Although the wireless connection technology failed to live up to the earlier hype, demand for Bluetooth--which lets cell phones, notebooks and other devices speak to each other within a 30-foot radius--is starting to pick up, thanks to declining component costs and increased interest in all things wireless.
Research firm IDC reported on Wednesday that revenue from Bluetooth-related products, such as chips and memory used in devices, should grow from $76.6 million in 2001 to $2.6 billion in 2006, with widespread adoption beginning next year.
"The ballooned expectations have settled down to more of a realistic understanding of its role in the wireless space," said Ken Furer, an IDC analyst.
Bluetooth is a networking technology that is primarily meant to let devices such as cell phones, handhelds and notebook computers communicate with one another. With Bluetooth, notebooks can send print jobs to nearby inkjets without being linked by cables. Consumers can send videos or pictures across the Internet if they have a Bluetooth-enabled camera and a similarly equipped data cell phone.
Competition from other wireless standards such as Wi-Fi (also knows as 802.11b), the relative lack of Bluetooth-enabled devices, and a misunderstanding of how it would be used slowed acceptance, Furer said.
In the past year, though, the future for the technology has brightened. For one thing, the price is dropping. Bluetooth chips cost around $9 and will be used mainly in add-on products to devices, but that price is expected to fall to around $4 in 2005 when the chips will be embedded in devices, according to Furer.
Bluetooth's environment is also expanding. An early complaint was that it was useless to buy a Bluetooth printer because it could only talk to itself. The CEO of Quanta, one of the world's largest notebook manufacturers, has said that the company will begin to include Bluetooth in most, if not all, of its notebooks, Sean Maloney, executive vice president of Intel, said in a recent presentation. In previous years, Quanta, which makes computers for Hewlett-Packard and Apple Computer among others, showed little interest in Bluetooth.
"All technologies have to die before they succeed," Maloney said of Bluetooth.
It has also become clear that Bluetooth will coexist with 802.11. Bluetooth costs less to insert into devices, said several sources, and consumes less energy, making it more effective for communicating over short hops.
"Initially, Bluetooth was written off as a lesser technology to 802.11b and even HomeRF," Furer said, "but as the understanding of it as a personal area network technology instead of a local area network technology became clear, its usefulness has become more clear."
The largest purchasers of Bluetooth will be the cell phone makers, which are looking to add features to attract new customers to their expensive next-generation networks. Handsets are expected to account for 51 percent of Bluetooth revenue in 2006, and headsets for handsets are expected to be the second-largest contributor to revenue. Using Bluetooth, headsets can wirelessly connect to handsets for hands-free use of phones.
News.com's Michael Kanellos contributed to this report.