High-tech

Due Diligence Update: Celoxica

By The Chilli analysts

The Chilli last profiled Celoxica in November 2003. In our original report, we noted the turnaround made by the executive team and encouraged it to stay on the path to breakeven for Q4 2004.

According to Bernard Morgan, CFO, the company is still on schedule to meet this target. Headcount is still at sixty, and the company has posted 6 consecutive quarters of growth, with 2003 revenues 70% higher than 2002, at $5.5m. The management team has continued to chip away at operating expenses, with a 20% reduction from Q1 2003 and to Q1 2004.

The company has positioned itself with new partners in the field of reconfigurable processors, including Toshiba and startups IPflex (Japan) and Elixent (UK), although it will be some time, before this nascent market develops into a large volume market.

In terms of market conditions, Morgan comments 'Europe has improved in the last 12 months, and we have been focusing on Japan for the last few quarters. The North American market is still taking time to crack.' Since The Chilli's last report on Celoxica, the company has grown license sales from 200 to over 300. According to Morgan, 'Two thirds of these licenses are from strategic and major accounts, and we are working to further increase our penetration.' The company will announce updates to it's product line and has just completed a £3.5m top-up funding round from existing investors, to enhance it's pipeline of new product developments.

The Chilli perspective: the company has been making steady progress and has cleaned up most of the operational issues and reaped the consequential cost savings. It now needs to focus more on growing the topline. A larger mezzanine round to leverage the company's strengths, and possible consideration of one or two acquisitions, would put the company in a much more attractive position for exit through a trade sale or IPO.

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© Chilli Publishing Ltd 2004

02JUNE2004