Wi-Fi Chip Prices Expected To Drop Dramatically This Year

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Chip prices for Wi-Fi gear will drop dramatically this year, leading to a faster-than-expected consolidation among vendors and cheaper prices for equipment used in setting up the hot wireless communications technology, a market research firm said Tuesday.

Prices are dropping so fast that total revenue from chip sales will decrease by 7.7 percent to $340.2 million from $368.7 million last year. The drop will occur despite a projected 83 percent increase in overall shipments to 41.3 million units from 22.5 million chips in 2002, TechKnowledge Strategies Inc. said.

As a result of the price drops, many vendors within the crowded market are expected to either fall by the wayside or merge with other companies. "It's going to be a rough summer," TechKnowledge analyst Mike Feibus said. "But for those that can weather the shake out with the right portfolio, the outlook is a lot more positive."

This year is an anomaly, and revenues will increase as high unit volumes offset falling prices. "Prices will decline at a slower rate going forward, and in unit terms, there's a lot of growth to come," Feibus said. By 2007, TechKnowledge expects revenue to reach $700 million on 155.3 million units.

The number of companies making Wi-Fi chips has grown dramatically over a short period of time. There are about 40 manufacturers today, with a dozen more expected to jump into the market soon, including Taiwanese companies that are introducing especially low-priced chips.

TechKnowledge predicts that prices for Wi-Fi chips on average will drop to $8.20 this year from $16.42 last year. Older 802.11b chips are expected to drop to $6.61 from $16.06, and the newer and faster alternatives, 802.11g, are predicted to plummet to $9.68 from $18. The chips are found in add-in cards used to upgrade portable computers to communicate via Wi-Fi transceivers, which contain their own chipsets.

Other forecasters, however, have released projections significantly different from TechKnowledge. Allied Business Intelligence Inc. says revenues from chip sales overall will rise 32 percent this year to $522 million from $396 million.

Wi-Fi, for wireless fidelity, refers to technology that enables portable computers to access the Internet within about 300 feet of a transceiver. Internet service providers are partnering with equipment makers and others in installing Wi-Fi technologies in airports, hotels, cafes and other public facilities.

Adoption by consumers, however, has been slow, and most corporations have chosen to watch from the sidelines while standards mature, vendors provide better security and prices settle.

Chip manufacturing giant Intel Corp. is among the companies contributing to the Wi-Fi hype. The Santa Clara, Calif., company has been marketing its Centrino chipset, which includes Wi-Fi chips from another manufacturer. Intel is also building its own chips. Other manufacturers include Agere Systems, Intersil Corp., Maxim Integrated Products Inc. and RF Micro Devices Inc.

This story courtesy of TechWeb.

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