On Tuesday, Conexant Systems Inc. preannounced lower earnings for the cureent quarter, based on an influx of low-cost WiFi chips produced by Taiwan manufacturers. Conexant executives said that the price of 802.11g components is now on the order of 802.11b chips in certain markets.

Although the WiFi market has been continually remade as new 802.11 standards have been finalized, a sense of stability has emerged now that the 802.11g standard has been finalized and products have entered the market. The most recent addition, 802.11i, will update the security protocols used inside the 802.11 specification beginning this September, when the first products are certified for compatibility.

In the December timeframe a number of Taiwan-based competitors began fabricating extremely low-priced 802.11g chips, which they then marketed to the ODMs which design the routers and switches shipped as products from companies like D-Link or Linksys, according to Conexant chief executive Armando Geday, who hosted a conference call with analysts on Tuesday.

"These additional competitors exacerbated pricing pressure in a market already characterized by severe price competition," Geday said in a statement, which he read during the call. "Also, channel inventory of our customers' products increased as new competitors' products, based on low-priced Taiwanese solutions, caused our customers to lose market share.

"This new competitive landscape has emerged at a critical juncture in the evolution of the wireless LAN market as the transition from the 11-megabit per second 802.11b standard to the 54-megabit per second 802.11g standard takes place," Geday added. "The orderly and fairly predictable progress of this transition in which we participated last quarter greatly accelerated in the third fiscal quarter as a result of these new low-cost chip entrants, which caused 802.11g products to be priced at levels comparable to 802.11b products."

The pricing pressures emerged this quarter, Geday said, ambushing Conexant. In December, the company cut prices and was able to retain its market share from the new entrants in the 35 percent to 40 percent range, he said. At the time, customers were leery about choosing the new, untested chips.

That changed during the March quarter, executives said. Conexant did not even have a chance to offer to lower its prices; its customers' competition began embracing the new chips, undercutting the prices of Conexant's own customers. That, in turn, meant that Conexant's customers halted their orders, reducing the amount of WiFi chips Conexant could sell.

Unit volume dropped between 20 and 30 percent, executives said, and the average selling price of WiFi components dropped by between 20 and 30 percent. Over half of the units sold were 802.11g chips, executives said. Although WLAN chip shipments only make up about 12 to15 percent of the company's business, the price drops will sting the company's bottom line.

Conexant now expects total third fiscal quarter revenues to be between $265 million and $270 million, compared to an April forecast of revenues between $308 million and $323 million.

There is hope for established WiFi suppliers, however. If the horde of upstarts can't demonstrate the quality of the established suppliers, customers will switch back, Geday said. "Once they hit the shelves if they have a 10 percent return rate that price level will not be sustainable," he said.