The reasoning behind Agere's decision may lie in channel conflict and channel management. Agere's potential wireless-LAN semiconductor customers were most certainly threatened by Agere's wireless-LAN system business. Agere must have figured the increased profits from higher chip sales would more than make up for any profits the company would lose by selling Orinoco. Moreover, Agere not only retains its chip business but also inked a three-year strategic-supply arrangement with Proxim as part of the deal.

As for channel management, Agere's Orinoco system products and the company's semiconductor products have completely different channels of distribution. Agere has been slowly jettisoning its noncomponent products; it dumped its branded line of consumer telephony devices a few years back. Maintaining a consumer and enterprise distribution channel is costly, and Agere simply did not have enough products to justify keeping the channel. The company most likely had a fantastic contribution margin until selling costs were factored in.

This sort of channel conflict issue is relatively rare in the semiconductor industry precisely because it is a disaster waiting to happen. Agere had this conflict on a bigger scale when it was formally part of Lucent Technologies. Ditto for Siemens and Infineon. Intel fell into the trap, too, with its ill-fated line of LAN systems for small to medium enterprises.

The moral? Semiconductor vendors should be especially wary of trying to enter the system business. Larger companies tend to know this, but many startups have planned around this business model-and their plans pass muster with relatively competent venture capitalists. Go figure.

We may never know whether Agere's decision to sell Orinoco was the "right" one, but it makes sense based on the channel conflict and management issues that the company was surely facing. Meanwhile, keep an eye on other businesses with channel conflict issues: Motorola, with ICs and systems; Nortel, with optical components and systems; and Intel, with communications ICs and design services.

Jeremey Donovan (jeremey.donovan@ gartner.com) is chief analyst at gartner dataquest.