News of Ralink being targeted for acquisition has never stopped ever since the company's preparation to go public to its being actually listed on the Taiwan Stock Exchange (TSE). Some believe Taiwan-based WLAN chipmakers are unable to operate independently as they will be eventually face tough tests resulting from stagnant growth or sliding profitability. And it will be a great relief for investors if a target WLAN chipmaker is sold to a "Rich Dad." Others disagree, believing that those ill-fated wireless IC design houses were wiped out of the market due to improper management or heavy losses in patent lawsuits. They will continue to call the shot if the stages they built up are still there. So a sell-out is unnecessary for Ralink.

However, the latest rumor comes amid some interesting development in the stock market. Although Ralink saw its gross margin drop to below 40% with an EPS below NT$1 in the fourth quarter of 2010, its share prices have continued to hover around NT$100 (US$3.45) and foreign institutional investors have not released their holdings in Ralink. Why?

The number of wireless chip vendors is the second highest among all IC design houses set up in Taiwan after 2000, trailing only analog IC designers. With the exception of the successful listing of Ralink, other wireless chip makers have either been acquired or become affiliates of "Rich Dads."

For example, InProComm was acquired by MediaTek in 2005; Tamarack Microelectronics merged with IC Plus in 2002; and IC Plus then acquired Bluetooth chipmaker Conwise Technology in 2009. Again, MediaTek took up a 31.55% stake in Airoha Technology from BenQ in late 2006. The development of Taiwan's wireless chip industry has been a relentless consolidation process.

The consolidation may have been related to the nature of WLAN and Bluetooth chips, which are classified as peripheral chips, with their sales experiencing ups and downs in line with the business climate. Additionally, fierce competition within the wireless industry has also discouraged chip vendors from making long-term commitment.

The scenario for the international wireless industry is also similar, with the number of handset chipset vendors now being reduced to 4-5 from over 10 previously. Infineon Technologies, the sole handset chip vendor for Apple's iPhones, was even forced to sell its wireless business to Intel.

For the WLAN chip segment, the leading vendors such as Broadcom and Marvell were unable to cushion itself from fierce competition and pricing within the WLAN chip industry until they successfully diversified their product lines to include handset, multimedia and hard drive controller chips. The sale of WLAN chipmaker Atheros Communications to Qualcomm is no surprise.

It's anyone's guess how Ralink would respond if a good buyer comes knocking with an attractive offer. Ralink's corporate shareholders, including Asustek Computer, Quanta Computer, Gemtek Technology and United Microelectronics Corporation (UMC) plus foreign institutional investors who hold 20% of Ralinks's outstanding shares, might consider taking profits by releasing their holdings.

The answer might come out in the first half of 2011 whether Ralink will become the second Taiwan-based networking chipmaker to be acquired by a foreign investor after ADMtek was acquired by Infineon in 2004. However, due to a high degree of overlap of product lines, channel partners and even clients between Broadcom and Ralink, it's questionable if a Broadcom-Ralink merger could achieve the same effect as the integration between Qualcomm and Atheros.

It will be a setback, probably for a number of years, for the development of Taiwan's wireless chip industry if the management of Ralink decides to call it quits.