Insider: WiMax Chips Go Begging

While privately held chipset designers are focusing on smart-antenna technology as a crucial enabler for WiMax networks, venture funding behind these startups so far is underwhelming, according to the latest Unstrung Insider research report.

WiMax is among the most promising, and well hyped, wireless networking technologies on the horizon, but to reach even half the ambitious performance targets set for it will require a leap in wide-area radio performance, writes Insider chief analyst Gabriel Brown. The report, entitled WiMax Chipset 2006 Market Outlook, analyzes the product strategies and positioning of the leading private and publicly held WiMax chip makers, focusing on how these companies are working to enhance the capabilities of the chipsets that will form the heart of WiMax base stations and customer devices.

According to the report, seven startup 802.16 chipset developers had, by January 2006, raised a total of $170 million, of which $60 million was secured in 2005.

That sounds like a lot of money, says Brown, but given the scale of the challenge, it may not be sufficient.

"The investment in WiMax silicon startups lags investment in 802.11 wireless LAN," Brown adds. "Total investment in the eight wireless LAN startups that we covered in our July 2003 WLAN Chipsets market report was $327 million – almost twice the level of investment in WiMax chipmakers to date."

In a sense, the cautious approach of the VC community to WiMax silicon startups is hardly surprising.

While risk-taking investors have gained high returns on companies making chipsets for DSL, wireless LAN, and even 3G in the past few years, WiMax technology faces numerous hurdles -- including questions about spectrum availability -- and an uncertain deployment timetable. The certification process by the WiMAX Forum has been delayed several times (the first certified products were announced last week at the Technical and Business Symposium of the Wireless Communications Association International (WCA) in San Jose, Calif.), and products for fixed WiMax (based on the IEEE 802.16-2004 standard) are not expected to reach the market until mid-2006. Equipment for mobile WiMax (802.16e) will not hit the shelves until late this year or early 2007, according to industry forecasts.

What's more, the strong commitment of major players, including Intel Corp. (Nasdaq: INTC), to WiMax development and deployment may have many in the venture community taking a "wait-and-see" attitude. Says Brown: "With Intel in the game, what chance does a startup have?"

Nevertheless, the creation of a commercial market in chipsets for the broadband wireless industry was one of the original drivers for 802.16 and WiMax; the hope is that this will improve the economics of the entire sector. "To build commercially viable systems based on either of the two 802.16 standards," writes Brown, "it is essential that a competitive market in 802.16 chipsets develop – for both the user terminal and the base station."

It may be that as VC money lags in the sector, corporate money will flow in. Both Intel, through its Intel Capital fund, and Samsung Electronics Co. Ltd. (Korea: SEC) have made significant investments in startup silicon providers for WiMax. Service providers such as Korea's SK Telecom (Nasdaq: SKM) have also committed money to chipset developers.

Still, the report concludes, "debate and uncertainty" prevail in the industry about the best timing for producing chipsets, particularly for mobile WiMax, and about which features to support for particular product releases.

— Richard Martin, Senior Editor, Unstrung

The report, WiMax Chipset 2006 Market Outlook, is available as part of an annual subscription (12 monthly issues) to Unstrung Insider, priced at $1,350. Individual reports are available for $900. For more information, or to subscribe, please visit: www.unstrung.com/insider.

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