3D printing. J&J has established over 50
strategic collaborations (with private business, governments and academia) and maintains six key strategic
partners.
5. Organic Strategies Complemented By Corporate Transactions
J&J is set on using divestments and M&A to supports its long-term goals. J&J has a track record of
divesting non-core assets, as shown by the sale of the Ortho-Clinical Diagnostics and Cordis divisions in
recent years. The next target appears to the slow-growth diabetes market. Diabetes Care has reported a
prolonged decline in sales due to US pricing pressure resulting from generic competition and the
commoditisation of (previously) premium products. J&J's CEO announced in the Q416 results release that
the company is completing a strategic review of the Diabetes Care sub-division, raising the prospect of a
divestment in the future. In terms of M&A, J&J is pursuing an acquisition growth strategy focused on mid-
size acquisitions and bolt-on deals, as opposed to mega mergers. J&J's CFO has previously stated that J&J
'will supplement… growth through strategic and smart acquisitions'. This trend has been observed in a
number of deals, including the 2017 acquisition of Abbott Medical Optics.

Appendix
We define IoT as a generic label for the trend of connecting 'things' - usually electronic devices - that can
passively or actively monitor, collect and exchange data over a wired or wireless communications network.
Two-way connectivity means that these 'things' can interact or intervene with their environments either
directly or remotely. Timely interventions, diminished need for manpower and greater accuracy means that
the cost benefits will appeal to almost every business and social sector. So much so, that perhaps the
'Internet of EveryThing' would be a more appropriate label.
We are already a long way along the path to the IoT: IoT networks are legion and already support a wide
range of applications, including but not limited to: everyday and critical health provision (real-time
biometrics and outpatient care), heavy industries (3D-printing, mining, construction), transaction reporting
(car parks, train tickets, toll roads, vending machines) and low-value, high-frequency applications such as
load-management sensors in energy networks.
IoT can present widely differing challenges in business models, technologies, implementation and support.
The IoT supply ecosystem is therefore open to exploitation by a wide variety of general and specialised
vendors, suppliers and end-users across almost every industry that BMI covers.

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IMPORTANT NOTICE:

Published by: BMI Research

Copy deadline: April 2017

BMI Research © 2017 Business Monitor International Ltd

BMI View .............................................................................................................................. 7

ICT Industry .......................................................................................................................... 8

Energy And Mining ............................................................................................................ 24

Healthcare & Medical Devices ......................................................................................... 51

© Business Monitor International Ltd Page 5

© Business Monitor International Ltd Page 7

© Business Monitor International Ltd Page 8

Connected Devices Outperforming

© Business Monitor International Ltd Page 9

Table: Cellular And Licensed IoT Technologies

Source: AT&T, Sequans

© Business Monitor International Ltd Page 10

Ample Digitisation Opportunities

Note: All BMI forecasts. Source: BMI, BEA

■ 'Investment In Smart Mining To Accelerate', March 17 2017

■ 'Early 5G Still Needs A Business Case', March 14 2017

■ 'AT&T: Doubling Down On Convergence With Time Warner', February 14 2017

■ 'AT&T Goes Premium With IoT', February 12 2016

© Business Monitor International Ltd Page 11

United States: FreedomPop's IoT Strategy To Drive Further Competition

Pure Connectivity Not Profitable

© Business Monitor International Ltd Page 12

Sprint Relying On Partners

© Business Monitor International Ltd Page 13

Global: Hutchinson Focuses On Global IoT Market

© Business Monitor International Ltd Page 14

Europe Provides IoT Opportunites

■ In Sweden, as of June 2016, there were 7.57mn subscriptions in the market;

■ In Denmark, as of June 2016, there were 970,000 subscriptions in the market;

■ In Ireland, as of December 2016, there were 670,389 subscriptions in the market.

© Business Monitor International Ltd Page 15

South Korea: KT/LG Uplus Alliance To Challenge SK Telecom In IoT

© Business Monitor International Ltd Page 16

Competition Intensifies As Operators Invest In IoT

Source: BMI, MSIP

© Business Monitor International Ltd Page 17

Chile: Chile To Be NB-IoT Template Testbed For Telefónica

M2M Adoption Suggests Large IoT Addressable Market

© Business Monitor International Ltd Page 18

© Business Monitor International Ltd Page 19

© Business Monitor International Ltd Page 20

Share Price Premium Highlights Mobileye's Importance To Intel

Note: Red line indicates date of deal announcement. Source: Bloomberg

Intel Gradually Colonising All Important Technologies

■ Sensors (Radar, Camera, LiDAR),

© Business Monitor International Ltd Page 21

Table: Why Intel Can Dominate The Autonomous Driving Market

Key Technology Intel's Access To Relevant Tech

How Close Are Competitors?

© Business Monitor International Ltd Page 22

Carmakers' Own Efforts Are Not A Major Threat

© Business Monitor International Ltd Page 23

Energy And Mining

Complementary Technologies Are Key

© Business Monitor International Ltd Page 24

© Business Monitor International Ltd Page 25

Storage To Play A Greater Role As Grid Fragments

© Business Monitor International Ltd Page 26

France: Virtual Power Lines To Boost Grid Management