Ultra-wideband Decline Proves Perils of Chip Investment

istock_000006321317xsmallFive years ago, the promise of a new networking technology known as Ultra-wideband was a living room without wires, where DVD players, set-top boxes and video accessories could connect with TVs over the air. Ultra-wideband (UWB) is a wireless personal area networking technology that can transmit large amounts of data for short distances using very little power. Over time, its promise expanded from the living room to the home office, as backers used Ultra-wideband as the basis for Wireless USB and the WiMedia standard.
So far, this dream hasn’t materialized, and the technology has failed to find a mass market. Today, we still have wires in both the office and living room, and a host of competing standards have whittled away UWB’s opportunity. In the last week, we’ve seen players exit the UWB business, and Intel announced that it has halted research on the technology. For venture firms who have invested nearly $400 million in the space, the fate of Ultra-wideband offers a cautionary tale about the perils of betting on semiconductor standards.
On Oct. 31, five-year-old UWB chipmaker WiQuest shut its doors when it was unable to raise more money or find a buyer for its technology. That led to heralds of doom for Ultra-wideband, with analysts and media blaming long-delayed product launches, expensive chips and a hostile regulatory environment. This week, Intel said it had discontinued its UWB efforts, saying the market wasn’t worth its R&D efforts. If the technology somehow manages to revive, Intel says it could buy up one of the six remaining startups in the space.
The plan makes sense for Intel because UWB, like Wi-Fi, Bluetooth and WiMAX, is a standardized technology. That means any UWB chipmaker will have the basic set of characteristics Intel needs to play in the market. Standards are a double-edged sword for venture investors. On one hand they are good for consumers and electronics makers because they enable multiple devices from different vendors to work together. Any Wi-Fi router should talk to any Wi-Fi chip in a computer, phone or camera. This helps drive consumer adoption and can lead to the creation of a huge market. Venture capital firms love this, because if a standard takes off it can build a company like Broadcom or Atheros that can generate rapid returns in a relatively short amount of time.
The other edge of that sword is that chipmakers who adhere to the standard can do little to differentiate their chips, which makes it easy to switch vendors and effectively commoditizes the product. This happened for the Wi-Fi standard back in 2000-2002, when venture firms put more than $2 billion into more than 40 Wi-Fi companies, only to see a few rise to the top. There is also the risk, inherent in all technologies, that the market won’t adopt it. This seems to be what’s happening for UWB.
Instead of seeing the technology completely die out, Eric Broockman, CEO of UWB chipmaker Alereon, argues that Intel’s retreat from the technology and WiQuest’s failure mean a shakeup similar to that experienced by the Wi-Fi market is happening with UWB. “Typically in this type of semiconductor investing there is a win-place-show mentality,” Broockman says. “One wins big, one gets acquired for a good price, one gets acquired for a not-so-good price, and everyone else goes away. That process in UWB is being accelerated by the current economic downturn.”
There were at least seven UWB chipset companies formed in the 2003 time frame. Now, many appear close to failure. WiQuest, which raised about $54 million, was one. Two others, Artimi and Staccato Communications, are both rumored to be running out of cash. Artimi has raised $31.5 million and couldn’t be reached for comment for this story. Intel Capital invested in Staccato when it was pushing UWB. That could position Staccato to end up being the company in the show category, because Intel might buy it for its intellectual property at a cheap price down the road. 

Fighting for the win and place spots are Alereon, which has raised more than $70 million with a small amount coming earlier this year from SKTelecom; TZero, which raised $18 million in March led by CID Group; and Wisair, which raised $24 million in February led by Susquehanna Growth Equity. Radiospire is another player in the UWB market, but it appears to be shifting gears — or at least hedging its bets — by also making chips for transferring wireless HD video using a different standard.
Competeing standards are one of the reasons UWB is having such a hard time finding a toehold. For desktop personal area networking, Bluetooth and Wi-Fi are becoming more prominent — and have the benefit of cheaper chips. In video, UWB has conceded to Wi-Fi and specialized standards such as Wireless HD and WHDI. Those left on the playing field are quick to point out that UWB still has legs — and it might, if it finds the type of killer application that can drive adoption rates and increase chip sales to the point where they cost less to embed. But the shakeup happening here proves that chip investment isn’t for the faint of heart.
This article also appeared on BusinessWeek.com