Modem-Art: Right on time

One of the main problems for companies is timing the completion of their product development. It can now be seen what happens to a company that reaches the market too early. No one will buy its products. One example is optical communications companies that develop components and systems for the 40 Gbps field.

On the other hand, companies cannot afford to delay development too long, since dozens of optical companies compete for the same few vendors, and those who approach these vendors first increase their chances of survival.

Time to market problems are critical in the optical field, but similar problems also exist elsewhere - in the third generation cellular field, for example. Hundreds and thousands of companies around the world which are developing third generation technologies are minutely examining the maturing process for third generation infrastructures and the repeated delays in deploying the technology.

This technology promises to provide us with a speed of 384 Kbps in a fully mobile system, even on high-speed journeys, such as trips on fast trains. Speeds of 2 Gbps are being discussed for slightly less mobile systems in the more distant future. The third generation already involves systems that are completely IP-based. Instead of call centers, there will be router-based IP infrastructure.

Two leading technologies dominate the third generation field. The first is Wideband CDMA (Code Division Multiple Access, known by many as UMTS), which was developed by NTT DoCoMo of Japan and Ericsson (Nasdaq: ERICY) of Sweden. This is the only standard for Europe.

The other system is CDMA 2000 – an evolution of the CDMA technology currently in use. QUALCOMM (Nasdaq: QCOM) and several other US companies are pushing this technology.

The most significant progress made by Wideband CDMA is its expected October launch in Japan, by NTT DoCoMo, of course.

There are several trials of UMTS systems in Europe, and some of the systems will probably be launched next year. Sizeable commercial sales will come in 2003-2004. These expectations are slightly different from those of a year ago, when the launching of third generation technology was expected to take place much sooner. The telecommunications crisis and the slower maturing of the technology, however, have delayed deployment by 18 months.

An 18-month cycle

Israeli start-up Modem-Art welcomed the delay. Modem-Art develops chips for third generation mobile phones. In contrast to optical communications, the third generation field has very clear standards for technology; not every start-up has to begin from scratch.

Surprisingly, the delay in third generation deployment has been a blessing for Modem-Art, which will probably be the first to market with its chips. Why is it better to be the first to market? Because manufacturing mobile telephones works on an 18-month cycle. After you reach the market, it takes time to test all the phones’ chips and components. For that reason, everyone wants to reach the big market early enough with a second and third product.

A cellular telephone is composed of one chip that handles wireless communications. There are also memory components, such as flash and RAM, to which the RF components are added. The most expensive part is the communications chip. As part of the worldwide outsourcing trend, the telephone manufacturers prefer to buy the chip, rather than developing and manufacturing it themselves.

Small and focused

Modem-Art was founded in 1998 by Shlomo Gadot and Dr. Yossi Kofman. At the beginning, they focused on the third generation, even though the third generation and its technology were still unclear.

At first they worked without outside financing. In September 1999, they raised $2.5 million from Genesis Partners, Argoquest, and Gidi Barak. In their second round, held in October 2000, they raised $11 million at a company value of $45 million, before money, from Tamir Fishman and BancBoston Capital, in addition to the previous investors.

The basic technology developed by the company is a modem chip that can be programmed by altering software, thereby changing its function. At the outset, Gadot and Kofman considered for which application they should use this technology, and settled on the third generation. In 1998, they decided to gamble on the European and Japanese Wideband CDMA technology. Today Modem-Art has completed development of the product.

Kofman and Gadot say that as of now, there are no DSP chips (the type currently used in cellular devices) that are capable of handling UMTS third generation technology software. Modem-Art’s solution provides greater functionality for the standard, which has not yet been determined and is subject to changes. When the chips are installed in telephones for beta trials, the basic programming can easily be adjusted in order to cope with the required changes.

”In comparison with other hardware solutions, ours has no real disadvantages,” says Kofman. “Our chip will be the smallest in the market and the most efficient in terms of power consumption. We have created a complete collection of assets in order to provide a complete, systematic solution for the system’s modem and various protocols. Within a few months, we believe we’ll display the chips and win customers.”

Gadot: ”The main problem with third generation is the terminals. It’s easy to set up infrastructures with credit from suppliers. One of the key obstacles is the absence of chips like ours. Our timing is excellent, because it takes the chip 18 months of trials to enter the market, and assessments are that the third generation will be deployed during this period.”

Kofman and Gadot say there are not many competitors, since the entry barrier is very high. “Our standard isn’t used in the US,” Kofman says, “so there are less than 50 companies in the field. In Europe, you find mostly large, established companies. Our advantage is that we’re a small, focused company. Our solution requires the integration of many fields, which is very hard for a large company to accomplish effectively. We also have an advantage over the others because we began earlier.”

Concerning additional financing rounds, Modem-Art’s management says they “would not oppose” a further $5 million investment for continued development, in order to provide a chip for GSM technology in systems that combine the two technologies.

Published by Israel's Business Arena on September 25, 2001