The lowdown on Telegent: Split three ways

NEW YORK – After witnessing the quiet exit of Telegent Systems Inc. – a once high-flying analog mobile TV chip startup that was recently acquired by Spreadtrum Communications Inc. in China  – industry observers deemed it “a disappointing ending.”

Nothing could be further from the truth in the minds of the former Telegent CEO Ford Tamer, former CTO Samuel Sheng, and Reed Hundt, a former FCC chairman who served as a board member for Telegent from the company's inception.

They all stressed that Telegent did not crash and burn.

If anything, “this was a success story,” claimed Tamer. The company, after its sale to Spreadtrum, distributed $100 million among shareholders and employees, he added.

Any investment that doubles its returns is “pretty good these days, especially in the chip world, for employees, investors and private equity fund guys,” said Hundt in an interview with EE Times.

The full story behind Telegent’s exit as told by Tamer and Sheng – although some details remained undisclosed – reveals that the former Telegent team is now spun out in three ways: an engineering team in Shanghai who went to Spreadtrum; 40-plus people based in the United States now working at a “well-known U.S. company” on a new project; and a dozen people, including Tamer and Sheng, now a part of a spin-off, whose name and plans remain undisclosed. Tamer is the executive chairman and Sheng is the president of the spinoff.
 
Tamer is keeping mum on who that “well-known U.S. company” is. But speculation on the street points to Broadcom. [Broadcom has not returned EE Times’ calls.]

Telegent had “a great team, plenty of cash and a supportive board,” said Tamer. “‘Closing shop’ was never an option we even considered,” he added.


Fighting against the changing market

So, if Telegent had all the elements that should keep a good startup going, why did it seek an exit plan? “In the end, we couldn’t change the market dynamics,” said Tamer.

Until right before the announcement of Spreadtrum’s Telegent acquisition, Telegent was still selling 4 million to 5 million units of mobile TV chips per month. Considering that much volume and that Telgent maintained a leading market position with a “75 percent share” (according to Tamer), business didn’t look so bad. But in reality, the average selling price of the chip was tanking, down to 60 cents. Worst of all, the total available market for mobile TV chips was topping off at $40 million to $50 million, said Tamer.

The market dynamic Telegent couldn’t change was the unstoppable slippage of the price of their chips. “Consumer chips in China are a hugely competitive market,” observed Sheng.

But more significantly, consumer behavior changed on Telegent [and many other mobile chip companies].

The very premise of Telegent’s foundation – believing that people will watch mobile TV via broadcast signals, either analog or digital – is no longer true, concluded Tamer. Consumers today watch TV on mobile handsets through signals streamed from the Internet either via WiFi or LTE, but not via broadcast.