Long Term Evolution vs. WiMax: The 4G Technology Showdown

by Tony D'Altorio

Long Term Evolution vs. WiMax: The 4G Technology Showdown

by Tony Daltorio, Investment U Research

Monday, August 23, 2010

About 30 years ago, VHS and Betamax dueled to rule the video recording technology world.

Today, those two technologies never existed for all that many consumers now. Instead, the big technology debate is all about fourth generation mobile phone networks (4G).

In the ring this time are Long Term Evolution (LTE) and WiMax. But it's already a late round and the winner seems clear.

So now it's only left to be seen how to take advantage...

LTE Technology vs. Wimax

Most industry insiders don't see a clear advantage in either LTE's technology or WiMax's. Both offer fast data speeds up to 10 megabits per second.

WiMax hit the technology market a little earlier than LTE, and charges a bit less as well. Yet the world's largest telecommunications equipment companies have backed LTE.

That includes Alcatel-Lucent (NYSE: ALU), Nokia ADR (NYSE: NOK), and Ericsson ADR (Nasdaq: ERIC) and Sony ADR (NYSE: SNE) joint venture, Sony Ericcson.

They want the technology with the biggest selection of devices to offer their customers.

Phil Kendall, wireless analysts at research firm Strategy Analytics, described the choice this way: "In terms of the underlying technology, there is not a lot of difference between the two standards. LTE's advantage comes from economies of scale."

So assuming nothing changes in WiMax's favor, it's good to know which companies will lose out big from the outcome...

Intel's Bad 4G Bet

Semiconductor manufacturing giant Intel (Nasdaq: INTC) heavily backed WiMax. So it now faces a major setback in the world of 4G.

Most mobile phone network operators have already opted for LTE. But even more painful is how even those on the other side are now rethinking their bets.

Intel, for one, has already sunk at least $1.2 billion into supporting WiMax operators such as Clearwire (Nasdaq: CLWR). Yet Sprint (NYSE: S), Clearwire's biggest investor, mentioned potentially using LTE instead last month.

And while Intel continues talking up WiMax, it appears to be strategically backing away.

Jim McGregor, an analyst at research group In-Stat, has taken note of that. "Intel at one point was 'WiMax, WiMax, WiMax.' Now they're more like - 'well, we're going to end up supporting both technologies and there might be the potential for the two standards to merge eventually.'"

Also, Intel recently closed its WiMax program office in Taiwan. However, it insists that it isn't dropping the technology...

Another Big Loser in the 4G Showdown...

This brings up another loser in the 4G showdown: Taiwan.

That government bet big on WiMax, spending about $200 million promoting and developing the technology. It even encouraged building WiMax telecom networks by granting six licenses in 2007.

For Taiwan, it's not just a technical issue there. Its companies make 80% of the world's WiMax supplies, from chips and peripheral equipment to routers.

According to Taiwan's Ministry of Economic Affairs, shipments of those devices should more than double from 3.1 million last year to 8.9 million in 2011.

Hence the reason that JT Wang, the chairman of Taiwan tech giant Acer, recently said he was "seriously concerned" about Intel's decision to close its WiMax office there.

That could be the understatement of the decade.

Fortunately for both Taiwan and Intel, WiMax technology probably won't disappear altogether.

Many emerging markets have little telecommunications infrastructure available. So WiMax can play a role as a cost-effective alternative to fixed wireless connections.

It could also become a behind-the-scenes wholesale support network for LTE telecommunications operators, handling data in crowded "hot spots" where network operators can't meet demand. Though even then, WiMax would end up with just a small portion of the 4G pie.

Intel's size might protect it from the worst of its bad bet. Taiwanese technology companies, on the other hand, will find it much harder to cope.

Good investing,

Tony Daltorio

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