Bluetooth: More myth than substance

Bluetooth garnered much attention at last week's CeBIT trade show, with laptops, cell phones and all manner of other gadgets on display that made use of the short-range wireless technology. But one factor that could kill the Bluetooth buzz has gone largely overlooked, according to analysts and industry insiders: if prices for Bluetooth chips don't come down, most people won't get their hands on the technology for a good while yet.

For Bluetooth to become widely used, companies that make chips for the technology must reduce the cost of their products to a level that's reasonable for makers of mass market electronics products. At the same time, until those gadget makers start to order Bluetooth chips in high volume, prices will remain high. The catch-22 situation could keep Bluetooth on the back burner until 2003 or even 2004, according to some analysts.

"At its current cost, Bluetooth is not going to work its way into the mass markets," said Ben Thompson, senior analyst at Gartner Group Inc., reflecting the view of several analysts and industry executives interviewed for this story.

The ideal price point for the set of components needed to bring Bluetooth capabilities to a product -- typically a processor, radio transmitter, antenna and flash memory -- is around $5, Thompson and other analysts said. Most Bluetooth chip sets on the market today start at $10 to $15 -- a substantial difference for device makers that produce low-margin goods in high volumes.

For users, the stakes are high. The wireless technology promises to free them from the tangled web of cables used to connect devices at home and at work. A PC with Bluetooth, for example, could send print jobs to a printer across the room over the airwaves. Perhaps more exciting, Bluetooth could be used to connect cell phones to laptops and handheld computers, turning phones into convenient wireless modems. In a more futuristic scenario, a Bluetooth shoe might connect to a jogger's watch, providing information about the runner's speed and distance traveled.

Those benefits won't become widespread any time soon if the price for specialized chips used in Bluetooth gadgets doesn't come down. Some analysts said this fact has been overlooked by companies seeking to promote Bluetooth as the next big thing.

"Bluetooth is one of the most over-hyped technologies of the century," said Phillip Redman, research analyst at Gartner, who agreed that prices must be slashed for Bluetooth to be successful.

Leading chip makers at CeBIT said they each expect to ship, on average, only about 250,000 Bluetooth chips to customers this year. Philips Semiconductors NV sells a device to L.M. Ericsson Telephone Co. for use in cell phones and headsets, and claimed it shipped 1 million Bluetooth chips last year, according to Philips spokeswoman Alexandra van Werkhoven. Gartner's Thompson was skeptical of that figure, saying it exceeds his expectations for most companies.

Chip makers are taking different approaches to designing affordable silicon for Bluetooth products. Since Bluetooth requires both radio transmission technology and a processor for computation, vendors including Ericsson and Toshiba Corp. are designing products that make use of two separate chips. This would allow phone makers, for example, to use only the Bluetooth transmission chip and rely on the cell phone's existing processor for the computing capabilities, helping to reduce costs.

That approach could be beneficial in the short term, but in the longer term designing more integrated Bluetooth chips will be more affordable and better suited to a wider range of products, analysts said. To boot, most vendors are planning a single-chip solution that combines the radio transmitter, memory functions, and other components on a single piece of silicon, which they say will be more flexible and affordable.

One such company is Cambridge Silicon Radio Ltd. (CSR), based in Cambridge, England, which hopes to bring the Bluetooth myth closer to reality. The wireless chip maker has garnered investments from Compaq Computer Corp., Intel Corp., Sony Corp. and chip maker ARM Ltd.

"The single chip promises to offer lower costs," Gartner's Redman said, adding that CSR stands a good chance of reaching the $5 mark before its competitors because it is designing a smaller, more flexible product. Ericsson's Bluetooth module, for example, is larger than a book of matches, while CSR will make a single-chip product less than a centimeter across.

Samsung Electronics Co. Ltd., Motorola Inc., National Semiconductor Corp., Qualcomm Inc. and Texas Instruments are also developing single-chip Bluetooth products, but analysts said those products aren't as integrated or as far along as CSR's product.

Indeed, CSR already has already developed a chip that's being used in a Bluetooth module offered by Alps Electric Co. Ltd. Sony uses the Alps product in some of its higher-end Vaio notebooks, making it one of the first Bluetooth products available in a consumer device. Unlike most early implementations of Bluetooth, the module is included inside the notebook rather than being offered as a PC card or other kind of add-on product.

CSR hopes to start selling a more advanced Bluetooth chip later this year that will integrate all of the components needed to Bluetooth-enable a device. It said the chip has the potential to be sold at the $5 mark -- but only when it can secure orders for tens of millions of chips, which it doesn't expect to happen until 2003, said Matthew Phillips, CSR vice president of strategic marketing.

Like many chip start-ups, CSR won't manufacture its own products. Instead, the company will enlist the world's largest contract manufacturer, Taiwan Semiconductor Manufacturing Co. Ltd., giving it access to the latest chip-making techniques.

Gartner Group estimates that Bluetooth chip prices average between $8 and $9 this year, although its estimate doesn't include add-on components needed to fully enable a Bluetooth product. The company expects to see a fully integrated product that could be sold for $5 a year from now, but only if the volume of orders is sufficient. Bluetooth chip makers could generate about $293 million in revenues during 2001, the company estimates.

Cell phones will likely be the biggest driver for the early adoption of Bluetooth, thanks largely to their widespread use and ability to double as wireless modems, Gartner's Thompson said. If the market for Bluetooth chips in cell phones takes off, chip makers may receive sufficient orders to drive prices down.

While catch-22s typically continue ad infinitum, consumers can do their part to help put an end to the Bluetooth conundrum. If companies see enough user interest in a world without wires, Bluetooth could be widely available in cell phones, printers, laptops and even shoes by 2003 or 2004.

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