Atheros, Know Thine Enemies (ATHR, BRCM, MRVL)

Wi-Fi chip maker Atheros has done well by anyone’s standards:

Doubled its stock price in the past three months

Maintained 100% share in enterprise access points (APs)

Encroached on Broadcom and Marvell in the consumer space

Cut a deal with Qualcomm for the mobile phone market

Conspired (er…I mean partnered) with Intel, Marvell, and Broadcom to steal 802.11n away from Airgo

Not bad. But the competition doesn’t likes it when the other guy is doing this well. In the fishing business, you never tell the competition how much you landed and where you caught them. If you do, the rest of the fleet will be crawling all over you like ants on a dead cookie. Ah yes, but these are public companies. They must report — and now everybody knows.

So who will be breathing down Atheros’ neck in the near future? My pick is Marvell. Why? Mostly, because others are stumbling.

1. Airgo is still mourning its loss to the 802.11n consortium and is rushing to spin up silicon that will match the standard. To date, the company has yet to break out of the low margin consumer Wi-Fi space, nor has it landed any business as an embedded solution for laptops or other devices. Without more wins, Airgo’s only exit is acquisition.

2. Broadcom has lost its sting. A notably aggressive general manager and much of his team took flight in the fall of ‘05. From the outside looking in, the Wi-Fi chip division seems to have settled in for a long winters nap. Broadcom could acquire Airgo to get its groove back.

What makes Marvell so dangerous in the Wi-Fi chip business? It has another business. The company continues to show excellent results in the Gigabit Ethernet enterprise market which represents 70% of its revenue. Wi-Fi is currently lumped in under consumer which is the remainder of Marvell’s business. For the moment, dropping its drawers every time it gets into a Wi-Fi scuffle with Atheros won’t have a big impact on Marvell’s margins.

Despite its public statements, and its vaunted power saving features, Marvell is largely competing on price in the embedded market for laptops, digital cameras, music devices, and printers. Atheros needs better power saving features and a very large — and visible — win in the high volume mobile handset market to prove it can match Marvell’s prowess in the embedded space.

ATHR 1-yr Chart