In the News...

Bert Hill

When Atsana Semiconductor started searching for new venture capital a year ago, it was hard work.

The Ottawa cellphone-chip startup got the brush-off from investors who were convinced, as were most analysts, that the days of explosive growth for cellphones were over and the industry was entering a mature, slow-growth period.

Then, with the end of the summer sales doldrums, cellphones with camera capability hit the market and demand took off. Sales of the new phones are expected to hit 50 million units this year and triple in coming years.

"There has been a big change in attitude," Atsana chief executive Alex Leupp said yesterday. "Now the investors want to know how quickly we think sales of camera phones will hit 170 million a year."

Some analysts think it will happen in 2006 as cellphones add more features such as streaming video, camcorders, advanced messaging and more games, and improved picture-taking quality.

Today, Atsana is announcing that it has raised $10 million U.S. ($13 million Cdn.) in new financing led by the venture capital arm of Siemens, the German communications giant and a growing force in cellphone markets. Other new investors include GrowthWorks WV Funds and Covington Capital of Toronto and Greenstone Venture Partners of Vancouver. Returning investors include Stata Venture Partners, BDC Venture Capital, Primaxis Technology Venture and Entrust Capital.

The endorsement of Atsana technology and healthy sales of other wireless startups, such as SiGe Semiconductor of Ottawa, could be a sign that the wireless industry will help lead the communication industry out of a three-year-long depression.

Certainly, the support of Siemens, one of the world's top three communications equipment companies, is important.

While cellphone industry leaders Nokia and Motorola are losing market share, Siemens enjoyed the strongest gains in the third quarter and is nipping at the heels of Samsung for third place in the global market.

"We think Atsana technology stands head and shoulders above the competition," said Siemens Mobile Acceleration managing director Gerald Brady.

Atsana chips will start generating their first sales this summer and appear in new camera phones in 2005. The chips will offer four to six times better picture resolution and consume one-third less power than current camera phones, Mr. Leupp said.

Several companies are competing for next-generation leadership, including such giants as Texas Instruments and some smaller Japanese and British companies.

But Mr. Leupp and Siemens said they believe that only Atsana has the complete package of improved picture quality, battery life, small chip size and competitive price.

In addition, Atsana said its technology is flexible which will allow Siemens and other customers to add new features quickly as markets change. Motorola has lost ground because it was slow responding to demand for picture phones.
The chip industry is the early warning system for the technology sector, and right now the signals are bright green.
Global sales of the chips that drive cellphones, personal computers and entertainment and corporate gear in November were $16.13 billion U.S., up 4.5 per cent from October and 25.7 per cent from a year earlier, according to the Semiconductor Industry Association. It expects sales to grow 30 per cent this year.

But not all chip companies are experiencing recovery. For every mature company such as a Tundra or PMC Sierra enjoying strong corporate networking chip sales, companies such as Mosaid and Zarlink are still stuck in the rut of depressed communications networking sector.

Wireless chip companies in strong market segments are growing.

Cellphone sales rose about 18 per cent last year to a record 500 million units after two years of flat or declining sales. The IDC research organization expects sales to grow at an annual rate of 12.5 per cent through 2008.

Atsana has experienced the same tough conditions that have killed many startups. Founded in 1999 as Lumic Electronics, it raised $20 million U.S. over two years and built a workforce of 65 employees developing multimedia applications for security and communication products. Late in 2001, it changed top leadership and cut staff. The name was changed and Mr. Leupp, the former executive in charge of Siemens semiconductor operations, took over as chief executive in 2002.

While Atsana now has money to grow and perhaps reach an operating profit in 2005, the new funding is based on a lower valuation than the last funding round three years ago. And the company, which now has about 40 employees, probably will add only about 10 more this year.

"We have learned in a tough market that you can't focus on everything," Mr. Leupp said. "The technology is changing fast and we have to concentrate."