San Mateo, Calif. - Intersil Corp.'s decision last week to exit the wireless-LAN race and sell its WLAN semiconductor operation underscores the hurdles that lie ahead for dozens of would-be WLAN chip players.
Integration requirements and falling average selling prices (ASPs) have apparently set the bar too high for many startups and for established chip suppliers-even market leader Intersil. Analysts said the WLAN business that Intersil helped to create has now evolved beyond the company's capability.
Leading DSL chip set supplier GlobespanVirata Inc. (Red Bank, N.J.) agreed to pay $365 million in cash and stock to acquire Intersil's Wireless Networking Group, which consists of the Prism line of chip sets, software and intellectual property, about 300 employees and a broad customer base in retail, PC and telco. Before the sale, Intersil was considered the leading WLAN chip supplier, with more than a 50 percent market share last year.
The deal will allow GlobespanVirata to move in lockstep with the likes of Broadcom, Conexant and Texas Instruments by further integrating the CMOS portions of its wireless-DSL modem reference designs, said Bob McMullen, chief financial officer of the company.
For its part, Intersil said the wireless business was simply too far removed from its focus on off-the-shelf, high-performance analog components.
The WLAN chip business is "a complex system sell," said Chris Henningsen, vice president of corporate marketing at Intersil (Palm Bay, Fla.). "It requires investment in deep-submicron technology, and there are differences in packaging that are related to that, as well as different partners and customers."
Intersil has seen revenue in its wireless-networking business fall from a high of nearly $75 million in the third quarter of 2002 to $49 million in the first quarter of 2003. The drop was attributed in part to steep ASP declines, which fell 40 percent to 50 percent in 2002.
Analysts said Broadcom Corp.'s meteoric share gains blindsided Intersil as it struggled to stave off an onslaught of other new competitors.
Intersil (Milpitas, Calif.) also faced a more systemic problem, observers said. Being locked into BiCMOS technology to produce its RF front end precluded single-chip integration with the CMOS digital baseband and MAC.
"Intersil had more than 50 percent of the market last year, but that's been declining as more companies came into the market," said Allen Nogee, an analyst at InStat/MDR (Scottsdale, Ariz.). "They couldn't make chips as inexpensively as competitors."
As many as 60 chip suppliers are vying for position in the Wi-Fi arena, and observers believe Intersil's exit is the beginning of a shakeout.
"We should be down to six or seven suppliers in the next 18 months," said Jeff Thermond, vice president and general manager of the Home and Wireless Networking business of Broadcom (Irvine, Calif.).
The survivors will be those with the wherewithal to compete with heavy hitters like Broadcom and Conexant in home networking, or with Intel on the PC side, said Bob Wheeler, an analyst at the Linley Group (Sebastopol, Calif.).
"There won't be a good standalone chip business for 802.11 two or three years from now," Wheeler said. "I think it's going to be a difficult environment for a lot of others, particularly startups."
Broadcom is in production with customers building Wi-Fi-enabled DSL and cable modems, including Motorola Inc. and Linksys, also a major customer of Intersil's, Thermond said.
A spokeswoman for Conexant Systems Inc. (Newport Beach, Calif.) said GlobespanVirata's purchase of the Intersil unit "confirms the market is moving toward the type of integrated solutions Conexant has been providing."
GlobespanVirata has been including wireless chip sets in its DSL reference designs for some time, and it plans to use the Intersil technology to help reduce bill of materials cost, McMullen said.
At the same time, GlobespanVirata hopes to maintain the 802.11 lead Intersil held, creating "a No. 1 player in two very high-volume markets that each have tremendous growth opportunities ahead," McMullen said.
After the deal is completed, Intersil "will look more like Linear Tech and Maxim," two of the leading pure-play analog chip makers, Intersil's Henningsen said. "This also gives us more cash to acquire or invest internally, or both."
-Additional reporting by Patrick Mannion.