A Rough Week — and Likely Future — for WiMax

Oh, WiMax, why have we sunk so much money into you?

That may be what investors in a number of heavily capitalized WiMax startups were asking themselves again earlier this week, when Cisco announced that it’s no longer developing or investing in any WiMax equipment.

The move followed the same recent decision by Alcatel Lucent, which has turned its focus instead to a technology called LTE, or long term evolution, that both AT&T and Verizon are using to build out their 4G wireless networks.

The announcements weren’t terribly surprising. The market has been cooling to WiMax’s potential over the last couple of years.

Last May, WiMax gear maker Telsima Corp., which had raised about $80 million in venture funding from New Enterprise Associates, NewPath Ventures,CMEA Ventures and JAFCO Asia, sold for $12 million in cash.

In September, WiMax startup WiNetworks, which had raised $20 million from Columbia Capital, Rho Management, Cedar Fund and Evergreen Partners, sold for $14 million to Canadian communications equipment maker RuggedCom, which paid $9 million in cash and assumed $5 million in debt.

Even in developing countries, where analysts think WiMax may enjoy its best shot at a continuing role, the news for WiMax hasn’t been great lately. For example, though the satellite company Norsat International was about to make inroads into the WiMax sector by agreeing last spring to acquire the WiMax startup Bluemoon 4G in an all-stock transaction, Norsat backed out of those plans in January.

From the outset, “WiMax made sense from Intel’s perspective and PC-centric networking folks who wanted to get into wireless,” Dino Vendetti, a general partner at Formative Ventures, told me earlier this week.

The “challenge for [WiMax] has always been that it was competing against carriers who were using 2G and 3G technologies — and all those vendors who were supplying those technologies to those carriers,” says Vendetti, a telecom, wireless and Internet investor who’d looked a “bunch of WiMax deals” four or five years ago and is thankful he passed on them.

Indeed, another vote of non-confidence in WiMax came last month, when well-known WiMax chipset maker Beceem Communications announced plans to develop a 4G chip that offers both WiMax and LTE connectivity. Beceem has raised $130 million since its launch in 2003, including from Sequoia Capital and Khosla Ventures.

“[Beceem] is going to starve if if isn’t tapping into a market where there’s some real value,” says Vendetti.