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ramamoorthysow
Yes, very incompetent management. Ran a $100+ M business to the ground. I dont ...
patrick_yu
Finally, you talk of the ONLY reason why Trigent failed: management. Based on ...
Cause of Telegent’s spectacular fall: China dunnit
Junko Yoshida
7/18/2011 5:06 AM EDT
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: peter.clarke@ubm.com
Related links and articles:
Uncertainty clouds Telegent's future
The rise of China fabless industry
Telegent hits 100 million TV chips shipped
Update: Ex-Broadcom VP named CEO of Telegent
Mobile TV chip vendor Telegent withdraws IPO
China chips: Bomb, or just a lot of firecrackers?
Will analog (not digital) mobile TV dominate in China?
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: peter.clarke@ubm.com
Related links and articles:
Uncertainty clouds Telegent's future
The rise of China fabless industry
Telegent hits 100 million TV chips shipped
Update: Ex-Broadcom VP named CEO of Telegent
Mobile TV chip vendor Telegent withdraws IPO
China chips: Bomb, or just a lot of firecrackers?
Will analog (not digital) mobile TV dominate in China?
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resistion
7/18/2011 5:51 AM EDT
I think they should not have started with China market first, but get a feel in the US, Europe, Japan, or even discuss with Apple. Customers know/distinguish better in those countries.
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resistion
7/18/2011 10:43 AM EDT
Perhaps even more important, one-time innovation not enough, need sustained innovation to combat price effect of competition.
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junko.yoshida
7/18/2011 11:54 AM EDT
Hi, resistion. Your points are well taken. But the truth is that China's mobile TV market was one of the biggest growth markets -- especially for analog mobile TV. We suspect that we will run into a situation similar to this, more often than ever before. In other words, there will be no time to test market your products elsewhere -- but you've got to plunge right into the Chinese market directly, because that's where the demand is.
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iniewski
7/18/2011 9:51 AM EDT
thank you Junko, spectacular story!
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GREAT-Terry
7/18/2011 11:39 AM EDT
Price went from $6.0 to $0.8 in months is bloody. Just wonder why this company didn't change their strategy and started something "new" 2 years ago. Maybe they have started but not succeeded or not yet mature.
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Frank Eory
7/18/2011 1:04 PM EDT
A very interesting case study on competition. Considering that the competitor who drove the price to $0.80 is still making a profit, the margins had to have been staggering on Telegent's chip at $6.00.
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junko.yoshida
7/18/2011 1:31 PM EDT
Exactly. And that's probably the reason why Telegent wasn't even looking to move on to another market even two years ago!
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qerqwe
7/18/2011 6:21 PM EDT
IP?? Since the competetion seems world wide, I assume that they could not protect their design.
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DMcCunney
7/18/2011 6:25 PM EDT
What I get from this is that Telegent had a bright initial idea: target a large potential market no one else was even looking at - but failed to think far enough ahead. Being first in the market and establishing a commanding share isn't enough. Once you're in first place, you have to stay there. And if the market you are in is big enough, you will get competition who will do just what you do, only cheaper. In semi-conductor electronics, the nature of any market is to become a commodity market very quickly, where the customers buy on price and the lowest cost producer wins. In addition, your market can change dramatically or even evaporate as technological shifts occur, like the shift from analog to digital TV. What do you do then?
.
If I'm a company like Telegent, my long-term strategy is likely to be "Identify an unserved market, develop a product to serve it, grow my business to take a commanding lead in that market, and position myself as an attractive acquisition target for a much bigger and better heeled company who sees buying me as the most efficient way of entering a new line of business that complements those they are already in. "
.
I'm *not* going to assume I can stay independant. I can establish a market, but I won't have the scale and resources to stay the lowest-cost producer when what I make becomes a commodity. I'll need to either be acquired or go belly up because I simply won't be able to compete.
.
The question for Telegent now is whether they can come up with another bright idea similar to their original one, and repeat what they did before in *creating* a market, then set themselves up to be bought by a big outfit that wants a piece of the market they created.
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Roncalli
7/18/2011 10:44 PM EDT
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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pixies
7/19/2011 2:24 PM EDT
The shift from analog to digital was not "dramatic". The company should have foreseen it and made due adjustment.
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telecrooks
7/18/2011 6:40 PM EDT
AAHAHAHAHHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHH !!!
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dylan.mcgrath
7/18/2011 7:15 PM EDT
Any ideas what "completely different market segment" Telegent will aim for? What are the chances of the company succeeding in another market?
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Neo1
7/18/2011 10:57 PM EDT
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.
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eewiz
7/19/2011 12:49 AM EDT
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.
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hm
7/19/2011 1:53 AM EDT
Is not this spectacular rise and fall integral part of consumer products and market? Telegent was small. But look what is happening to Nokia and RIM?
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kdboyce
7/19/2011 2:16 AM EDT
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!
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patrick_yu
7/19/2011 3:51 PM EDT
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.
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ramamoorthysow
7/26/2011 12:27 AM EDT
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.
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jamesl
7/19/2011 4:23 AM EDT
Great article Junko, but I guess the math needs checking: 25mu/monthx$6=$150m with an annual turnover of $112m in 2009? perhaps it was 2.5mu per month?
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