Is a Wi-Fi Shakeout on the Horizon?

By Ed Sutherland

December 06, 2002

A growing number of analysts are beginning to point to the popularity of 802.11 technology as its Achilles heel.

Has success spoiled Wi-Fi? A growing number of analysts are beginning to point to the popularity of 802.11 technology as its Achilles heel. How can the Wi-Fi industry prevent its decline? Keep reading.

Each day, the Wi-Fi industry and those who take its pulse, release a mountain of statistics bolstering the belief that the wireless networking standard's ability to turn a profit is endless. The research firm Frost & Sullivan recently took on the role of the boy who said the Emperor wore no clothes by saying the Wi-Fi gravy train is reaching an end.

In their analysis of world wireless local area network sales, Frost & Sullivan pointed out that while Wi-Fi related hardware sales are expected to reach $1.546 billion by the end of 2002, revenue is expected to drop to $1.455 billion by 2009.


The Price of Popularity

Frost & Sullivan analyst Wai Sing Lee says the leading cause for the revenue drop is falling prices, as competition for Wi-Fi sales grows even fiercer. The research firm Aberdeen Group says chipsets have gone from $43 in 2001 to Intersil selling its PRISM 3 chips slightly above $10 in 2002.

Aberdeen Group analyst Russ Craig says the popularity of Wi-Fi has attracted big names such as Intel, Advanced Micro Devices (AMD) and Dell. Craig says Intel will price its new dual-mode 802.11 a/b network interface card at 802.11b prices. Computer-maker Dell also sees prices plummeting. Dell believes by 2004, home wireless networks will drop from today's $220 to under $100. Likewise, access points, Dell thinks, may fall from the current $120 to near $50 in 2004.

While unit prices are expected to decrease, Frost & Sullivan sees a silver lining in this gray cloud. "Unit shipments will continue to increase significantly due to standardization, interoperability, and growing adoption rates," the research firm said in a statement. The Aberdeen Group predicts sales of Wi-Fi chipsets in 2002 to increase more than 290 percent over 2001.

Along with the growing commoditization of Wi-Fi components comes pressure from chip giants looking to Wi-Fi enable every new PC.

The Embedded Dangers

"Embedded radio chipsets are fast becoming a common feature" in laptops and PDAs, says Lee. Both Intel and AMD aim to put a Wi-Fi chipset in every PC sold, says Craig. Aberdeen Group says both AMD and Intel are looking at ways to integrate Wi-Fi designs into PCs. Recognizing this trend, market leading chipmaker Intersil is aggressively licensing its chips for integration, a strategy the company expects to reduce the cost of embedding WLAN features by as much as 40 percent.

Aberdeen Group foresees the desktop PC becoming the primary market for Wi-Fi chips by 2005. Laptops, the leading platform for Wi-Fi chips, are expected to shrink to 12 percent (of a chip market worth $390 million in 2002), according to the research firm.

The Aberdeen Group says with increased integration, producers of Network Interface Cards (NICs) will be limited to retrofitting existing PCs. As for Wi-Fi access points, newcomers such as Vivato can replace up to 15 access points with one of their 802.11 switches.

What's a Wi-Fi chipmaker to do? Craig says by late 2003, the 30 Wi-Fi chip suppliers with slightly different products will narrow down to Intel and two or three other competitors. Gone will be the market for Wi-Fi chipsets. Instead, companies will offer different technology to Intel and others.

"The challenge is how to differentiate a WLAN product enough to justify a higher price but in such a way as to not ruin an industry," says Lee.

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