Wi-Fi start-ups look to combo chips

PALO ALTO, Calif.--For Wi-Fi start-ups, the road to success might be paved with a combination chip.

Sychip and other Wi-Fi semiconductor manufacturers are trying to woo customers by integrating radio functions into a single chip or package, company executives said at the Micro Ventures conference taking place here this week.

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While many venture capitalists and analysts have largely soured on the idea of putting money into emerging Wi-Fi companies, executives of start-ups say the opportunities aren't gone yet.

Plano, Texas-based Sychip, for instance, is producing samples of a product that combines a Wi-Fi module with Bluetooth, the short-range wireless networking technology.

Early next year, the company will show off a Secure Digital (SD) card that contains a Wi-Fi module and flash-memory chips. Sychip already produces a Wi-Fi card for SD slots, but if consumers want to take pictures, they have to swap in a memory card. Put another way, the Wi-Fi memory card does the same thing as two traditional cards.

"People want to make these (handhelds) smaller and smaller," Sychip CEO George Barber said.

Waterloo, Ontario's Sirific Wireless, meanwhile, has begun to produce samples of a chip that contains 2.5G functionality and Wi-Fi. The company said chips that combine different cell phone and wireless standards are in the works.

"There will be one radio that can be multilingual across the bands," Sirific CEO Michael Hogan said.

The push toward integration, which is also occurring within development groups at established silicon manufacturers such as Intel and Broadcom, is seen as a way to cut costs and device size. One chip simply costs less and takes up less space.

The growing multiplicity of wireless frequencies is prompting carriers to look harder at multifunction phones and multiband services. AT&T is already offering Wi-Fi and cellular packages. A large Chinese telecom carrier has issued a proposal for 500,000 phones that can do General Packet Radio Service (GPRS), Global System for Mobile Communications (GSM) and Wi-Fi, Hogan said.

Investors, though, remain somewhat skeptical about the ultimate success of semiconductor start-ups these days. Getting a fabless semiconductor maker--a chipmaker without a factory--off the ground costs about $40 million to $50 million, said Ken Lawler, general partner at Battery Ventures. The ultimate return lately, however, has been lower. Between January and October, 63 semiconductor companies were acquired. The purchase price on 75 percent of the deals was never announced, and Lawler estimated that the companies sold for between $5 million and $20 million.

"The fabless semiconductor market for start-ups is broken. If you are putting in $40 million to get out $20 million, that model is broken," he said.

"Gee, let's go into a low-cost, low-margin business and try to take on established players" Bill Frezza, general partner in Adams Capital Management, said characterizing the business plan of some wireless start-ups.

Although the market continues to be dominated by the larger Wi-Fi chipmakers such as Broadcom, some of these smaller companies are getting contracts. Dell, for instance, included a Sychip-based module in its first Wi-Fi handheld, while Sony uses a similar product in one of its Clie handhelds.

The Universal Communicator, a prototype communications device that was shown off at the Intel Developer Forum, also contained a Sychip-designed Wi-Fi unit. Intel is an investor in the company.