High-tech

Due Diligence: Sarantel

By Bipin Parmar

Introduction

Sarantel is a post Chilli R2 antenna vendor, founded September 2000. The company is generating revenue and expects to breakeven within a year.

Spunout from Symmetricom, a USA-based vendor of solutions for generation, synchronisation and distribution of precise time and frequency signals, Sarantel was carved out of their research and development facility in Wellingborough, UK, which was carrying out GPS antenna research.

The team had been developing antenna technology since 1993 and had seen much M & A activity, resulting in some serious money being made by a few select individuals. Symmetricom did not see GPS antenna as fitting in with the organisation's core business, and decided to spinout the business to give it a better chance of fully developing the technology for commercial exploitation. It contributed equipment, patents, small inventory, and start up assistance until the Chilli R1 round was raised.

Symmetricom had been involved in discussions with 3i, which made contact with Barrie Foley, the current CEO of Sarantel. Foley, a graduate from Aston University, had previous management experience in materials, chemical processing and volume manufacturing at blue chip companies Pfizer, Invensys, AB Precision, Exxon and Mars. His background in engineering, sales, marketing and general management led him to be introduced to the leader of Symmetricom's antenna research group, Dr. Oliver Leisten.

Symmetricom contributed the related patent portfolio and equipment, while 3i invested £5m and VCF invested £1m, making total Chilli R1 funds of £6m; Symmetricom maintained a 20% stake. The initial team was Foley, Leisten and one assistant.

From the £6m, Foley and Leisten had to develop the technology, commercialise it and construct a prototype plant to prove it. Quite a daunting task, given that the initial estimate of the funds required were budgeted at £8m.

Vital statistics

Value proposition

The Chilli perspective

Vital statistics

Sarantel was founded by Foley and Leisten. The company has a headcount of 30 after receiving Chilli R1 funding of £6m in September 2000, and interim funding too in the middle of the tech crash. Its interim R2 funding of £1m cash and a £1m loan notes was made in August 2002. The company closed a proper Chilli R2 funding in February 2003 of £4m, with £3.5m from MTI and E Technology and the balance from Hotbed. The company also received a grant for £2m from the European Commission for a study to be conducted over two years.

The company currently has revenue traction through shipping products to over 100 customers in a variety of low to medium volume designs, including several PDA (personal digital assistant) and GPS applications. Customers are spread globally, including several design houses, but the vast majority of volume shipment is in South East Asia.

Turnover in 2003 was £100K and turnover for 2004 is expected to be £3.5-4m. Sarantel is currently generating revenues of £100K/month on its GPS product lines. Foley expects the company to breakeven within a year.

Value proposition

Sarantel has developed the GeoHelix and Smart Antenna products to initially target the GPS (global positioning system) market. The products are based on Sarantel's PowerHelix technology.

An antenna is essentially an element that receives RF (radio frequency) data, which is then converted into an electrical current for processing, and vice versa. An antenna could be anything from a dish, as used in satellite systems, to a length of wire, as used in radio receivers.

In the case of modern RF communications systems, including GPS and Wi-Fi, antenna performance is complicated and must take into account:

• The close coupling of multiple antennas to support multiple radio standards, without interfering with one another's signal integrity
• Efficient, in terms of power input versus output. Embedded antennas used within mobile handsets typically have an efficiency of 5-8%
• Their use within limited space, without succumbing to the effects of electrical noise
• Reduced system cost, where the antenna sweet spot is ideally around one dollar of the BOM (bill of material) - and 50 cents in a high volume commodity mobile handset.

Sarantel claims that its PowerHelix technology allows multiple antennas to be placed within millimetres of each other without suffering crossover effects at both electrical and magnetic levels. Antennas based on PowerHelix are said to offer efficiencies in the range of 20% in mobile handsets, even when embedded within the handset. The technology also allows a lower overall system cost, as designers do not have to use additional filters or a ground plane in addition to the antenna, as PowerHelix has its own filtering properties. These properties result in the additional benefit of lower battery power - a vital requirement in power hungry application like 3G, where battery life is currently a major weakness.

Another benefit with potential commercial application is that PowerHelix has a low SAR (specific absorption rate) - the amount of power of power radiated and absorbed into a unit mass of body tissue. This is of benefit if legislation is introduced to limit SAR to limit the alleged negative health effects associated with using mobile phones. One can imagine a Sarantel marketing campaign which associates a handset using Sarantel technology with a better health and safety reputation, and hence able to command a higher price. This requires a massive global marketing spend, which can only be sustained via another injection of sizable capital.

Another issue is efficiency, where power is absorbed by human tissue, instead of by the antenna, which affects signal quality and battery life.

