Wi-Fi chip prices to fall sharply

Wi-Fi chip prices to fall sharply

Oversupply and low-cost entrants to the market for wireless Internet chips are causing prices to plummet as volumes grow, according to a study released by market researcher TechKnowledge Strategies.

The average price for a chip that enables connections for 802.11b wireless LAN (WLAN), also known as Wi-Fi, was $US16.06 in 2002, but that price would drop to $US6.61 by the end of this year, TechKnowledge analyst, Mike Feibus, said.

Revenue from the sales of all wireless chips is expected to decline to $US340.2 million in 2003, from $US368.7 million last year, even as volumes soar from 22.5 million to 41.3 million chips sold.

“There are a lot of newcomers in the market, and several from Taiwan emphasising a low-cost approach,” Feibus said.

The established players in the market, companies such as Broadcom, Atheros Communications, and Intersil, were forced to cut prices to match those entrants, he said.

As a result of the falling margins for WLAN chips, several vendors would probably be forced out of the business, or gobbled up by larger companies, Feibus said.

“This is a tough climate to come to market with a new product as a start-up,” he said. “You need to find money, and venture capital is scarce for wireless. Companies will have to look at acquisition targets or joint ventures.”

The price for chips based on the 802.11g standard was also expected to fall this year -— from $US18 per chip in 2002 to less than $US10 by the end of 2003, Feibus said.

The Institute of Electrical and Electronics Engineers (IEEE) recently approved the final draft standard to 802.11g, that will increase the data rate of wireless connections from the maximum 11Mbps allowed by 802.11b products to an average rate of about 20Mbps for 802.11g products. 802.11g networks are compatible with 802.11b.

Corporations would be more interested in 802.11g networks once the final standard was ratified next month, and would pay a premium for the faster connection rates, Feibus claimed.

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