Who Should Buy Sckipio? My Money's on Intel
If you're looking for the next likely acquisition candidate in the comms chip market then take a look at Israeli startup Sckipio, which has dedicated its existence to developing chipsets for the emerging G.fast technology market that is set to grow quickly in the coming years. (See G.fast Banter at BBWF.)
Having tracked the development of the G.fast market for a few years, it seems highly likely to me that Sckipio Technologies will be attracting many suitors and that its investors will be tempted to cash in. I'd be gobsmacked if companies such as Intel Corp. (Nasdaq: INTC), Marvell Technology Group Ltd. (Nasdaq: MRVL), Broadcom Corp. (Nasdaq: BRCM) and even the likes of Mellanox Technologies Ltd. (Nasdaq: MLNX) haven't taken a close look at Sckipio as their next purchase.
If they haven't, they should. And in my view, Intel will kick itself if another company steps in and snaps up Sckipio from under its nose.
Any such move would be keeping with the current market trend for comms components takeovers: There has been a string of significant chip market acquisitions (and takeover agreements yet to be completed) during the past year as the market consolidates around a number of aggressive giants such as Intel, NXP Semiconductors N.V. (Nasdaq: NXPI) and Qualcomm Inc. (Nasdaq: QCOM), which are looking to cement their positions as the playmakers in next-generation networking. Here are a few examples, including the recent acquisition of G.fast chipset developer Ikanos by Qualcomm:
- Qualcomm M&A Move Signals New Fixed Broadband Battle
- Skyworks Scoops Up PMC-Sierra for $2B
- Microsemi Challenges Skyworks for PMC-Sierra
- Dialog Snaps Up Atmel for $4.6B
- Qualcomm Closes $2.4B CSR Buy
- Intel to Buy Altera for $16.7B
- Avago Seals Deal to Buy Broadcom for $37B
- Microsemi Snaps Up Vitesse for $389M
- More Chips Fall: NXP Buys Freescale
Sckipio is not going to command offers of hundreds of millions of dollars but, in my view, it looks like a prime target for a strategic acquisition that could give a buyer a neat position in next-generation network access market and a role in the formation of distributed data center architectures.
All in on G.fast
Sckipio made a bet in early 2012 that G.fast, then still in the early stages of standardization, would be the next hot technology in the fixed broadband market, so it focused exclusively on developing, from the ground up, dedicated G.fast chips to sell to network element and CPE (customer premises equipment) product developers.
Until recently it was debatable whether G.fast would go beyond the reference design and strategy planning stages. But that's all changed, the technology is an official standard and the G.fast market is now booming: For that, Sckipio can thank UK incumbent operator BT Group plc (NYSE: BT; London: BTA) for turning what might have been a niche market into something much bigger. (See G.fast G.ets G.reen Light.)
Initially, G.fast was a technology designed to boost the speeds of broadband copper lines over short distances (less than 100 meters) to hundreds of megabits and possible, at very short distances, to 1 Gbit/s (shared downstream and upstream). To take advantage of the technology, telcos that wanted to extend the life of their copper access networks and hold off from full fiber-to-the-home (FTTH) rollouts would need to run fiber to distribution points close to homes and businesses and deploy small G.fast-based network elements (either underground or up telegraph poles). (See Copper Soldiers On: Broadband Special Report Part 1 and A Guide to G.fast.)
But the economics of G.fast deployment looked a lot better to BT, which is determined to sweat its copper access network to its full potential, if G.fast could deliver high-speed broadband connections from existing street cabinets hundreds of meters away from customers. So BT and other operators, such as Swisscom AG (NYSE: SCM), challenged the chip and system vendors to develop G.fast products that could do exactly that: Success would mean a much greater addressable market for G.fast technology companies and also provide a broader, more economically attractive deployment opportunities for any telco that has already invested in fiber-to-the-cabinet (FTTC) infrastructure, including power and cooling. (See Long-Range, High-Speed Gfast Is Coming – BT.)
So Sckipio and others, including broadband chip market leader Broadcom, have been working hard to deliver such capabilities and that has given the market a real boost: Adtran Inc. (Nasdaq: ADTN), the broadband access systems vendor that is working with Sckipio on some of its early G.fast engagements, says it has more than 50 G.fast trials underway with network operators, while the likes of Alcatel-Lucent (NYSE: ALU) and Huawei Technologies Co. Ltd. also have multiple carrier trials.
