In the current economic climate, corporations have little incentive for increased investment in IT in general, let alone upgrading from fixed to wireless network infrastructure. Contrary to popular market wisdom, wide-spread installation of wireless networks and accompanying hardware upgrades for seamless, reliable wireless delivery of information services and/or interactivity with fixed networks is likely to be several years away. Longer-term, however, wireless should present a substantial global revenue opportunity.
In general, interviews with IT managers and purchasing consultants indicate that companies are placing a higher priority on security, storage, and hardware replacement over wireless infrastructure. While field interviews reveal that there are unlikely to be widespread increases wireless spending in 2003, few actually plan cuts to their wireless budget in 2003 versus 2002.
A switch to wireless means considerable equipment replacement. When wireless takes off, it will be a huge boon to infrastructure and notebook PCs. However, in industries where many employees are already working with notebooks – financial services, media, technology, telecom, and healthcare – the phase-in of wireless equipment should be relatively painless and inexpensive since IT personnel need only to plug a WLAN card into the notebook.
Field interviews with IT purchasing managers and consultants indicate that wireless IT, while not an increasing proportion of total IT, is also not being cut significantly. Spending increases on wireless technologies are generally occurring in larger companies; in particular, in companies in the defense, healthcare, and media industries.
This makes sense for four reasons. First, larger companies have proportionally larger IT budgets. Second, larger companies have more ability to connect wireless hardware to secure nodes in the existing wired network. Third, the healthcare sector in particular (and to a lesser extent the media companies) is one of the few with stronger, or growing, fundamentals. The defense companies are benefiting from increased military activity. Finally, companies with more wireless workers have more to gain from improved efficiencies offered by wireless in the mobile environment.
Leaning Toward the Low
Companies are purchasing low-cost wireless solutions rather than implementing large-scale infrastructure and hardware upgrades. Such solutions include notebooks, WLAN cards, PDAs, and related software. Larger companies seem to favor notebooks with integrated wireless LANs while smaller firms are tending to purchase add-on WLAN cards for existing notebooks. Specific wireless products that a company needs to reach minimum wireless capability include wireless-enabled notebooks, WLAN cards, tablet PCs and/or wireless PDAs, depending on the work environment.
In some cases, some network access points would need to be spread about the facility, probably hooking into the existing and primary fixed wired network. There is respectable growth in such early stage”, less expensive wireless technologies. However, such low-end solutions constitute a smaller portion of the long-term wireless opportunity; the lions share of the growth opportunity lies with the more extensive, and lucrative, network upgrades (which are discussed in Part 2).
It is difficult to generalize by industry which companies have more interest in WLAN. It is more the matter of a particular work style (one where workers are highly mobile). In general, increased wireless spending has been occurring at companies with: 1) a dispersed, project work environment, 2) higher revenues, 3) highly mobile employees, and 4) higher needs for real-time access to data. Healthcare companies are among those that have been increasing wireless IT spending. This makes sense since there is a greater need for wireless technology to transmit “real time” information between medical professionals who are often mobile.
Tablet PCs are likely to feature prominently in environments like medicine where real time communication and easy use will matter. Education and media were two other sectors where companies indicated interest in increasing their wireless budgets. Companies in the distribution and wholesale industries have also been spending on wireless technologies. These four industries arent usually “sit at your desk” type businesses, and WLAN can enhance efficiency in such mobile, project situations.
ROI horizons for investment in wireless technologies are running relatively short at one-to-two years. Corporate IT customers are taking more time to analyze their spending decisions than in the last few years. There is increasing pressure to optimize returns on IT investments considering the ongoing weakness in the economy. This elongates the IT sell cycle as CFOs, CTOs and corporate Boards become more involved in spending decisions. ROI is part of the reason. The benefits from wireless IT are tough, and very “soft”, to measure since the savings and returns on investment are largely measured in enhanced leverage of expensive employee time.
Determining the Likeliness for
Relatively aggressive ROI targets are consistent considering that, for the most part, companies are tending to purchase less expensive wireless technol ogies such as notebooks, devices and WLAN cards. WLAN and other wireless technologies are more cost effective and efficient in environments where people are highly mobile, yet in constant need of real-time data and/or network access. Companies with highly mobile employees place higher priority on such benefits. A lot more can be accomplished in meetings, given the way they work, and a lot less paper could be used, making such purchases easier to justify on an ROI basis.
Companies that are looking to install full-scale wireless infrastructure, and would therefore need to replace thousands of desktops, would find wireless networks more difficult to justify. Justifying the time and cost for further wireless access and infrastructure upgrades is even tougher to do considering that there are less expensive wireless solutions such as cell phones, text pagers, Blackberries and wireless PDAs. Replacing fixed networks with wireless in large companies can be a daunting, disruptive and expensive undertaking. It also requires training, and potentially hiring new IT personnel to maintain new wireless networks.
WLAN is one of the few wireless segments exhibiting strong unit growth. These networks look to be in the first stage of a large, long-term opportunity to allow wireless connectivity outside the fixed office network. A WLAN environment provides access to corporate applications such as the corporate Intranet, email and databases.
Penetration levels are still quite low, but are likely to accelerate as, eventually, WLAN cards will be integrated into notebook and PC hardware. Estimates vary from 40%-to-50% year-over-year WLAN chipset unit growth for 2003. The most important variable is the attach rate on notebooks produced by companies like Dell, Hewlett-Packard, IBM and other OEMs.
Notebooks represent one of the larger components of corporate wireless spending. While it generates more demand for these hardware manufacturers, wireless still represents a relatively small portion of their total business. Consequently, growth from wireless (rather than non-wireless) hardware sales is limited until wireless contributes a much larger share of their total business.
Hardware Companies Show Increased
Increasing interest by major hardware makers indicates that WLAN is gathering momentum. Dell Hewlett-Packard, IBM, Toshiba have joined in the production of WLAN-enabled laptops, in some part because WLAN can boost, and justify, sales of higher margin laptops. As WLAN chips continue to get smaller, this should lead to increased usage in PCs and notebooks.
Intersil is the chip maker having the greatest direct exposure, with 55% share of WLAN chips and 35% business exposure to WLAN. The other WLAN market share leaders are Agere (around 20%), RF Micro Devices (10%), Atmel (5%), Texas Instruments (5%), and others account for the balance of 5%. Increased competition in the space is unlikely to impact current producers before the second half of 2003, and more likely in 2004.
WLAN chips can also be included in PDAs to support networking both inside and outside the corporate environment. In general, larger rather than smaller companies have been buying more wireless devices. While a device is a more affordable wireless solution for a smaller firm, smaller companies have fewer mobile users to justify the not insubstantial costs of installing Blackberry servers to provide secure “behind-the-firewall” access. This could also suggest increasing interest in Palm-powered devices, which do not require such server installations.
On the other hand, Blackberry is a relatively inexpensive and outsourced infrastructure for larger companies that are not yet ready to install a full-scale wireless network. In part, demand for devices is driven by the degree of external access needed for such applications as data and email, versus internal access across dispersed operating facilities.
Melanie Hollands is president of technology long/short hedge fund Koala Capital. She has over a decade of experience covering the technology and telecom sectors from positions in strategic consulting, corporate finance and equity research.