PARIS – The death of Telegent Systems, Inc. – along with the mobile TV market – has been greatly exaggerated.
The almost miraculous rise and spectacular fall of Telegent, a Sunnyvale, Calif.-based analog TV mobile chip vendor armed with large engineering resources both in China and Silicon Valley and a big presence in China, isn’t really a cautionary tale about the dwindling global mobile TV market.
Rather, Telegent’s fall has everything to do with the bloodbath of price competition in China. The market there is volatile, with the number of competitors growing daily. Of course, this story also offers allegory of what usually happens to a one-trick pony fabless chip company.
Sources close to the mobile TV industry said that Telegent, still left with $60 – 70 million in the bank, will “phase out” of the current analog mobile TV chip business but will “restart in a completely different market segment.”
There were strong rumors in China, however, that the owners of Telegent had been negotiating with Spreadtrum Communications (Shanghai) for several months. The plan was for Spreadtrum to acquire Telegent. Reportedly, the deal came close once to fruition, but eventually collapsed, when Spreadtrum’s Nasdaq stock value sank in the U.S. market.
The electronics industry and the investment community aren’t prepared to write an obituary on Telegent – just yet.
Some are still confident in a strong team of engineers remaining in California, while others are counting on Ford Tamer, a hired gun brought in to fix Telegent. Tamer joined Telegent as CEO in June, 2010, after the mobile TV chip company withdrew from its planned IPO. Tamer is a 20-year semiconductor industry veteran who previously co-founded Agere Systems Inc. and held a high-ranking executive position at Broadcom Corp.
After the company’s inception in 2004, Telegent struck it rich – in a few short years – on the fledgling mobile TV market. The genius of its business model was the company’s serendipitous decision to leverage the free-to-air analog TV broadcast signals that most other players were not taking seriously.
Telegent’s move in the analog mobile TV market drew a sharp contrast to competitors in the fabless chip industry who bet almost solely on still embryonic digital mobile TV signals. Consequently, Telegent, by late 2009 when the company filed for a $250 million IPO with the SEC, was believed to command, tactically, an almost 100-percent share of the analog mobile TV market. According to financials disclosed by the company at the time of IPO application (Nov., 2009), Telegent had a revenue of $111.12 million with net income of $39.36 million.
One industry source estimates that Telegent was selling at that time, about 25 million units of its mobile TV chips per month, at an average selling price point of $6.00.
Events since the end of 2009 to 2010 illustrate how vibrant, cutthroat and bloodthirsty the mobile TV chip market has become. Several fabless chip companies who went after Telegent’s analog mobile TV market include: MediaTek in Taiwan; RDA Microelectronics in Shanghai; Newport Media in Lake Forest, Calif. and others.
Clobbered by competitors who made no bones about undercutting Telegent, the ASP of Telegent’s mobile TV chip went from $6 to $0.80 within months. Telegent’s edge, a big gross margin as a single supplier, quickly evaporated.
To make matters worse, the total available market for analog mobile TV units has topped off. Leading up to the World Cup scheduled in Brazil in 2014, Latin America is transitioning to digital. Countries in South Asia – most notably, the Philippines and Thailand – are also going digital.
Telegent’s current share in the analog mobile TV market is believed to be around 60 percent.
Newport Media, which started out as a digital mobile TV chip company in 2005 but quickly added support for analog mobile TV two years ago, is reportedly one of the key instigators of the price erosion in the analog mobile TV market.
Telegent, stuck with its analog mobile TV chip business, has been unable to go anywhere beyond the territory it so prosperously cultivated in the heady moments of its inception.
-- EE Times Confidential is launching this week a special report, "China Fabless Profile." For details on how to obtain a copy of the report, drop a line to: firstname.lastname@example.org
Yes, very incompetent management. Ran a $100+ M business to the ground. I dont know why this article suggests that China and competition were to blame. Other semiconductor businesses have competition too, but somehow they manage to compete without disappearing from the face of the earth.
Finally, you talk of the ONLY reason why Trigent failed: management. Based on my many years of observation and several painful experience, a company will remain to be successful if it makes its own plans and also "replace" a portion of its portfolio every so often.
In marketing there is the following admonition:
If you don't make your own plans, the competition will do it for you. It appears in this case the competition did the planning. Admittedly, a dependence upon analog TV only gives little chance for custom value add features, but should not have stopped them from addressing digital streaming media much earlier.
If you know you are in a commodity market, it is better to lead in that direction rather than follow and make it expensive for the competitors to enter....which is a pill that most companies find hard to swallow. And while that is happening, you need to run hard to catch your next one (or hopefully more) trick pony.
All this is easily said and very difficult to do!
I dont think they should go into digital TVs, where the main differentiation could be the receiver baseband algorithms & its low power implementation. There are strong competitors already present in that market. They could probably look for "blue oceans" in solar,wind,industrial markets, where they could make use of their existing analog ckt design expertise.
Well, looks like they knew what they were getting into pretty well but also that they were lethargic in keeping their advantage above others. Any chip for processing media streams is going to become commodity withi a few years unless the company differentiates and keep adding features. But I guess by going analog they brought it on themselves. Still I would say they have the resouces to come up with a better IP for the TV market(digital?), what else will they do, thats their strength, right.
The problem with the flipping scheme is that commodity margins are tiny, so the share valuation has to be low unless there is IP to provide some market shielding. The market seemed to be China, so even if there was commanding IP it might be worth next to nothing. Bottom line is, making heaps of money now on products with basically no IP protection is a failing strategy in their market if you want to flip for a profit.
Alternatively, there must be something new in the pipeline that is promising-- if they followed the biz model of Google et al (nosebleed share prices used to finance followon products) they might have a chance at flipping. One thinks that they would try to fill the product pipeline, although the story makes it sound like they failed (or worse, failed to try-- in the best traditions of American companies that fail).
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