The increase in bit rates and proliferation of ways to move data wirelessly have multiplied the complexity of the wireless software and equipment markets. In most sub-sectors, consolidation is inevitable as there are simply too many companies chasing too few customers. However, there are very few well-recognized leaders in many sub-sectors, particularly in wireless application software. Vendors with strong financial resources are well-positioned to build substantial value by conducting M&A in a strategically-focused manner. Pharus Advisors understands the trends in the wireless market and is helping clients navigate the market's complexities to be one of the winners of what will be a large and quickly-growing market for many years to come.

Key trends affecting companies and transactions include:

• The Transition to 3G Technologies: Many venture-backed companies were depending on carriers to roll out 3G services, but glitches and carriers' reluctance to invest in upgraded equipment have severely slowed the transition. However, we believe true 3G services will be eventually introduced, offering consumers substantially improved data capabilities. Companies in a strong financial position will have a significant advantage and should take the opportunity to consolidate markets while assets are relatively inexpensive.
• Smarter Handsets: The ability of companies to drastically reduce component prices is providing customers with devices that have the processing power of a personal computer of ten years ago.
• The Explosion of SMS: The success of SMS has had a profound impact on the wireless market in causing all involved to rethink how applications and services will be delivered. SMS solutions vendors are in a strong position to serve as consolidators.
• The Increasing Use of Industry Standards. Products providing wireless services have been filled with proprietary protocols, which has allowed a large number of venture backed companies to succeed. However, equipment vendors and service providers are increasingly forcing vendors to adopts industry-standard in their solutions. This reduces complexity costs for the carrier but may hurt venture-backed companies opportunities to gain a foothold in the market.
• The Proliferation of WiFi and WiMax Technologies: Five years ago, many expected cellular 3G and 4G technologies to provide the bulk of wireless data services. However, the introduction of 802.11 and 802.16-based products has revolutionized the wireless landscape. In certain situations, these low-cost, industry-standard technologies are offering compelling solutions for providing wireless data services.
• The Importance of the Enterprise Customer: Wireless services were once thought of primarily as a consumer-oriented service provided by carriers. However, consumers and carriers have been fickle in adopting wireless data services. Therefore, vendors in the sector are increasingly looking at solving the needs of IT managers as well as consumers. Enterprise products are more complex but can offer substantial revenue opportunities to those vendors who provide complete solutions. Vendors providing strong solutions to both consumer and enterprise markets will be in a particularly strong position.
• Growth in Emerging Markets: Growth rates in areas such as India and China cannot be ignored, and in many instances, customers in these regions will have quicker access to enhanced data services than those in more developed markets. However, solutions for these markets must be tailored to serve the technical and cultural requirements of these customers. Vendors who have a multiregional sales presence and solution portfolio will be stronger organizations in the long run.

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