[China] The lowdown on Telegent: Split three ways

 

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.”

 

However, 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 inception of the company.

 

They all stressed that Telegent did not crash and burn.

 

If anything, “this was a success story,” said 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.

 

True successor to analog mobile TV

 
 Asked to pick “one really exciting thing” in his recent life, Sheng said, “It was Apple’s iPhone.”
 “We made a good success in mobile analog TV,” said Sheng, but the popularity of iPhone on the market showed who the true successor to analog mobile TV was. It was, after all, not digital [broadcast] TV, but mobile Internet.

 

 Former FCC chairman Hundt agreed. “Mobile devices turned out to be a gateway to the Internet, not to broadcast. Broadcasters could have played a role on mobile. But they missed the window.”  

 

 Indeed, Tamer recalls a seminal moment that prodded him to look for a way out. One board member asked Tamer if Telegent was winning the war. Regardless of the great team he had, it was clear to Tamer that Telegent was fighting an uphill battle, in a market no longer interested in mobile broadcast TV.

 

 Looking back on the rapidly falling ASP of mobile TV chips, Tamer noted, that alone “screams that it has to be a part of another chip – like a baseband chip.” And that’s exactly what Spreadtrum, a leading Chinese fabless chip company, is set out to do.

 

 Spreadtrum will leverage a small part of Telegent’s former team based in Shanghai (about 90 people including engineering, marketing and sales were previously employed by Telegent in Shanghai) and a portfolio of about 70 patents (including patents pending) that are all related to mobile TV.

 

 Not every IP Telegent developed went to Spreadtrum, though.

 

 Describing Telegent’s engineering accomplishment as “the development of a complex mixed signal on SoC,” the new spinoff headed by Tamer and Sheng will follow up on its analog expertise, while the un-named U.S. company – including a sizeable share of Telegent’s former engineering team – is working on a new project that’s likely to be more analog-related.

 

 Asked about the meager $1 million Spreadtrum claims it paid to acquire Telegent, Tamer indicated that’s not exactly correct, but declined to detail the actual transaction. 

 
 “In every acquisition, it comes with the company’s liability, escrow and inventory. So, it depends on how you fold that into the math.”

 

 In the end, the important thing is that Telegent, in its exit plan, managed to find “the right home” for its technology and team, according to Tamer. Most former Telegent employees based in the United States got jobs either at the un-named U.S. chip company or at a new spinoff.

 

 With $100 million distributed among investors and employees, Telegent is a “successful startup story” in Tamer’s and Sheng’s book.

 

Source: EETimes

 

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