(NASDAQ: INTC) recently started breaking out revenue and operating profit for its Internet of Things group. This business unit, according to the company's latest earnings release, "includes platforms designed for embedded market segments including retail, transportation, industrial, and buildings and home," in addition to "a broad range of other market segments."

This business unit saw sales grow 18.9% last year, but operating profit grew just under 9.6%. Further, in the company's most recent quarter, it saw sales grow 10.58% year over year, but operating profit actually declined by a staggering 24.34%.

Although the operating margin compression that the business unit seems to be suffering from might be viewed as a bad sign, this is actually a sign that the company is beginning to invest more seriously in this area. This is actually a good thing for the long-term health of the business.

Ramping up operating expenses to address new opportunities
Intel's Internet of Things group is known to borrow many technologies and intellectual property from other Intel business segments, which is extremely good for the operating margin, as other businesses foot a large portion of the research and development bill while the Internet of Things group reaps the benefits.

However, as Intel's revenue and ambitions in this segment grow, so too must operating expenses. Not only is Intel likely to invest in new chip technologies (such as the low-power Quark family), but the company will probably invest in new software and other platform-level technologies, too.

The business is profitable today, even though operating margins have come down quite a bit, but the increased investments should help fuel revenue growth over the long term. 

The one troubling spot from the earnings report
I'm not terribly concerned with the operating margin decline we saw in the first quarter, but the revenue growth rate was lower than I'd hoped.

Intel said at its investor meeting that it expects an uptick in the growth rate for the Internet of Things group this year from an already high 18.9% in 2014. There are still three quarters to go in the year, but given that the Internet of Things group grew "just" 10.5% year over year, the business is going to have to see growth accelerate significantly during the balance of the year to hit Intel's original targets.

That said, Krzanich did hint that the growth would be "lumpy" on a quarter-to-quarter basis in the following snippet from the company's most recent conference call:

We still think phones and tablets continue to grow and then there's a growth in the data center, the growth in the Internet of Things and our memory business which will all grow in that teens kind of range and they'll vary quarter-to-quarter.

What I find interesting, though, is that Krzanich says these three businesses (data center, Internet of Things, and NAND flash) "will all grow in that teens kind of range." If Intel were to see an uptick in growth in this business, then one would reasonably expect low 20% year-over-year growth for the year. 

To put this into perspective, given the 10.5% growth year over year in the first quarter, Intel would need to see total revenue in Q2 through Q4 grow from $1.66 billion to $2.04 billion, or approximately 22.7%. That's certainly much higher than the stated "teens kind of range" Krzanich said on the most recent call.

It's not clear at this point whether Krzanich simply misspoke, or if there was some implicit "guide down" to the Internet of Things going on here. 

This $19 trillion industry could destroy the Internet
One bleeding-edge technology is about to put the World Wide Web to bed. And if you act right away, it could make you wildly rich. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... but you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own when the Web goes dark.

Ashraf Eassa owns shares of Intel.

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.