Why Is Intel Pushing WiMAX? Three Theories

I had a long conversation with someone who posed this question. I know little about WiMAX but I know people who know great deal, people who have put their money where their mouth is. The question I pose isn’t whether WiMAX is going to be successful, but why is Intel (INTC) pouring so much money into making it a reality?

I’m not trying to start a debate about whether WiMAX will succeed. My cycling buddy would define success as 5M WiMAX subscriber adds in a single year (not total). What isn’t clear is how Intel benefits even if the large investment they are sinking into WiMAX pays off.

Intel has a poor history of developing any successful products in the communication space, let alone mixed signal communication. Historically, Broadcom (BRCM) and TI (TXN) (among others) are far more capable. Odds are these vendors would seize the infant technology from the cradle and produce a superior product.

Even if Intel manages to be a leader in WiMAX chipsets, the market opportunity is a pimple when compared to their existing $35BB business of mostly CPU’s and companion chipsets. Even if WiMAX chips generate $1BB, it is still noise. Intel lacks a whole suite of products to wrap around this hard-won hypothetical WiMAX market share to generate additional pull through revenue. They sold their mobile CPU business to Marvell (MRVL). PC CPU’s and chipsets don’t count because they would have won those anyway.

When I asked someone at Intel not involved with WiMAX this question, his response was that Intel sees ultra mobile computing as a key initiative, and WiMAX is the enabler. This makes sense if you ignore the fact existing wireless carriers don’t want WiMAX.

Virtually all carriers are divided between UMTS [HSDPA] and CDMA2000 (EV-DO) as evolutionary 3G technologies. They don’t care about WiMAX because they have a big installed base (2G) they must migrate. There is Clearwire (aborted S-1 excepts here), and Sprint (S), which has committed to building out a WiMAX infrastructure. There is also Korea, which never met a communication infrastructure it didn’t love (ATM, ISDN, DSL, two flavors of FTTH, 3G - what haven’t those guys deployed?). But the opportunity is dwarfed by the size of the existing mobile voice and data standards.

If Intel was really committed to growing a mobile wireless business they would identify a product that could both fill their fabs AND meet the needs of existing carriers - not build something counter to their desires.

Here are my three possible theories:

1. Intel has concluded that WiMAX will be an incredibly disruptive technology with undeniable performance/price advantages. New carriers will rise as the incumbent carriers foolishly embrace their legacy technology. I don’t have the technical firepower to form a conclusion here, but I doubt that the Intel Borg-collective has figured out what many others have not. Perhaps too many WiMAX guys at Intel have read “The Innovators Dilemma” and jumped the gun.
2. The big push for WiMAX has nothing to do with making lots of money. Instead, it is an initiative that will allow Intel to build a new, separate corporate division focused on mobility and wireless, allowing them to compete in many other markets. As a culture, they prefer to lead rather than follow, so better to champion a new standard than chase competitors who are already established. Even if WiMAX doesn’t pan out, they can move their new wireless R&D Death Star into another market and start taking share.
3. Emerging Markets. There are huge untapped expanses of the world devoid of Internet connectivity and more importantly, Intel CPUs. WiMAX as a greenfield technology can bring low cost connectivity to these markets and enable the sale of more PCs. Existing markets already awash with connectivity just aren’t that important.

I think WiMAX is destined to be what I call a crack filler, an alternative technology that fills in the areas where incumbents are too expensive or not available. WiMAX will be to 3G what Satellite is to Cable - best case.

Either Intel is pouring hundreds of millions of dollars into a foolish endeavor or something is unseen.

Comments

[Larry Loeb:]

In my experience, Intel has been very consistent.

They view their mission as supporting any efforts to increase the need for (and consequent sale of) more and more powerful processors.

They seem to view WiMax as a technology with great potential. Whether existing players agree is not necessarily relevant, only the long term result.

If WiMax increases demand for PCs or for PCs with faster processors, Intel benefits.

Intel's entry into the chipset market was to speed the adaption of new processors by computer manufacturers. The margins in that business are relatively unattractive, but the advantage of having that capability means that they don't have to wait for other chipset processors to create products to service the processors - speeding Intel's penetration of the market.

Intel's mobile strategy is unclear to me, but they benefit mostly in areas where they control a proprietary technology. Handhelds may not have offered that opportunity. That doesn't mean that they've given up, only that they may be looking at a different approach.

We'll see whether this pans out or, like some other efforts, ends up as a dead end. In terms of Intel's overall balance sheet, the cost/benefit must be perceived to outweigh the risks.

I don't think that WiMax chipsets is the goal, but integration - like Centrino - may offer significant benefits if WiMax is successful.

Just my take.

Larry Loeb

2007 Jan 07 04:52 AM

[David Lentz:]

<i>WiMAX will be to 3G what Satellite is to Cable - best case.</i>

Consider what would happen to Satellite if Cable were to attempt to increase revenues by hiking prices in one manner or another. WiMAX is positioned to be a low cost of entry competitor to the Bells and Cable operators, at least where the phone lobbying complex has not managed to push through legislation forbidding alternative networks -- such as municipal-owned and operated networks.

And that may be the 100 ton anvil that breaks the WiMAX camel's back, as it appears that at&amp;t has been pretty successful at suppressing competition legislatively.

But that scenario only applies to the domestic US markets. If one looks at the global picture, WiMAX has enormous potential to spread broadband wireless mesh networks in places like India and China -- which lack existing fiber infrastructure, making extensive WiMAX mesh networks a very attractive way to unify those nations rapidly and at a low cost.

Perhaps Intel is looking at the potential of WiMAX in a global context.

2007 Jan 07 10:13 AM

[Asif Suria:]

Interesting thoughts Andrew. For WiMax to work, three things have to come together. The service providers, the equipment manufacturers and an integrated chipset that supports the mobile WiMax or 802.16e standard.

Service Providers in the US: While Clearwire is targeting the consumer space of the market, another service provider TowerStream is targeting the business sector. Sprint is expected to spend $1 billion on WiMax in 2007.

Equipment Manufacturers: Beyond pure play companies like Airspan Networks, Alvarion, Aperto Networks and Redline Communications, larger companies like Motorola, Samsung and Alcatel-Lucent are investing in WiMax as well.

As Larry suggested, the integrated chipset, a variation of the Centrino platform is where Intel comes in and this will be a key component in the adoption of mobile WiMax.

I am quite bullish on the prospects of WiMax in 2007 and have added both Airspan (a little early) and Alvarion to my personal portfolio and the SINLetter model portfolio.

2007 Jan 07 03:41 PM