For its part, Sckipio has raised $27 million in two rounds from investors including Pitango Venture Capital , Gemini Israel Ventures, Genesis Partners , Amiti Ventures and Aviv Ventures, to help boost its team to about 50 staff, about 40 of whom are engaged in product development. (See G.fast Chip Startup Raises $17M.)
According to Light Reading's industry sources, Sckipio has made the greatest headway and is on course to deliver premium G.fast products to market first.
But it's still a startup: That allows it to move quickly but it also brings risks. Major players want to do business with an ecosystem they know will be around in the future -- a startup with great technology that goes out of business can cause problems further up the food chain.
Being part of a larger company that can provide more R&D and marketing muscle would make sense for everyone. Is that part of Sckipio's strategy? I asked CEO David Baum this week in London at the Broadband World Forum if he had been fending off takeover offers but he stuck to the company line: "We have no plans to sell the company. My focus is on becoming a profitable company," which Baum says should happen in 2016.
So who should be looking to swallow Sckipio?
Here are the companies I think should be all over this company like a rash.
1. Intel: The chip giant is in a spending spree as it looks to dominate large swathes of the communications components industry. Crucially it has already acquired Sckipio partner Lantiq and is committed to building an access and home networking business. Bringing Sckipio on board would also add to its distributed data center and New IP options, as the Israeli startup is already engaged in trials around the virtualization of fixed broadband access network technology and the development of next-generation central office/local exchange. For me, Intel will be kicking itself if it doesn't make Sckipio an offer it can't refuse. (See AT&T to Show Off Next-Gen Central Office, Sckipio, iPhotonix Team on G.fast NFV and Intel Targets 'Smart Home' With Lantiq Acquisition.)
2. Marvell: It is already in the fixed broadband components market with its PON products but has spied a new business opportunity in supporting G.fast now that it looks to have a much broader applicability. Marvell is already a Sckipio partner and is one of a number of companies, along with BT and Sckipio, involved in a European research project that is examining the potential application of G.fast in backhaul networks. (See BT Backs G.fast for Backhaul.)
3. Broadcom: The market leader in broadband access chips is Sckipio's main rival, so the option exists for Broadcom to acquire the upstart and combine the developments and minds of the two companies. But this isn't a good time for Broadcom to be thinking of M&A, as it's in the process of being acquired for $37 billion by Avago.
4. Mellanox: This is the "left field" suggestion. Mellanox is looking to diversify, something it has already done recently with the acquisition of EZchip, a network processor specialist that has been hard at work developing products that support NFV in the data center and wide area network. Adding Sckipio to its portfolio would be something of a surprise move but as the data center becomes more distributed then such a move would be an extension of its current strategy. Acquiring Sckipio could also add to and/or cement telco relationships for Mellanox. (See Mellanox to Buy EZchip and EZchip Pitches New Chips at NFV.)
I've thrown Mellanox into the mix as an aside: the others are the prime candidates and, as I said, I think it makes the most sense for Intel.
Sckipio has made great strides during 2015: In London this week it was showing off products from multiple equipment vendors that are building G.fast products using its chips, including Arris Group Inc. (Nasdaq: ARRS), Calix Inc. (NYSE: CALX), ZyXEL Communications Corp. , Cambridge Industries Group Ltd. , Gemtek Technology Co. Ltd. , Technicolor (Euronext Paris: TCH; NYSE: TCH) and Zinwell Corp. .
Sckipio might not be the next comms chip company to be involved in M&A activity but my hunch is that it's going to join the ever longer list at some point in the next 12 months.
In the meantime, here's some more background on the development of the G.fast market:
- NBN Looks to G.Fast to Reduce Fiber 'Hassle'
- DASAN Unveils G.fast Gear
- Copper Soldiers On: Broadband Special Report Part 1
- BT Updates on G.fast Plans
- BT Gets G.fast Confidence Boost From Trials
- Huawei Helps BT Trial G.fast
- Eurobites: BT Boasts 330 Mbit/s With G.fast Field Trial
- Broadband Forum Completes G.fast Plugfest
- Swisscom Takes G.fast Step
- G.fast Plugs the Gap for Gigabit Cities
- BT Puts G.fast at Heart of Ultra-Fast Broadband Plans
— Ray Le Maistre, , Editor-in-Chief, Light Reading