Despite the typical US-centric blinders this
Bluetooth article will probably be of interest to Mitel shareholders.
Company Focus
Try a bite of new-age wireless with Bluetooth
Some of the world's biggest companies are betting a technology called Bluetooth will let phones, PDAs, PCs, cameras -- even vending machines -- chat, and all without cables. Investors may want to place the same bet.
By Michael Brush
Get ready for the next round of "unplugged," a communications revolution that will rock your work by allowing all sorts of electronic devices -- from cell phones to vending machines -- to interact without connecting cables.
Known as Bluetooth, this new technology permitting beamed communications between you and just about everything else in the world will also have an impact on the portfolios of investors who take positions ahead of the trend in companies that will benefit. These include chip designers like ARM Holdings (ARMHY, news, msgs) and RF Micro Devices (RFMD, news, msgs), cell-phone producer Ericsson (ERICY, news, msgs) further down the road, and perhaps a small software producer called Extended Systems (XTND, news, msgs).
Make no mistake, Bluetooth is still in its infancy. No one expects sales to start ramping up in a big way before the turn of the year. This probably means that investors can take their time. On the other hand, the recent wireless craze shows that when it comes to hot new trends in tech, it can pay to get in ahead of the crowd that piles on once a story becomes widely known.
How Bluetooth works
So here's the story: Bluetooth is a transmission standard that helps electronic devices automatically detect each other and communicate over short distances, up to 30 feet. It uses the unregulated part of the radio-wave bandwidth (the 2.4 GHz band) that also carries signals for things like garage-door openers and cordless phones. Bluetooth, however, is smart enough to hop frequencies quickly inside that zone to get away from "noisy" channels.
Bluetooth is relatively cheap because it works over short distances -- no need for the costliest components that make cell phones pricey. It's faster than mobile phones (including the upcoming third generation, or 3G, high-speed wireless data transmission), but not fast enough to carry video.
The technology takes its name from a 10th century Danish king who helped pacify his country by convincing competing factions to get along -- or communicate. Ericsson took the lead. But it wanted an open system, so it teamed up with Nokia (NOK, news, msgs), Intel (INTC, news, msgs), Toshiba (TOSBF, news, msgs) and IBM (IBM, news, msgs), freely sharing its know-how.
The original members later expanded into the Bluetooth Special Interest Group that now includes Lucent Technologies (LU, news, msgs), 3Com (COMS, news, msgs), Motorola (MOT, news, msgs), MSN MoneyCentral publisher Microsoft (MSFT, news, msgs) and Dell Computer (DELL, news, msgs), among others. As an open standard, however, the basics of Bluetooth technology are available for free to any company that wants it to make electronic devices.
What will it do?
Analysts expect a first wave of fairly simple applications to pop up in cell phones, personal computers and handheld devices later this year. By next fall, for example, people should be talking with cell phones tucked away in their pockets by using wireless Bluetooth headsets, leaving their hands free for even more multi-tasking.
Around the same time, computers won't need a docking station to talk with Pocket PCs or Palm devices. Assuming you join the ranks of the techno-savvy, this means files you revised in your handheld while on a business trip, for example, will get updated automatically in your PC once you come back and walk within range. 3Com is expected to release Bluetooth-enabled personal digital assistants later this year.MoneyCentral Newsletter
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A second wave of applications will see the technology put to use in much more imaginative ways. Travelers will send electronic postcards using a Bluetooth link from digital cameras to mobile phones, which forward vacation photos via e-mail. You will find wireless public Internet connections in hotel lobbies and airport lounges. And you'll surf the Web easily via a cell phone.
You will also be able to use your handset to pay for drinks at vending machines or buy mass-transit tickets. If you're driving, the whole interior of your car will be turned into the "headset" for your mobile phone. Back home, Bluetooth will allow pieces of computer systems to communicate, eliminating that messy cable spaghetti. As for dating, outgoing technophiles will find new ways to flirt by swapping messages or business cards with handheld devices.
Of course, it will be years before some of these applications develop. Others may never see the light of day. But analysts like Andrew Griffin at Merrill Lynch (MER, news, msgs) are convinced Metcalfe's Law will apply to the spread of Bluetooth. This says that as more and more people connect to a system, the network of contacts gains value, enticing even more people in . . . and so on. It's the same law that explains the viral growth of e-mail.
It's admittedly too early in the game to know for sure, but Griffin estimates that 1.7 billion Bluetooth-enabled devices will be sold in 2005. By then, the market for the silicon behind the technology will be worth $3.4 billion, he estimates. This guess may turn out to be conservative, because Griffin excludes many of the potential consumer and industrial applications.
How to invest in Bluetooth?
With those kinds of numbers, it's pretty clear the best route for investment is through companies that design the chipsets making it all possible. Just keep in mind that many of the leading players are so huge, it will be several years before Bluetooth has any real impact on the bottom line.
Ericsson, for example, would seem like a logical place to start. After all, its pioneering role in Bluetooth has helped it come out with one of the first supporting platforms. "But a company like Ericsson is so big, I wouldn't expect Bluetooth revenue to be material in the next three years," says Chris Perras, a portfolio manager at AIM Constellation Fund (CSTGX). "It will be noise relative to their hardware and handset business." The same goes for other gigantic suppliers like Motorola and Conexant Systems (CNXT, news, msgs).
Instead, Perras says, it's better to consider relatively smaller companies like RF Micro Devices, which is held by AIM funds, and ARM Holdings. Both companies have the right contacts, because they sell a lot of chips to cell-phone makers. ARM chip designs are already used in Bluetooth technology sold by Ericsson, Atmel (ATML, news, msgs) and Lucent. When considering these two investments, just keep in mind that Perras, like many analysts, doesn't expect any big revenue gains from Bluetooth for RF Micro Devices and ARM until next year.
Company Focus
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A much smaller player to keep an eye on is Extended Systems. This company makes interface software used to translate Bluetooth signals as they move from applications to hardware. It's hard to make a case for investing in the company right now because it has weak earnings-estimate revisions due to changes in other parts of its business. Still, the company is a promising Bluetooth play -- given that the Palm Inc. (PALM, news, msgs) division of 3Com has chosen it as a supplier. "It is hard to tell when it will really take off, but eventually Bluetooth will be a very significant part of their revenue," says Rich Valera, who covers the firm for Needham.
Private players to watch include SSL in Ireland, Cambridge Silicon Radio in the United Kingdom, and Silicon Wave and WIDCOMM, two firms based in the U.S.
Some hurdles remain
Both France and Japan have yet to clear the way for use of the radio bands, which Bluetooth would use. A bit more ominously, some chip producers are having trouble getting their products to talk with each other, despite the common standards they worked out as a group, says Mark Anderson, the publisher of Strategic News Service. Although Bluetooth is a simple concept, it is tough to put it on silicon.
"RF chips are an art, not a science," says Anderson, referring to semiconductors that enable radio-frequency communications. "I think Bluetooth has great potential. It just requires stronger leadership from Ericsson. This band-of-brothers thing may not work that well. But once they get it working, this could be huge. Having broadband over short distances will be worth a lot of money."
At the time of publication, Michael Brush did not own or control shares of any of the equities or funds mentioned in this column. |
