Intel, Qualcomm Lead Funding For Area's Wireless Companies
By MICHAEL THURESSON
The sponsorship of major technology players like Intel Corp. and Qualcomm Inc. is keeping investments flowing to a host of Southern California wireless start-ups, despite a downbeat market for venture capital investments.
New products like Intel's Centrino chip, which was released this month, are helping spur investment of more than $700 million last year in 67 communications ventures housed between San Diego and Santa Barbara, according to Growthink Research in Santa Monica.
This nearly doubled the total regional investment in the next largest venture investment sector, business software and services.
Southern California is considered at the epicenter of wireless communications in the U.S. San Diego tends to have stronger infrastructure players, while L.A. firms reflect the region's media bent.
Large technology players are counting on growth in both of these areas. They're expecting a conversion of many wire-tethered services, such as laptop Internet access, to free-floating formats.
While venture capital investment is down across the board since 2000, the wireless sector is maintaining its market share. "Wireless is one of the few bright spots in technology right now," said Michael King, senior industry analyst for Gartner Dataquest's telecommunications and networking group.
Wireless industry leaders, rather than venture capital firms, have been the source of many of these investments. San Diego-based Qualcomm is one of the leading suppliers of chipsets for cellular phones. It has been investing in companies that develop technology that supports its products.
Los Angeles-based Jamdat Mobile Inc. raised $8 million from Qualcomm in October. Jamdat is a developer of wireless games for Verizon Communications Inc.'s wireless unit, which is a major Qualcomm customer.
Intel, closely associated with personal computers, has become a force in wireless venture investment as well. The chipmaker's investment unit, Intel Capital, announced earlier this year that it would invest an additional $150 million in wireless networking companies. In 2002, its investments totaled $200 million altogether. Intel Capital currently has 26 wireless networking companies listed in its portfolio.
Westlake Village-based Nomadix Inc., a maker of billing and security software for public wireless Internet service providers, closed a $16 million round of financing that included Intel Capital last October.
The Santa Clara-based chip manufacturer announced the Centrino line of wireless networking chips for laptops earlier this month a sign that the company is using investments in this area to push its own products. Intel did the same thing when it introduced its Pentium microprocessors in the 1990s, priming demand for computer graphics functions, now ubiquitous, that the powerful new chips made possible.
This time, Intel claims that within three years, most laptop computers will be able to access the Internet through wireless "hotspots" that are being set up across the country. Instead of telephone lines, these computers would need only a built-in wireless modem.
For the targets of these investments, there are potential problems with relying on large companies instead of venture capital firms.
Because the investments are more focused on technology alliances, they may have trouble developing into profitable businesses, said Michael Woronoff, senior principal at Shelter Capital Partners, a Los Angeles venture capital firm.
The two largest Southern California technology investments of 2002 were made in companies that make wireless networking processors. Newport Beach-based Jazz Semiconductor Inc. drew a $60 million investment, while San Diego-based Magis Networks Inc. raised $48 million.
The momentum appears to have carried into the second half of 2002 and early 2003.
Signal Hill-based XCom Wireless, which makes wireless signal routers, raised $2.5 million in financing after relying on government grants since its inception in 2000.
TransDimension Inc., which makes software that connects mobile devices to consumer electronics products, closed a $10 million round of financing this month, an investment led by GKM Ventures, a Los Angeles venture capital firm.
TransDimension, based in Irvine, aims to straddle the wired and wireless worlds by installing connectors on mobile devices that would allow them to plug into printers, MP3 players and DVD players, for example.
The company's product, called On-the-Go, has been licensed to several major electronics companies, including Qualcomm. A potential use would be connecting a digital camera to a DVD player for showing photos on a TV set, said David Murray, vice president of marketing at TransDimension.
In all sectors, companies that have a chance to draw federal dollars earmarked for homeland security have gained attention from investors since 9/11. That's true in the wireless sector as well.
Canoga Park-based E Team Inc., which makes a Web-based disaster management tool for government agencies, raised $5 million in March, 2002 from Candle Corp., an IT consulting company based in El Segundo, according to sources familiar with the deal.
The company and its investors plan on forming a partnership with San Diego-based Voyager Systems Inc., a company providing wireless applications for the government, said John Morris, a partner at GKM Ventures, who led a $3 million investment in E Team in 2000.
Voyager Systems raised $7.5 million in October from various investors, including GKM Ventures.
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