The technology that provides these benefits is based on three dimensional (3D) copper-plated ceramics. The company has developed a proprietary manufacturing processing technology for 3D ceramic plating as well as proprietary software algorithms for fine tuning the antenna performance after final manufacturing steps, to deal with batch variations in the supplied ceramic material. This allows the company to make use of lower cost ceramics.

Sarantel has made 172 patent filings based on 11 core patents. The company has set up a volume manufacture capability in China, via a German subcontractor. Foley has already selected sites for additional capacity in other geographies, should there be a sudden surge in demand.

Currently, the company is primarily targeting GPS, and will further develop the Wi-Fi and GSM markets.

The Chilli perspective

The role of the antenna is becoming increasingly important, as product developers look for ways to support multiple RF standards (eg tri-band handsets) in limited form factors, as well finding ways to reduce power consumption.

BOM: the handset antenna is currently regarded as a commodity item, and unit price is still the overriding criteria. Sarantel's strength here is that additional filters and ground planes are not required, saving cents from the BOM cost. Advantages in efficiency would provide a benefit in longer battery life, potentially allowing BOM cost to be reduced through the use of lower capacity batteries.

Markets: the company is heavily reliant on the proliferation of GPS. The rollout of emergency number calling legislation (E-911) in the USA, which allows location tracking of handsets within a 50-100m radius, has been delayed several times. This is due to lobbying by mobile network operators (MNOs) and service providers who have not been able to invest in the appropriate infrastructure upgrades. They are citing the availability of affordable accurate GPS technology as one of the reasons for the delays. Some MNOs had been investigating the use of lower cost triangulation technology, where location is pinpointed between three base stations. This has had limited success owing to its reduced accuracy, as having an ambulance miss the scene of an accident by a few hundred metres is not helpful. Secondly, triangulation works well in an urban zone, where the base stations are located in a higher density to cater for a large base of users, but in rural or semi rural areas, base stations can be located quite a distance from each other - which doesn't help the accuracy. Sarantel claims that its' antenna technology has a better proposition, as it can work with a single base station. AT&T has already been fined by the FCC (Federal Communications Commission) in the USA, and this has prompted other MNOs to step up their deployments of GPS-based technology. Phase II of the FCC E-911 scheme, where location data has to be provided between 50-100m accuracy, must complete rollout by December 2005. Now is an excellent time for the company to forge partnerships with other complementary component vendors and infrastructure suppliers to facilitate the design-in work for penetrating end products that are being developed in readiness for that date.

Other markets such as Wi-Fi and GSM/3G are harder to break into, given their cost sensitivities, but Sarantel has a competitive play for those applications that require multi-standard support, requiring multiple antennas, e.g. Wi-Fi, GPS, Bluetooth and GSM in one handset.

Competitors: Sarantel's competitors include other startups including Antenova in the UK and Ethertronics of the USA. Both companies are focusing on Wi-Fi and GSM/3G - while Sarantel currently concentrates on the relatively niche area of GPS. The GPS market consists of many medium volume design applications, whilst GSM/3G and Wi-Fi are volume propositions that are critically price, manufacturing capacity, and logistics sensitive. Potential customers may wish to purchase from a larger organisation. This presents Sarantel with some interesting M & A opportunities, in that it can forward integrate its antennas and create sub-system modules which will not only command a higher ASP, but also take advantage of a larger capacity component partner. The company already has two different distinct 'secret sauces' from which to control the IP and royalty payments from its larger manufacturing partner.

GPS would allow Sarantel to quietly gain traction and demonstrate a measurable track record. The ability to avoid using a ground plane and filters will provide Sarantel with first mover advantage when multiple antennas are required in a product, in terms of both performance and BOM cost.

Other competitors include large enterprises including Andrew, Centurion, Filtronic, Kyocera and Murata. Many of these companies are also potential partners given that several of them have expertise in the ceramic technology used by Sarantel. This would provide Sarantel's investors with an attractive exit route.

Sales channels: the company has a direct sales person in Europe, Asia and the UK. The company also sells through distributors, several of whom are also semiconductor IC (integrated circuit) distributors. This allows Sarantel antennas to be provided as part of a kit of parts to a distribution customer. It is also conceivable that a route for exit would be acquisition by a semiconductor vendor who wishes to provide an end-to-end solution from antenna through to chips and software.

Way forward and outlook: antennas on their own are not perceived as particularly sexy, but with pressure to fit multiple antennas within restricted form factors, the current design wins and the end of 2005 completion date for E-911 phase II rollout, the company is well placed for higher revenue traction. The company must demonstrate its cost competitiveness in volume manufacture and partnerships, as cost and logistics will still dominate the antenna purchasing criteria.

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© Chilli Publishing Ltd 2004

09MAR2004