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Bluetooth Is Finally Ready to Bite

After failing to live up to unrealistic expectations, Bluetooth appears ready to make its mark in the wireless networking world, according to a new study.

Research by Allied Business Intelligence (ABI), an Oyster Bay, N.Y., consulting firm, reports the Bluetooth market is poised for solid growth this year, with more explosive expansion to come in the next five years.

In 2002, ABI expects Bluetooth chipset shipments to more than triple from last year, reaching 33.8 million. That pales in comparison to the forecast for the market in 2007, when ABI forecasts 1.1 billion chipsets will ship and generate $2.54 billion of revenues.

Bluetooth is a frequency-hopping scheme that allows data and voice transfer, on the unused 2.45 GHz frequency band, at a range of about 10 meters. The technology allows the interconnection of computers to any number of wireless devices, including cell phones, pagers, and PDAs.

"There was a tremendous amount of unrealistic expectations," said Navin Sabharwal, ABI's director or residential and networking technologies. " When Bluetooth was conceived, it was going to be a cable-replacement technology. What happened is when the Bluetooth movement got going, everyone looked at this and said we're looking for a wireless connect solution."

"It got distorted and people began believe the hype," he added.

ABI pegs the growth of the cell-phone market to be key to Bluetooth's near-term growth, since mobile phones will account for about two-thirds of the 27.8 million Bluetooth devices that will ship this year.

Sabharwal said growth would be helped by a number of factors, First, the Bluetooth industry has resolved many of its interoperability issues with the Bluetooth 1.1 specification. Second, chipset prices have begun to fall to where many Bluetooth boosters had expected them years ago. Sabharwal estimates chipsets will sell for about $7 this year, falling to $5 next year, and even further as production ramps up in the following years. Finally, handset sales have slowed, leaving demand for Bluetooth chips short of earlier bullish projections. Sabharwal said he expects handset sales growth to pick up shortly, although not at the blistering pace of 1998 and 1999.

In the future, ABI sees the Bluetooth device market diversifying as early as next year, with increased shipments of PDAs, cordless headsets, and notebooks. However, ABI cautions the Bluetooth will not be the wireless elixir it was once billed.

"What we're starting to see is Bluetooth can't be everything to everybody," Sabharwal said, pointing to some instances where Wi-Fi or even ultra wideband technology might work better.

The Bluetooth chipset market remains crowded with 30 manufacturers, including Cambridge Silicon Radio, Infineon Technologies, Texas Instruments, and Ericcson. Sabharwal said he expects that number to quickly winnow to five or six market leaders, which will inevitably be the traditional chipmakers.

"A lot of the guys who will fade out over the next year will be some of the smaller startups," he said.