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WSNBuzz » Shakeout in Short Range Wireless suppliers gains momentum
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Shakeout in Short Range Wireless suppliers gains momentum

Since the boom in short range wireless that was started by Bluetooth and Wi-Fi there has been a growing number of VC funded silicon and stack companies entering this market space.

Funding semiconductor start-ups is always a gamble, especially when the companies are aiming to support industry standards.  Because multiple companies will target the same standard, the basic fact of life is that most will fail to gain market share.  That’s an inevitable consequence of the cost structure for wireless chip designers; the expense of designing a chip means that they need to sell millions to survive.  The general view is that the cost of designing a complex wireless chipset ranges from around $3 million to $10 million.  The higher end of that typically includes application processors and embedded protocol stacks.  That cost can rise even higher if there are multiple radios in the chip.  At the same time, the manufacturers using these devices are pushing to get prices well below the $5 price point.

With these price points, companies need to sell a minimum of ten to twenty million chips to cover their development costs.  Those that do will make money and gain a significant market share.  Those who don’t will run out of cash.

There’s a second problem for start-ups if there’s already a dominant player or technology.  If the market price perception is $5 for a chipset, then customers will expect new entrants to match or improve on that price point.  As all of the new start-ups are fabless, to achieve that they need to be making tens of millions of chips in order to negotiate a competitive price with the wafer fab.  But unless they have a spectacular product win with a high volume customer, they’re unlikely to manage that.  That takes them into the Catch 22 position of having to subsidise their chip price to be competitive, which means they’re losing money on each sale.  It’s a gamble that they have to take to gain market share, but it burns cash.  In times when money is in ready supply, that may not be a problem.

More here.

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