NEW YORK-Investors looking for successful Bluetooth market plays will have to wait till late this year, but the outlook for the technology will grow brighter during the next several years, said Johan Strandberg, senior wireless equipment analyst for Stockholm-based Deutsche Bank-Scandinavia.
“There are significant Bluetooth business opportunities, but the losses are still mounting and development costs are escalating. We will see more of this. Not until later this year can we hope to see some revenues,” he said last week at the Capital Markets Sweden Institutional Investor Seminar on Bluetooth here.
“There are as yet a very limited number of companies with a very significant exposure to Bluetooth because the market has not yet taken off. And the market capitalization of these companies has deteriorated significantly in the last 12 months, as with all technology stocks.”
Original equipment manufacturers with a notable involvement in Bluetooth include Alcatel Alsthom, C Technologies, L.M. Ericsson, Nokia Corp., Philips and Siemens. Except for smaller companies like C Technologies, “Bluetooth won’t be a reason to buy OEM stocks,” Strandberg said.
Philips, Infineon and STM are involved in Bluetooth on the semiconductor side, “and Bluetooth will be a contributor to their revenue and profit growth for the next several years,” he said.
Among developers of software platforms for the Bluetooth environment, AU-System, Enea, Signa and Telelogic are significant players. AU-System is the only company engaged in any aspect of Bluetooth technology on which Deutsche Bank currently has a “buy” rating, Strandberg said. AU-System has signed six Bluetooth deals so far, including contracts with Seiko for watches, with Clarion for car stereos, with Mobilsys for personal digital assistants and with Philips for consumer products, he added.
Several privately held start-up companies also bear watching, in Deutsche Bank’s view. These include: Spirea, a fab-less semiconductor maker; Bluesolid, a developer of platforms for Bluetooth services and of location applications managers; and Pocit Labs, a software company engaged in development of intelligent peer-to-peer network clients for handheld devices.
Rocky stock market conditions likely will delay the entry of these companies into the public capital markets for another year, however. Furthermore, platform developers like Bluesolid also are likely to face stiff competition from established players like Nokia, which Deutsche Bank believes will enter this line of business.
“As with many other technologies, there has been significant hype around Bluetooth, which has been reflected in share prices, and delays of about a year when it comes to product launches,” Strandberg said.
“There have been standardization delays and interoperability problems with Version 1.0. A lot of the companies in the S.I.G. are reluctant to develop products now because they see a new standard coming.”
Ericsson, the Bluetooth originator, joined forces in 1998 with Intel Corp., IBM Corp., Toshiba Corp. and Nokia as founding members of the Bluetooth Special Interest Group. The SIG now has 1,500 corporate members, a significant number of which, like Shell Oil, are engaged in industries outside telecommunications.
R.E. “Skip” Bryan, global area manager of the Americas for Ericsson Technology Licensing Co., Research Triangle Park, N.C., pleaded guilty as charged to disseminating hype about Bluetooth. In the long run, however, he said he believes the technology will live up to most of the promises in its advanced billing.
Version 1.1 of the Bluetooth specifications was released in March and will “iron out some of the errata discovered in testing Version 1.0,” he said.
Version 2.0, with specifications targeted for release near the end of this year, will add new profiles to Bluetooth while retaining backward compatibility to Version 1.1. These profiles will be dedicated to functions including: printing files; transferring digital photos from cameras to cell phones and laptop computers; location positioning; accelerated connection rates for multimedia downloads, as in video file transfers from gas station pumps; and coexistence strategies to reduce the interference between Bluetooth and 802.11B, which share the same unlicensed spectrum band.
Of great significance for the telecommunications industry, Bluetooth specifications already contain capabilities to enable a blurring of distinctions between mobile wireless and fixed landline telephony, Bryan said. An existing profile allows a mobile wireless phone to become a cordless wireline phone.
The embedding of Bluetooth technology in communications devices can allow “wireless voice to be delivered via an access point to a wireline network,” he said.
“This is one of those disruptive opportunities for existing wireless network operators or for new carriers or wireline carriers without cellular licenses to come in and capture markets.”
Like Bluetooth, Wireless Application Protocol also has taken a fair number of hits to its prestige of late, largely because of “some bad applications that aren’t worth anything,” Bryan said. However, WAP over Bluetooth in local area network environments offers opportunities for delivery of high-speed packet data services and execution of wireless point-of-sale transactions.
With those possibilities in mind, Ericsson plans by summer to debut commercially in the United States its R520M phone, which has WAP, GPRS and Bluetooth capabilities. The handset maker also plans to begin widespread sale of two additional models with these functions later this year.
“Bluetooth at the point of sale could be the first step toward the fourth generation of ubiquitous computing,” Bryan he said.
Deutsche Bank does not expect worldwide sales of Bluetooth-enabled wireless communications devices to exceed 10 million units this year, Strandberg said. However, in 2005 when “virtually all phones sold will have a Bluetooth connection,” the investment bank projects that 1.2 billion such units sold will have this capability.
“The $5 figure has been seen as a magic number, but I don’t think so,” Strandberg said, referring to the cost to original equipment manufacturers of embedding Bluetooth in each device.
“When you get down significantly below $5, there is a whole range of new business opportunities that could provide significant volume … Toward 2004-2005, there will be many industrial applications, like intelligent ball bearings in factories that signal their repair needs when they start to wear out.”
