SAN JOSE, Calif.—The wireless market is significantly overfunded, venture capitalists said last week, portending a shakeout. Still, they couldnt help but list a number of new sectors that will need additional capital.
If nothing else, the panel at the WiFi Planet show here Friday underscored the perception of wireless as a "hot technology." Roughly $2.5 billion has been invested in the sector, which has produced only $2 billion or so in revenue to date, according to Neeraj Bharadwaj, a general partner with Apax Partners, in New York.
Approximately $160 million has been invested in the last quarter alone, according to Rajeev Chand, a senior equity research analyst for wireless technologies at Rutberg & Co., in San Francisco, or about 15 percent of all of the capital invested during the quarter. "It doesnt look like this is decreasing," Chand said. "The sector is overfunded, and we are concerned. With that said, despite the overfunding, there is an opportunity."
The VCs could point to only one obvious success story: Atheros Communications, which filed for an initial public offering last week worth up to an estimated $100 million. However, even Atheros, which led the market into 802.11a chips, might not exist as a stand-alone company within 10 years. A second startup that could challenge Broadcom Corp. as a billion-dollar stand-alone company is even more unlikely. The conclusion: The days of wireless chip vendors are numbered.
"Intel Capital has not invested in a wireless LAN chip company for obvious reasons," said Sriram Viswanathan, managing director of Intel Capitals wireless networking investments in Santa Clara, Calif. "We feel this will be a very large market for a very short time. Once integration occurs, this market will just cease to exist."
Janice Roberts, a general partner with Mayfield in Menlo Park, Calif., agreed. "We didnt see a chip company that we felt had the right value proposition," she said. Instead, the fund has turned to enterprise-class products, she said.