Vendors Plan for Consumer Downturn

By Ed Sutherland

February 27, 2004

The growth of the wireless market is usually spurred by home users, but analysts say that soon consumer sales will be heading downhill.

In order to survive a changing market, makers of consumer-oriented wireless equipment are shifting gears.

While separate network interface cards, access points and other stand-alone Wi-Fi gadgets helped fuel the explosive growth of Wi-Fi, that rocket is going to run out of gas in 2007, according to a recent study.

The Redwood City, Calif.-based Dell'Oro Group expects after two years of growth that the WLAN market will slow and then decline. While the market will reach $2.2 billion in 2004 -- a 23 percent increase -- followed by continued growth in 2005, it's all downhill after that.

Declining Years

"After 2005, this market growth is expected to slow substantially, and after peaking in 2006, is anticipated to begin declining in 2007," according to the research firm.

Greg Collins, senior director at Dell'Oro, says much of that decline will hit the consumer market and the two largest segments of the WLAN market: stand-alone PC network interface cards (NICs) and access points (APs) or media gateways.

In the early days of Wi-Fi, you purchased a NIC so that you could connect to an AP. But as Wi-Fi has become more integrated and more wireless laptops appeared on shelves, the need for a separate PC card has diminished.

"WLAN is increasingly becoming a standard feature of notebook computers, which greatly diminishes the need for users to purchase an add-on NIC card for their computer," said Collins.

"We are already seeing a down-swing of 802.11b CardBus adapter sales," says Belkin spokesperson Melody Chalaban.

Integration has also hit the market for stand-alone APs. Over time, access points have evolved from simple boxes connecting wireless users to the Internet into combinations that include the AP, router, broadband modem/gateways.

The broadband gateways, permitting Wi-Fi networks to share DSL and cable modem broadband Internet connections, have not sold as well, according to Collins.

"We expect that WLAN will increasingly become a feature of cable modem and DSL client premises equipment, which will reduce the need for consumers to purchase a standalone broadband gateway or access point for their home," said Collins. Linksys, already the leading vendor selling to wireless consumers, is just one of the AP makers which have begun selling modems with integrated Wi-Fi, says Collins.

Another reaction to the changing landscape is vendors investigating selling gear with more features and better security to the growing number of telecommuters.

Staying One Step Ahead

Despite slow sales in some areas -- like older 802.11b-based products -- Belkin sees fast-moving Wi-Fi technology as a key to their future survival.

"We think that as wireless technologies evolve, we will always have an opportunity to provide the latest technology to the market before it becomes embedded in computers," says Chalaban.

As examples, the company points to people owning laptops with 802.11b-based Centrino chipsets buying 802.11g NICs and the forthcoming 802.11n standard that could push throughput above 100Mbps. Belkin expects to see 11n at the end of 2004.

D-Link, the number two seller of consumer Wi-Fi products isn't turning away from that market, but is branching out more into enterprises by partnering with Airespace to make business-class APs.

Buffalo is reacting to the predicted market downturn by partnering with tech giants Microsoft and Intel.

"This way, our AOSS integrated router or access points will automatically configure a wireless connection and secured WLAN," according to Buffalo spokesperson Kelly Reeves.

"WLAN companies are adapting by going after the home networking gateway market as well as the multi-media device market," says Reeves. Wi-Fi vendors and consumer electronics makers want to cut the wires to your game console, television and stereo.



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