At this week’s Wireless Ventures conference, produced by Technologic Partners, we had an opportunity to meet with venture investors, private company management teams, and corporate executives focused on wireless private equity. During the conference, we observed several investment themes among presenting private companies, learned more about innovative new technologies, and discussed investment strategies and perspectives with financial and strategic wireless investors. In this research note, we discuss summary takeaways, private company investment themes, and innovative new technologies.

In almost every investor conversation we had, we discussed investor frustration with the challenging industry dynamics for wireless. Carrier capital expenditures, enterprise IT budgets, and user adoption rates are not increasing as investors, startups, or corporations have expected. With that said, we saw during the conference selected pockets of wireless recovery, which form the basis for near-term opportunity. Examples include WLAN in the enterprise and data optimization in the carrier. In addition, we saw several private companies evidence progress in long-term opportunity areas, such as ultra wide band. 

In context of industry challenges, we found the following investment themes from the conference particularly interesting: 

1. 802.11 semiconductors. During the conference, we saw continued progress in both product sales and development for the 802.11 semiconductor subsector. We saw evidence of increasing shipments by certain companies, and successful tapeouts and OEM agreements by other companies. In sum, we count at least nine different 802.11 business models among presenting and nonpresenting companies, each with a focus on a different value proposition such as cost, power consumption, flexibility, performance, and time to market. As we heard from several influencers during the conference, the time to market business model is, naturally, a highly attractive strategy, with sustainable differentiation through embedded relationships and experiential learning. We further note influencer comments that the 802.11 semiconductor market can support several - but not all - alternative business models, as the market size is approximately $1 billion and the segments span campus, office, facility, home Internet, and consumer electronics markets. We found limited visibility as to which business models other than time to market are emerging as long term leaders. Illustrative presenting companies included Atheros Communications, Bermai, IceFyre Semiconductor, Magis Networks, and Resonext Communications.   

2. Enterprise WLAN management. The conference presentations demonstrated continued customer deployments, OEM/VAR relationships, and venture capital funding for leading companies in the enterprise WLAN subsector. Investors expressed two concerns to us regarding this subsector: (1) Are the early large contracts replicable to mass adoption, or due to customer specific factors?  Although this issue is a remaining investment risk, we believe that there is evidence of mass large enterprise need for solutions such as those offered by the enterprise WLAN management subsector. We use as evidence a recent Dell'Oro Group report that indicated a slowdown in large enterprise deployments of WLANs due to security. (2) What are the incumbents' strategies, and will they obviate private company strategies?  To date, we have seen incumbents as slow to develop these solutions. As evidence, we point to the number of incumbent OEMs who have regional sales partnerships with private companies to co-market private company solutions. Of note, these partnerships have not risen to a corporate level; often, co-marketing relationships begin at a regional level and escalate to a corporate level once the demand and relationship are demonstrated. Illustrative presenting enterprise WLAN management solutions companies included Bluesocket, NetMotion, and ReefEdge.

3. Carrier WWAN/WLAN management. The conference had significant focus on hot spot WLAN businesses, such as the carrier WWAN/WLAN management subsector. As per our conversations with private companies in the subsector, we believe that there is a carrier need for WLAN management solutions. Most carriers are currently evaluating WLAN strategies and plan to select a solution over the next two to four quarters. Several panelists commented on the recent nature of carriers' interest, which has piqued over the past two quarters. We note, though, most carriers have already examined WLAN business models over the past two years, deciding that likely revenues based on ARPU and subscriber penetration projections were insufficient to warrant network costs. Based on our carrier conversations, we believe that carriers’ interest over the past two quarters reflects a need for competitive differentiation and parity, rather than a change in fundamental economics. WLAN ISP operators and aggregators have emerged to alleviate carrier burden of network deployment costs; nonetheless, the economics must support the various members along the value chain independently. As such, we caution investors that we find limited visibility to this subsector's market size, due to uncertainties in revenue models, subscriber penetration levels, and technology differentiation. Illustrative presenting companies in this subsector included Mobility Networks and Nomadix.

4. Carrier data equipment. We subdivide carrier data equipment into three subsectors: data optimization equipment, core network data equipment, and data only RAN equipment. 

(A) Data optimization equipment. A venture capital panelist put it best, “for equipment companies, the motto now is creep, crawl, walk, then run.”  Rather than funding equipment companies that seek to replace or add network elements, investors are turning to phased equipment that might serve as an adjunct to existing networks. Data optimization equipment offers such an investment theme, as it sits alongside the SGSN or GGSN to improve performance, extend life, and reduce cost of 2.5G networks. This is particularly important in the delayed 3G environment across most regions globally. Of note, we have found the SGSN optimization business model particularly differentiated. Illustrative presenting companies in this subsector included Cyneta.

(B) Core network data equipment. Core network data equipment also received attention during the conference. In particular, investors looked to the service and application layers as differentiators among companies, with the transport layers generally not considered critical until data demand escalates. We believe that 2003 will be the earliest for material revenues for companies in this subsector. Illustrative presenting companies for the subsector included Megisto, Tahoe Networks, and Watercove.

(C) Data only RAN equipment. The exception provided to (A) above was data only RAN equipment, based on the thesis that carriers are more likely to adopt incremental network upgrades, rather than forklift network changes, for data services. As we have colloquially stated, our thesis is that carriers are unlikely to make big bets on data, and that the “G” in 3G is going away. Although there was limited news for the companies in this subsector during the conference, several private companies are striving to provide a low cost network alternative to 3G with a similar or improved performance profile. Illustrative presenting companies for this subsector included ArrayComm and Flarion.

5. Ultra wide band. During the conference, we saw heightened customer activity and investor interest, especially given the FCC’s February 14th ruling. It appears that UWB’s near-term applications include high bandwidth, short range connectivity, such as consumer electronics appliances and devices. It is too early to identify the winning business model, but private company differences include signal processing technology (pulse vs. spread spectrum modulation), application focus (communication vs. radar vs. location), and customer focus (government vs. commercial). Illustrative presenting companies for this subsector included Time Domain and XtremeSpectrum.