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Bloated Wi-Fi market brings out its dead

RIP AirFlow and Bermai

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Internet Security Threat Report 2014

The shake-out in the overcrowded Wi- Fi chip market has been predicted for a year now, and it seems finally to be starting. Chipmaker Bermai has closed its doors, and there are strong reports that AirFlow is also shutting down (as well as switchmaker Legra) Two of the top four WLan chipmakers, Conexant and Atheros, recently issued revenue warnings and consolidation looks set to continue. Conexant itself last year bought GlobespanVirata, which had in turn taken over Wi-Fi specialist Intersil, and now it appears that the acquisitive Broadcom may be after Agere.

RIP AirFlow and Bermai

In April, AirFlow Networks announced a “new strategic direction", centred on licensing its switch-on-a-chip technology to third parties. Now analysts say the company is down to three employees and is looking to sell its intellectual property to a former rival. AirFlow was focused on voice but needed another year before this would be a mainstream requirement.

Bermai closed down last week after apparently failing to raise a third round of funding. Bermai raised $34 million in its first two rounds from Mobius Venture Capital, ATV and others. The company was headed by wireless veteran Bruce Sanguinetti, who had founded BreezeCom and was a key player in the development of the 802.11e quality of service standard-tobe, which Bermai supported in a prefinalization form. But Sanguinetti left the company earlier this year.

Wi-Fi is following the classic cycle - dominated by start-ups in the innovation phase, which gradually give way to the larger firms as the technology becomes lower cost and addresses the mass market. To survive, Wi-Fi chip specialists will need the economies of scale, channels and cost efficiency to address a volume market, as well as the R&D resources to stay ahead of the technological curve and counter commoditization with more cutting edge, and therefore high margin, offerings.

Start-ups will survive only through intellectual property revenues or very specialist activities, or by becoming part of a larger group. And even the bigger players are looking to grow larger still through acquisition of rivals with complementary strengths.

Broadcom after Agere?

The latest deal could be for Broadcom to take over Agere, which would boost the former’s GPRS and UMTS chip business, into which it has been putting significant efforts this year, as well as its WLan technology and market share. (It would also bring a new business line for Broadcom in storage, where Agere is market leader in providing integrated circuits for hard disk drives, and one in base station DSPs).

The speculation has been sparked by the settlement of outstanding lawsuits between the two companies. Broadcom agreed this week to take a charge of $27.5m to settle all patent litigation with Agere.

Agere, a spin-off from Lucent, was an early player in Wi-Fi, Lucent having acquired an 802.11b chip pioneer, WaveLan. It supplied silicon for many early wireless products, such as the first generation from Linksys and Apple. However, it subsequently defocused on Wi-Fi, selling its WLan equipment business to Proxim and becoming stagnant in the 802.11 chip market.

Between 2002 and 2003 it slipped from number two to number five in the Wi-Fi chip sector by revenue and in 2004 will be lower than that, despite some renewed signs of interest in the market.

It has struggled with independence and has long looked ripe to be acquired, combining strong technology and partnerships with a shaky financial record – last November it reported its first quarterly profit since going public in March 2001, but warned it would go back into the red in first quarter of fiscal 2004, because of restructuring costs. It reported net income of $2m for its latest quarter, Q3, compared with a net loss of $78m a year ago, but saw a decline on Q2, being hit by industry-wide inventory glut problems and by issues with three of its major 3G chipset customers, particularly slow roll-out by Hutchison.

On the Wi-Fi technology side, Agere would complement Broadcom’s approach perfectly. Broadcom has based its success in this market at staying at the forefront of performance and anticipating standards, as it did to best effect with its prestandard 802.11g onslaught, a move that caught all its rivals offguard and brought the company hurtling into the top three WLan chipmakers. Agere, though less commercially successful and with none of Broadcom’s sense of timing, has very advanced performance-enhanced Wi-Fi technology. In March, it introduced a semi-proprietary, turbocharged 802.11a/g/b chipset, claiming peak rates of 150Mbps, faster than any rival. It is also spearheading one of the proposals for the upcoming 802.11n 100Mbps-plus Wi-Fi standard. And now it has announced methods of speeding up its WaveLAN 802.11a/b/g chips using a software overlay that uses a mixture of heightened receiver sensitivity, packet bursting, compression and quality of service (QoS) techniques to boost throughput.

All this would be valuable grist to Broadcom’s mill, as it comes under intensified new pressure from Atheros. Wrongfooted by a strong focus on 802.11a and by Broadcom’s aggressiveness in ‘g’, Atheros has been hitting back with strong turbocharged offerings for all three Wi-Fi variants, and with innovative singlechip solutions. Broadcom needs to ensure it does not slip behind. As margins on standard Wi-Fi chipsets crash, survival will be about two factors – being first to technology advances that appeal to the OEMs, and sheer scale. Agere would help Broadcom advance in both respects, and make Atheros, the only Wi-Fi specialist left in the front row, looking exposed.

Copyright © 2004, Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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