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Wireless sector battles the doldrums

Posted: 11 Jul 2008 ?? ?Print Version ?Bookmark and Share

Keywords:wireless? WiMAX? UWB? software?

The wireless sector is down but far from out, according to an analyst from the wireless division of investment banker Rutberg & Company LLC who described the sector as "schizophrenic."

The last six months saw a decline in venture investments and acquisitions, and a shift away from hardware, but investors are hanging tough in the sector with hopes it could still deliver billion-dollar paydays, probably in software and content, the company's latest report said.

Sector market shift
In 1H 08, venture capitalists invested $1.8 billion in 173 deals in wireless. That's down from $2.4 billion in 166 deals in the 2H 07 and $2.7 billion in 209 deals in 1H 07. "Almost all of the total decrease was because of the shift in sector activity from capital-intensive semiconductors and carrier infrastructure to capital-light consumer applications, said Rajeev Chand, senior equity research analyst for wireless at Rutberg.

In semiconductors, investors gave 16 startups a total of $259 million in 1H 08 down from $328 million for 22 startups in 2H 07 and $536 million for 36 startups in 1H 07. Investments in carrier-class system startups declined even more steeply to $383 million in 47 startups this year to date from $840 million that went to 41 startups in 2H 07.

"You get large pools of investments around each new hardware technology and standard and for the last year or so there hasn't been anything new here," said Chand, adding that subsectors such as antennas, femtocells, UWB and WiMAX remain strong. "Now it's the content and applications that have the white space people need to fill in," he noted.

In what Rutberg calls the consumer applications sector, investors gave $383 million to 47 companies in 1H 08 significantly up from $202 million for 41 startups in 2H 07 and $203 million for 45 startups in 1H 07.

Decline in mergers
Mergers also declined in 1H 08 to 106 deals, down from 135 in 2H 07 and 148 in 1H 07. The biggest deals involved carrier consolidation including the restructuring of service providers in China and Verizon Wireless' purchase of Alltel Corp.

Handset and chipmakers also saw consolidation. Kyocera bought Sanyo's mobile phone business for $375 million and Taiwan's MediaTek Corp. purchased Analog Devices Inc.'s cellular chip unit for $350 million.

Whether the declines are related to the overall slowdown in the economy or indicate a slowdown in a maturing wireless sector remains unclear. "We just don't know yet and may need to see next quarter's numbers to find out," Chand said.

"While talking with the investors I get a feeling of a schizophrenic picture of the market," he added.

Still holding on
"Crappy is a word some use to describe the space, because there have been few big deals like Qualcomm and Atheros Communications, but I also hear a lot of investors doubling down, thinking now is the time, especially in mobile software and content," he noted. "I am not seeing any investors pull out of this space," the analyst said.

He added that investors are hopeful they can find a MySpace or YouTube of the mobile world in a rising number of software investment deals.

Ironically, it was a handset startup, Israel-based Modu, which gathered $100 million in the single largest wireless investment of the year to date. The company founded by Dov Moran, who founded and sold Msystems to SanDisk Corp. for $1.6 billion, has released an ultrathin cellphone that aims to power a wide variety of consumer devices including media players.

- Rick Merritt
EE Times

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