Wireless networking chip specialist Atheros Communications, Inc. has warned that sales for its third quarter ended September 30 will be between $4million to $5 million below the guidance it gave back in July.

The warning is further proof of the cut-throat, low price nature of the WLAN chips market. Late last week, Wi-Fi chip start-up Bermai was forced to shut down after failing to generate Series C funding. The Sunnyvale, California based company expects third quarter revenue to be between $37.5 million and $38.5 million rather than in the range $41 million and $43 million, with non-GAAP net income now predicted at between $0.03 and $0.04 per diluted share, instead of the $0.02 to $0.03 predicted on July 21st. Atheros says gross margins are still expected to be between 45 percent and 46 percent, in line with the July guidance.

"During the quarter, we drove average selling prices of our 802.11g products down faster than originally planned in order to strengthen our market position. We were able to do this and still achieve our gross margin target due to our favorable cost structure," said Craig Barratt, president and CEO.

He added that while there was a pick up in orders during the last few weeks of the quarter, "it appears that some of our customers were continuing to work through excess inventories during more of the quarter than we first anticipated."

The decline in revenues was also partly due to Atheros shipping production quantities of its USB chipset later than expected during the quarter since product certification took longer than anticipated.