In the News...

Mark Evans

There is not much to get excited about within the telecom industry, given how carriers are struggling with flat sales while equipment makers are hoping a three-year slump comes to an end.

That perhaps explains why the rising popularity of camera phones is getting so much interest. Regarded just a few years ago as a peculiar component of the Japanese wireless market, camera phones have become all the rage in Europe and North America in the past year.

It is estimated more than 50 million camera phones will be sold this year. In Canada, camera phones have buoyed growth at wireless carriers such as Telus Corp., Bell Mobility and Rogers Wireless Inc.

One of the companies hoping to capitalize on the camera phone phenomena is Ottawa-based Atsana Semiconductor Inc., which is developing a new chip that takes photographs captured by camera phones and manipulates them so they can be delivered over wireless networks with losing image quality.

The 40-employee firm expects sales of its chips to camera phone makers will start this summer and appear in products next year.
Atsana's plans to break into a market dominated by established suppliers such as Texas Instruments Inc. received a boost last week when it raised $13-million of private equity from a group of investors that includes Siemens AG, GrowthWorks, Covington Capital Corp. Greenstone Venture Partners and Primaxis Technology Ventures.

The financing, which was completed at a lower valuation to earlier financing deals, took about a year to organize. But Atsana's ability to raise private equity is admirable, given it is still pre-revenue and plans to compete in a well-established market.
Venture capitalists continue to be wary about making new investments, highlighted by the fact capital invested in the third-quarter last year fell to $361-million, from $563-million a year earlier.

Alex Leupp, Atsana's president and chief executive, said the company was able to raise money, despite tough market conditions, because there is a growing awareness among North America venture capitalists that the camera phone market is for real.
"Just 12 months ago when I talked to VCs about this company, they said 'why would anybody buy a phone with a camera in it?'," he said. "That is no longer the question. It became easier from that point of view. The VCs began to understand the market. It is a consumer end market so it is a little different environment."

Mr. Leupp said Atsana, which will have its chips manufactured in Taiwan, believes its technology will establish a foothold because it will feature low power-consumption, high image quality and flexibility at an attractive cost.

"The reason we got funded is we really have a leg up on the technology," he said. "Some competitors don't have a flexible platform and any time you make a change in an environment from one phone to another, it's expensive."

Technological flexibility will be an important issue for companies in the camera phone market. Over the next year, new models will have one to two-mega pixel cameras, compared with 0.3 mega pixels currently. More cameras will come with auto-focus capabilities and built-in flashes, while advanced models will be able to record video and play MP3s.

Mike Yonker, chief technology offer at Texas Instruments' OMAP unit, said demand for powerful digital processors within camera phones will increase as they become standard in wireless devices and consumer expectation rises.

"The one thing I always talk about when I talk with counterparts at customers is that we are scratching the surface," he said. "The industry has learned that people always take phones with them and like the convenience of snapping a photo, sending it, storing it and printing it. We really see imaging and video as the areas we will take a quantum leap forward to get the performance needed for the kinds of devices our customers want."

Atsana was founded in 1999 by Marie-Josee Begin and Luc Lussier, who co-founded Philsar Semiconductor Inc., which was acquired by Conexant Systems Inc. for $279-million. Until mid-2002, when Mr. Leupp came on board from Siemens Microelectronics Inc., Atsana was focused on the wireless handheld applications market. Mr. Leupp said the company decided to focus on camera phones because it did not make sense to have a widespread category when competing against much larger players.
With $13-million in the bank, Mr. Leupp said Atsana will beef up its sales and marketing activity, and invest in product development and operations, as it prepares to start manufacturing and shipping its first chips.

Neil Strother, a senior analyst at consulting firm In-Stat/MDR, said there is plenty of opportunities for firms such as Atsana because camera phones are becoming mainstream products as prices decline and more features are added.
"I suspect there are a lot of people still out there who have 35mm cameras but are not sure about the digital world" he said. "If you give them a camera phone, it is a quick and dirty way for people to try out digital cameras. It makes for a very competitive device to the throw-away camera."