I'm trying to get a better handle on the IP phone lily pond…The unit volumes look fairly realistic. However, I have trouble justifying the higher royalty rates for a next generation device with more functionality. Keep in mind that this is a basic communication device that will in almost all cases be planted on a desk next to a fully functional, LAN-connected desktop PC. Where will this added functionality come from? Also, what are the market share estimates based on? TI claims an 80% market share (taken from article on TI’s 80% share)
Your comments caused me to re-examine the IP-phone lily pond figures I tentatively drew up, especially because of the 80% TI market share you cite. You have done a real service to the community, since no one wants to overstate the case for any potential lily pond. As a result, I will significantly change the IP-phone lily pond figures for the next update.
Because I insist on being conservative, particularly with unproven technology like the enterprise IP-phone, I am ONLY increasing WIND’s market share to 75% from 60%, although WIND’s market share may likely exceed 90% now and going forward. Otherwise, until we get better market research, all other figures will be left unchanged.
Let me explain:
In the article you referenced to support TI’s claimed 80% share, it stated:
This solution has stirred-up quite a bit of excitement. Visitors to the Fall 2000 Voice on the Net Show, witnessed the first public demonstration of the C5472 DSP-based enterprise IP phone processor, learned that TI's DSP-based Technologies are the leading enterprise IP Phone enablers with more than 80% market share, were shown how the pre-integration of leading real time operating systems (RTOS) is shortening time-to-market for OEMs and heard exciting new customer announcements!
Having read that, you should have thought, “Gee, TI makes DSP’s, not RTOSs. Who are the leading RTOS companies they deal with?” You could have gotten the answer to your question by following the link in the article to Telogy (a TI company) in which they provided testimony from TI enterprise IP telephony equipment makers, and at the bottom, under “Our Partners”, it contained the following paragraph:
Because we've already integrated our IP telephone solution with those of our Software/Hardware partners, original equipment manufacturers (OEMs) can shorten time to market while reducing engineering risk. Our Software/Hardware partnerships with the Wind River Systems, RADVision and Accelerated Technology are important pieces in the IP telephone puzzle.
To put it bluntly, it appears that virtually all TI’s 80% market share is in partnership with WIND. While this is great news, I question whether TI will maintain 80% share against serious rivals such as Lucent/Avaya. Many of these players may use TI chips, so they won’t threaten TI’s market share, but others, LU beign one example, will not.
In an interview today in the IBD with Patricia Russo, Chairman of Avaya (Lucent’s recent spin-off in business telephony equipment), she said Avaya was “No. 1 in the U.S. for business telephone networks and No. 3 globally.” This makes Avaya a major player, certainly enough to alone threaten TI’s market share.
Of course the good news is that WIND is in partnership with Lucent on Lucent’s IP-phone. WIND gets Lucent/Avaya’s market share, too.
But wait, what about Avaya’s competition? When asked, Patricia list its major competition: “In the business phone space its Siemens, Alcatel and Nortel.” Wow! WIND is partners with everyone of these companies. For example, I reported a year ago scuttlebutt that the day WIND announced its merger with ISI that Alcatel management put out the word to standardize on VxWorks. Nortel has been a long-time strategic partner with WIND, announced a couple years ago. And Siemens and WIND have dealings that go back to the early 1990s.
As to concerns about WIND being able to increase its value-add with IP-phones, I couldn’t disagree with you more. IP-phones will NOT be simple extensions of PCs. They might take on that kind of look early on in the consumer space, but not in the enterprise space. Useful features for IP-phones in the enterprise space are almost limitless: security through encryption (an absolute must for extranets), QoS issues to guarantee quality, VPN, Network Address Translation, multi-line conferencing, all kinds of user-interface possibilities, wireless connectivity (Bluetooth comes to mind), firewall protection, intrusion detection, and the like. As global companies start to implement full-scale enterprise IP-phone networks, possibilities are endless. WIND's value-add in these areas is so strong that it dominates the network equipment software space. Surely, that the same value-add will strengthened WIND's dominance while increasing ASPs for next-generation IP-phones.
As to the projected units, I want to keep numbers smaller than reason dictates. The reason is many enterprises will hesitate to switch to IP-phone systems, despite drastic cost savings in long distance phone costs, until they are convinced IP-phones are reliable. This is the single biggest barrier to the replacement of regular, circuit-based telephones by IP-phones. Fortunately, with the kinds of technology now available in IP connectivity, this barrier is certain to give way in time. Imagine, a global company being able to have all its tens of thousands of employees anywhere in the world talk securely and reliably by phone for zero cost beyond ordinary Internet connectivity.
As I mentioned, I will change the IP-phone lily pond figures appropriately, thanks to your comments. But I look forward to updating unit numbers significantly as expected evidence comes in that enterprise IP-phones are set to ramp explosively -- and with it WIND's lily pond royalties.
Allen |
