Total semiconductor sales forecast for system functions related to the Internet of Things in 2020 by an estimated $920 million, mostly because of lower revenue projections for connected cities applications including smart electric meters and infrastructure supported by government budgets, according to market research firm IC Insights.

IC Insights' updated forecast still shows total 2017 sales of IoT semiconductors rising about 16.2% to $21.3 billion (with final revenues in 2016 being slightly lowered to $18.3 billion from the previous estimate of $18.4 billion), but the expected compound annual growth rate between 2015 and 2020 has been reduced to 14.9% versus the CAGR of 15.6% in the market research firm's original projection from December 2016.

Total semiconductor sales for IoT system functions are now expected to reach $31.1 billion s.in 2020 (Figure 1) versus the previous projection of $32.0 billion in the final year of the forecast, according to IC Insights analysts.

ICInsights_IoT-forecast (cr) Figure 1: Total IoT forecast scaled back mostly because of lower revenue projections for connected cities. (Source: IC Insights)

IC Insights’ revised outlook for IoT semiconductor sales by end-use market categories shows that semiconductor revenues for connected cities applications are projected to grow by a CAGR of 8.9% between 2015 and 2020 (down from 9.7% in IC Insights’ original forecast). Meanwhile, the IoT semiconductor market for wearable systems is expected to show a CAGR of 17.1% (versus 18.8% in the previous projection).

The lower growth projection in chip sales for connected cities systems is a result of anticipated belt tightening in government spending around the world and the slowing of smart meter installations now that the initial wave of deployments has ended in many countries. Slower growth in semiconductor sales for wearable systems is primarily related to the reduced forecast for smartwatch shipments through 2020.

The updated outlook nudges up semiconductor growth in the industrial Internet category to a CAGR of 24.1% (compared to 24.0% in the December 2016 forecast) and slightly lowers the annual rate of increase in connected homes and connected vehicles to CAGRs of 21.3% and 32.9%, respectively (from 22.7% and 33.1% in the original 2017 report), according to IC Insights.