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CSR Moves on Convergence

Light Reading
LR Mobile News Analysis
Light Reading
7/28/2005

Bluetooth and wireless LAN chipset vendor CSR plc (London: CSR) has splashed out $48 million for the acquisition of software supplier UbiNetics Ltd., a move it hopes will give it a foothold in the emerging unlicensed mobile access (UMA) market (see CSR Buys UbiNetics Software).

UMA is one of the early fixed/mobile convergence (FMC) technologies that will allow users, with suitable handsets, to move across cellular, bluetooth, and WiFi networks.

Founded in 1999, U.K.-based UbiNetics has a headcount of 170 and supplies modem and protocol software to cellular handset manufacturers.

On paper at least, the combination of CSR’s Bluetooth and wireless LAN hardware with UbiNetic’s handset software seems to make sense. UMA technology is part of the 3rd Generation Partnership Project (3GPP) cellular specifications, allowing network operators to extend the coverage and capacity of their networks by using unlicensed local-area access networks, such as wireless LAN and Bluetooth (see UMA Gains Ground and UMA Group Wraps Up).

The user, equipped with a dualmode cellular/WLAN handset, can make calls across any generic wireless LAN and IP network, with the call and signaling data encapsulated in secure IP tunnels. These tunnels terminate on an access gateway, which processes and passes call data to the circuit-switched or packet-switched mobile core network.

Startup Kineto Wireless Inc. has already made early moves into the UMA market by announcing cellphone software deals with the likes of Motorola Inc. (NYSE: MOT) and Nokia Corp. (NYSE: NOK), but CSR claims its combined offering will give it an advantage over rivals (see Kineto Phones It In).

“We still feel we can compete because we can offer a more complete turnkey solution rather than saying to our customers, 'Get software from here, hardware from over there, and then glue the two together,’ ” says CSR’s VP for Asia, Matthew Phillips. “Also, who do they talk to if there is a problem?”

CSR was also keen to defend the $48 million price tag of today’s deal, in light of the fact that UbiNetics had gross assets of only £3.6 million (US$6.33 million) and incurred an operating loss of £11.1 million ($19.5 million) for the year ended December 31, 2004.

“It’s very difficult to say whether we’ve overpaid or underpaid,” concedes James Collier, technical director and co-founder of CSR. “There are a number of different metrics, and one of them is amount per head for fully productive engineers, which I think you will find [in this case] is well within, and indeed slightly below, a lot of comparables. On the other hand, we are not buying this for its revenue stream but for the new business we will create together... We are happy.”

Certainly, CSR’s financial health appears in good shape. The vendor today announced an impressive set of half-year results, recording a 68 percent increase in revenue, to $161.1 million, and a 33 percent rise in operating profit, to $29.1 million (see CSR Ups Sales 61%).

CSR’s share price had risen 14.3 percent at press time, to £5.12 ($9) per share.

— Justin Springham, Senior Editor, Europe, Unstrung

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