Intersil bails out of WLAN chips

Intersil is bailing out of the wireless LAN chip business, even though the chipmaker still holds the dominant share of that market.

The Milpitas, Calif., silicon vendor this week announced that it will sell its wireless networking product group to GlobespanVirata, a fabless integrated circuit company in Red Bank, N.J. GlobespanVirata’s products are widely used in DSL products used on customer premises and in Central Offices.

Intersil has just over 50% of the WLAN chip market, by revenue, according to IDC. It’s wireless group reported revenue of about $49 million in the first quarter of 2003.  Agere is second in the WLAN chip market with just under 25% of total revenue. A handfull of other vendors, including much smaller but very ambitious rivals such as Atheros Communications and Broadcom, account for the rest of the market.

One of the rivals, with a miniscule share so far but with even bigger ambitions, is Intel, which launched its Centrino wireless chip line in March 2003. Centrino is intended to become a standard component of a whole host of computer and consumer products, in the future these products will ship with WLAN connectivity built-in.

Prices of WLAN chips continue to plunge. TechKnowledge Strategies, a market research company, in May reported that the average price for an 802.11b chipset was $16.06 in 2002, but is expected to drop to $6.61 by the end of 2003. The report predicts overall revenue from WLAN chips will decline in 2003, to $340.2 million from $368.7 million in 2002, even as the number of chips soars to 41.3 million from 22.5 million last year.

According to an Intersil statement, the sale of the WLAN chip business, including its PRISM chip technology, is part of the company’s strategy to focus on high performance analog integrated circuits. That product group grew 10% in the first half of 2003 compared to the same period in 2002, and is nearing $500 million in annual revenue, according to Intersil.

Besides the PRISM products and intellectual property, GlobespanVirata will get design, marketing, sales, applications teams and support staff. About 300 people are currently in the Intersil group.

Intersil will get $250 million in cash, and about $115 million in GlobespanVirata stock. Intersil will also hang on to the wireless group’s accounts receivable and accounts payable, and expects to collect another $20 million or so in additional cash as a result.