Where the Wi-Fi Money Is

High-end chipmakers Broadcom(BRCM Quote) and Intersil(ISIL Quote) are shipping wi-fi chipsets today based on a higher-speed standard than Intel's -- 802.11a and 802.11g, to get technical -- but the effort isn't expected to do them much good because the extra oomph is practically indiscernible in today's applications. Despite becoming the high-end wi-fi leader, Broadcom shares have tumbled 68% in the past year. And despite being first and holding several key wi-fi patents, Intersil shares have fallen 53% in the past year. Unlike Intel, neither is profitable.

Eric Gomberg, a chip analyst at Thomas Weisel Partners, points out that investors now actually penalize Intersil for having a wi-fi division. "I don't think that's fair, but that's how Wall Street is treating the stock," he said. "In a bull market, having a dominant position in a hot technology that could be a killer app is a huge plus. Today, the Street says price pressure will only worsen from here, making wireless chips a profitless growth engine." Gomberg has gone so far as to recommend Intersil spin off its WLAN business so that investors can focus on its much more profitable analog chip business.

If there's no money to be made in the chips that go into the consumer products, how about the big wireless transmitters, amplifiers, routers and antennas?

Sorry, no luck there, either. In a just-published research report on wi-fi in the hospitality industry, Yunker said most hotels are buying Cisco products for their reliability and relatively strong software-based security. The equipment's not expensive, so why bother messing with a lesser brand? A hotel can install wi-fi in 175 rooms for around $30,000, about the cost of a single full-page ad in a metro newspaper.

The just-buy-Cisco movement -- at hotels and elsewhere -- has pushed out virtually all other vendors. Agere Systems(AGR.A Quote), a former powerhouse in the business, sold its wireless LAN business to Proxim(PROX Quote), which announced last month that it had lost big hunks of market share to Cisco. Proxim has responded to its loss by cutting prices by a third -- never a good strategy for long-term survival. Proxim, mentioned by every analyst as one of Cisco's few competitors in the enterprise space, has seen its shares sink 83% in the past year to 46 cents. (Bargain hunters beware: It is swiftly running out of cash.)