DUMB LUCK INVESTOR: Wireless Ain't What It Used to Be
Optionetics.com
Peter D. Henig
Thursday December 5, 7:30 pm ET
Wireless. It's definitely a “depending on who you talk to” business. Talk to venture capitalists and they say it's a grind; unfundable even. Talk to wireless executives and they say the opportunities for success are available only to a select few industry players – Motorola (MOT), Siemens (TK), Nokia (NOK). Talk to second tier wireless players, the companies building the applications of the future like OpenWave Systems (OPWV), and the opportunities are boundless. Then again, talk to investors and they don't know what to believe.
It's an industry in, if not turmoil, at least transition. Not too long ago it was a sector without limits. Qualcomm's (QCOM) stock at one time had risen something like 4000 percent. Nokia seemed to double and split every six months. And nearly 300 wireless communications startup deals were being funded as recently as 2000. (There's barely been 100 deals funded this year.) With the shakeout across the entire sector – Winstar Communications went belly up, Nortel (NT) and Lucent (T), Intel Corp. (INTC) and International Business Machines Corp. (IBM) announced on Thursday they will be forming a company to provide wireless Internet access in the U.S. The company, to be called Cometa Networks, will provide the service for telecommunications companies, Internet service providers, cable operators and wireless carriers to in turn offer to their customers starting in 2003. The deal, financed by venture capital firms Apax Partners and 3I, represents all that has changed – and all that remains possible – in the wireless space.
The Land of Giants
“Wireless is a transport mechanism just like the Internet was,” says Ravi Chiruvolu, General Partner with Charter Venture Capital, a Palo Alto, CA based venture firm. “It's not that there isn't a huge market opportunity…but it's still a nice to have, not a must have.” What industry experts like Chiruvolu are talking about is the wireless opportunity within the corporate enterprise, and more specifically, the opportunity for wireless data as well as wireless v ere cell phones, one where corporations are connected to their employees, vendors and customers in a secure wireless environment. Where laptops and PDAs, tablet computers, bar code scanners, and all other devices are wirelessly connected to each other and to the Internet.
But much like the Internet – which was finally determined to be more of an innovation than an industry – few have figured out how to make real money in wireless. It's a small community of large players – Verizon (VZN), AT&T, Cingular and the like on the carrier side; Nokia, Siemens (SI), Ericsson (ERICY) and the like on the vendor side, which remains nearly impossible to penetrate. In fact, the formation of Cometa Networks by AT&T, IBM and Intel is just about the only new wireless company that could make sense right now. It immediately provides access to this small world of wireless carriers and therefore direct access to the end customer – the true source of demand.
But like most other large companies during the technology boom, companies and carriers spent far too much money on wireless applications that either have yet to yield a return on investment, or have yet to be proven valuable to the user. Perhaps until now. Although OpenWave has some nifty technologies to offer – applications that drive sharing wireless photos or instant messengering – the market demand and even the network and device technology hasn't been available until very recently. And even the promise of what's known as 902.11 – WiFi as it is also know, available in many Starbucks for those more technologically advanced – hasn't proven its l.
All of which bombards investors with a variety of different opinions and a concoction of mixed signals about where to – or even whether to -- put their money in wireless stocks. As evidence, Paul Scanlan, founder and head of marketing for Berkeley, CA-based wireless firm, Idetic, says, “Bullish? I'm definitely bullish on wireless. It's going to be huge, but only for a few selective companies.” Who specifically? “Nokia, Ericsson, Siemens.” Richard Wong, head of marketing for OpenWave, agrees. Kind of. “It's not like wireless was a temporary fad. It's here to stay but it's no question it's a difficult environment. And it's not like the behemoths – Nokia, Ericsson, Siemens – are going to be doing all of the innovation. No way.” So who's he bullish on? Openwave, of course.
And then there's Mr. Chiruvolu who's bullish on no one. “If I was a betting man, I would say that investments in wireless are the next big bubble to burst,” says the venture capitalist. Although he is mostly referring to private wireless companies, the point remains the same. If one is to invest in wireless – either carriers, equipment makers, or applications providers – one must bet on the incumbents and expect that industry consolidation and true wireless revenue potential remains yet a few years away. Perhaps sooner, but that's what they said the last time we had a tech boom.
Peter D. Henig
Contributing Writer and Trading Strategist
Optionetics.com ~ Your Options Education Site
pete@optionetics.com |
