Ultra-Wideband: On the Ropes

WiQuest's failure and Intel's abandonment of the UWB market demonstrate the perils of venture investing in new chip technologies

By Stacey Higginbotham

Five years ago, the promise of a new networking technology known as ultra-wideband was a living room without wires, where DVD players, set-top boxes, and video accessories could connect with TVs over the air. Ultra-wideband (UWB) is a wireless personal area networking technology that can transmit large amounts of data over short distances using little power. Over time, its promise expanded from the living room to the home office, as backers used ultra-wideband as the basis for Wireless USB standard.

So far, this dream hasn't materialized, and the technology has failed to find a mass market. Today, we still have wires in both the office and living room, and a host of competing standards has whittled away at UWB's opportunity. In the past week we've seen players exit the UWB business, and Intel announced it has halted research on the technology. For venture firms that have invested nearly $400 million in the UWB companies, the fate of ultra-wideband offers a cautionary tale about the perils of betting on semiconductor standards.

On Oct. 31, five-year-old UWB chipmaker WiQuest shut its doors when it was unable to raise more money or find a buyer for its technology. That led to heralds of doom for ultra-wideband, with analysts and media blaming long-delayed product launches, expensive chips, and a hostile regulatory environment. This week, Intel said it had discontinued its UWB efforts, saying the market wasn't worth its R&D program. If the technology somehow manages to revive, Intel says it could buy up one of the six remaining startups in the field.

Commoditizing the Chips

The plan makes sense for Intel, because UWB, like Wi-Fi, Bluetooth, and WiMAX, is a standardized technology. That means any UWB chipmaker will have the basic set of characteristics Intel needs to play in the market. Standards are a double-edged sword for venture investors. Standards are good for consumers and electronics makers because they enable multiple devices from different vendors to work together. Any Wi-Fi router should talk to any Wi-Fi chip in a computer, phone, or camera. This helps drive consumer adoption and can lead to the creation of a huge market. Venture capital firms love this, because if a standard takes off, it can build a company, such as Broadcom or Atheros, that can generate rapid returns in a relatively short period of time.

On the other hand, chipmakers that adhere to the standard can do little to differentiate their chips, and the effective commoditization of the product makes it easy to switch vendors. This happened to the Wi-Fi standard back in 2000-2002, when venture firms put more than $2 billion (BusinessWeek.com, 5/22/03) into more than 40 Wi-Fi companies, only to see a few rise to the top. There is also the risk, inherent in all technologies, that the market won't adopt it. This seems to be what's happening to UWB.

Instead of seeing the technology die out, Eric Broockman, chief executive of UWB chipmaker Alereon, argues that Intel's retreat from the technology and WiQuest's failure foreshadow a shakeup similar to what happened to the Wi-Fi market. "Typically in this type of semiconductor investing, there is a win-place-show mentality," Broockman says. "One wins big, one gets acquired for a good price, one gets acquired for a not-so-good price, and everyone else goes away. That process in UWB is being accelerated by the current economic downturn."