Eleven Picks for Wi-Fi Greatness

Several readers, including Jay Taft, recommended a look at WaveRider Communications(WAVC Quote) for its wide array of last-mile fixed wireless solutions that may benefit from an extension of wi-fi into rural communities. But I stay away from penny stocks and won't make an exception in this case.

Don't Forget Traditional Wi-Fi Players

Eric Glaas, a telecommunications industry consultant, said he thinks wi-fi will run into trouble over quality-of-service issues. But he believes that if there is a winner in the arena, it's likely to be the Baby Bells and other carriers that "figure out that consumers would be willing to pay a small incremental fee for broadband ubiquity."

Glaas cautions that wi-fi equipment manufacturers are likely to see a big increase in business, but will be plagued by competitive price pressures that will make earnings hard to generate consistently. The problem is that the technology is standards-based, so it's hard for any individual manufacturer to build a standout device that can win a disproportionate share of profits.

Reader Jerry LeVan suggested investors take a fresh look at Proxim(PROX Quote). This was a name attached to one of the original dot-com-era wireless plays. It was bought by competitor Western Multiplex, which snuggled into the name like a hermit crab, and then the combined company bought a large wi-fi products division from telecom giant Agere Systems(AGR.A Quote).

The combined company now manufacturers access points, wi-fi cards, residential gateways and other devices under the Orinoco brand name. Proxim is going for less than 90 cents, which runs afoul of my penny-stock rule. And small companies that merge generally go through long, hard transition periods.

Yet it does have more than $110 million in annual sales and is trading at less than half of book value, with a price-to-sales ratio of a mere 0.82. Debt is not out of control, and it has some major value players among its institutional holders. Speculators with patience might find this company worth a look, but I won't put it on my watch list. Execution and liquidity risks are too great.

Reader George Solis asked me to "cut down on the homey trivia on my columns and get to the point a little quicker." So after I note that my daughter Janie turned 8 last weekend, boosting the prospects for Barbie maker Mattel(MAT Quote), I must note that he recommended that wi-fi investors not overlook traditional wireless-chip leaders like RF Micro Devices(RFMD Quote), as it has a major stake in the local-area network business.

That's an apt point, and you could add Maxim Integrated Products(MXIM Quote), Broadcom(BRCM Quote), Intersil(ISIL Quote) and Texas Instruments(TXN Quote) to the list of the technology's key component makers. I'll add them all to our wi-fi watch list with a big asterisk next to Intersil as the intellectual-property leader.