Vendors face tough choices in xDSL market
By Mark LaPedus
Electronic Buyers' News
(04/12/99, 10:33 a.m. EDT)
The digital subscriber line market is finally showing signs of life following disappointing growth last year, but OEMs and chip makers face some harsh realities in this emerging segment.
In fact, analysts project that nearly every OEM and chip maker could lose money in the xDSL business this year and possibly next, prompting vendors to make some difficult decisions about their future strategies.
xDSL is a modem technology that transforms ordinary phone lines into high-speed digital lines for ultrafast Internet access.
Several versions of xDSL exist, the most common of which are ADSL (asymmetric DSL) and its lower-cost consumer counterpart, ADSL/G.Lite.
Some vendors are opting to tough it out in the consumer segments of the market, while others are shifting to higher-margin business-oriented segments.
For example, Level One Communications Inc.-which is in the process of being acquired by Intel Corp.-has set plans for ADSL/G.Lite chips aside in order to focus on business-oriented products. Others are forging ahead in the crowded ADSL/G.Lite-chip market but are hedging their bets by going after business segments as well.
One such company is Paris-based Alcatel, the acknowledged leader in the xDSL business, which will announce its latest ADSL/ G.Lite chipset at this week's DSLcon show in Dallas. Recently, Alcatel also announced plans to team with Level One to co-develop chip products based on the SDSL (symmetric DSL) standard, a 2.32-Mbit/s technology aimed at business applications.
Regardless of which market segments they decide to pursue, OEMs and chip makers won't see profits anytime soon, according to Shannon Pleasant, an analyst with In-Stat Group, Scottsdale, Ariz.
"The potential is tremendous in the xDSL market, but the volumes aren't big enough to support [these companies] now," Pleasant said. "There's also a lot of price pressures on silicon and equipment vendors, which means they aren't making any money in the business."
Indeed, while the xDSL market is expanding rapidly, the growth is coming from a small base. The ADSL segment is projected to reach at least 3 million subscribers worldwide by next year, up from just 25,000 in 1997 and 100,000 in 1998, according to In-Stat.
Rival cable-modem technology, meanwhile, has become more popular in the last two years. Cable-modem shipments totaled 214,000 units in 1997 and 492,000 in 1998, according to San Jose-based Dataquest Inc.
Surprisingly, analog modems have held their own. "The analog-modem market is much stronger than we anticipated, but 1999 could be the peak year for these products," said Tony Grewe, strategic marketing manager for Lucent Technologies Inc.'s Microelectronics Group, Allentown, Pa.
Analysts believe that the xDSL market has been hampered by a lack of standards, incompatibility issues, and slower-than-expected deployment by various phone carriers.
Most U.S. carriers today offer xDSL services in one form or another, but few, if any, currently provide G.Lite-a low-cost technology designed to use existing wiring to deliver data to the home at 1.5 Mbits/s-25 times faster than the speed of today's V.90 analog modems.
"On the consumer side of the [xDSL] business, there's been a lot of hype," said Taufique Ahmed, product marking manager for Level One, Sacramento, Calif. "When you begin to inquire about xDSL services, you also hear about the deployment delays, or the loop isn't ready."
Last year, Level One hinted it would enter the ADSL/G.Lite market, but at the same time began to push HDSL-2, a 1.5-Mbit/s, business-oriented technology intended to replace T1 connections in office environments. This week, Level One will formally introduce its HDSL-2 product, a three-chip solution that sells for $60.96 in quantities of 1,000.
"The G.Lite market is very competitive," said Dan Cordingley, director of DSL marketing for Level One. "Basically, our [ADSL/G.Lite-chip] is on hold. Instead, we're focusing our attention on HDSL-2."
The ADSL/G.Lite-chip market has nevertheless drawn a host of suppliers, including Alcatel, Conexant, Fujitsu, GlobeSpan, Lucent, Motorola, NEC, and Toshiba.
"At this point, the xDSL market is still emerging," said Robert Bury, product manager for Alcatel Microelectronics. So far this year, he said, Alcatel has noticed an acceleration of xDSL deployment among some major telephone carriers, as well as increased activity among the CLECs (Competitive Long Distance Exchange Carriers).
Alcatel's new chipset being announced at DSLcon, a fifth-generation ADSL product called the DynaMiTe MTK-20150, is a two-chip solution consisting of an analog front-end IC and a digital modem chip based on the 32-bit ARM7 RISC core.
Designed for central-office and modem applications, the 1.1-W chipset comes in a 208-pin TBGA package. Available by mid-1999, the chipset will cost $50 in volume quantities.
Jim
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