Automakers are now building vehicles with technologies that take control of the braking system before impact, and do other nifty things like help drivers see what’s in their blind spot.

Technologies once developed for the military are moving into bumpers, side-doors, airbags, and other parts of a car, thanks to companies like Infineon Technologies, NEC Electronics, and Delphi, the troubled General Motors spin-off.

Tyzx, Mobileye, and Canesta are some of the startups getting in on the act.

Saving lives is big business. The collision-warning market, which includes electronics that rouse dozing drivers and alert them to approaching hazards, is expected to reach $1 billion worldwide this year and $2.5 billion by 2009, according to research firm Strategy Analytics.

“There is a prevailing sense now that safety sells,” says Mitchell Hourtienne, marketing manager at Infineon Technologies, Germany’s big name in semiconductors. Currently, Infineon is developing chips for radar-based automotive safety systems, but doesn’t expect to see them in use before 2010 at the earliest.

In the last 10 years, basic sensors have come into use as parking aids, emitting beeps when drivers back in too close to what’s behind them. More recently, luxury car makers have been installing sensors that raise the alarm over an impending collision.

Lexus, BMW, and Mercedes-Benz offer them as options and they can add thousands to the sticker price. But prices will come down and as they do over the next 10 years, sophisticated sensor systems will start appearing in mid-range and economy cars.

One feature of the automotive business, as the Infineon example shows, is its almost glacial pace. While safety technologies are being tested now, automakers require more than five years of product development, and still more testing, before they feel comfortable about fitting new components into their cars.

“The industry has a long design cycle, but the flip side is that, once the technology is adopted, it goes on for 20 years,” says Tony Sun, general partner of Venrock Associates. The venture capital firm is invested in Sunnyvale, California-based Canesta, an image sensor startup that develops camera systems that overcome blind spots, help with parking, and do other things—including determine the age and postures of front-seat occupants before deciding whether deploying airbags will do more harm than good.

“Our technology can ‘see’ a wide area very well. It can accurately determine the turn of an object and how far away it is from the vehicle,” says Canesta CEO Jim Spare.

The startup, founded in 1999, won key support from Honda, which invested $5 million in the company. Canesta began developing sensors for the car market in 2004, but they won’t see the inside of a production-line vehicle until 2010.

Other companies make camera-based safety features, too, and some are already in vehicles. Ultrasonic sensors that use high-frequency sound bounced off objects, like those offered by Valeo and Bosch, are now used in cars to gauge distance between vehicles. Radar technology developed by companies like Delphi and Autoliv uses radio waves to determine the direction, speed, and distance of an object. And more sophisticated versions of these technologies are in development.

Car manufacturers themselves are working on systems, too. BMW, for instance, is developing a second-generation night vision system that will let drivers know whether there are animals or pedestrians within 300 meters of the car, says Tom Baloga, BMW’s general manager of safety engineering and intelligent transportation systems. It’s also working on a system to read speed signs—and a self-parking system that can be tailored for assigned parking spaces and operated by the driver using remote control.

High-Risk Segment

Auto manufacturers usually buy the systems from established players like Delphi, Bosch, and Valeo. But they also hunt for promising startups. BMW doesn’t have a venture group, but it does deploy technology hunters in Silicon Valley—which is how it came across Tyzx, a camera sensor and system developer based in Menlo Park, California. Tyzx designs chips and camera modules used by German video recording company I.M.A. to develop test kits for improving safety systems in BMWs.

The auto segment is a high-risk one for startups because, apart from having to go up against established players, they need deep pockets to endure the lengthy product development process. Car makers require years of testing before they’re satisfied that a new component can withstand extreme temperatures, and the toughest driving conditions, for periods of 10 years or more.

Little wonder VCs are hard to find in this market—unless they’re bluebloods like the Carlyle Group and can afford to sink a dollar for a while. Carlyle Venture Partners, a Canesta backer, did that in a couple of other cases and the bets have already paid off handsomely. Indigo Systems was one, and it went on to win a $200-million order from BMW, before it was sold to Systems for $165 million in 2004. Then there was SMaL Camera Technologies, which Cypress Semiconductor bought for $42.5 million last year. “It can take a while to incubate these technologies, but they can be very lucrative,” says CVP Managing Director Allan Thygesen.

There’s more to this than getting people to cough up more for their cars. Regulators all over are requiring safer cars. A new U.S. regulation, for instance, will require all cars by 2012 to come with a stability control system to prevent rollovers when braking at high speeds. Basically, the United States is calling for a technology that applies the brakes to each wheel individually, and not without reason. Rollovers lead to more than 10,000 deaths in the U.S. every year, almost a third of total annual fatalities.

Europe and Japan are quicker to push for safety standards in cars, argues Robert Cavin, an analyst with market research firm Frost & Sullivan. In February, the European Commission launched the Intelligent Car Initiative, which aims to speed up the development of crash-avoidance technologies and make them available in all cars, not just luxury models. In 2005, road accidents killed over 40,000 people in the European Union and injured more than 1.2 million.

None of this is to say that automakers want to make the cars too smart. One fear is that drivers will start suing car makers when avoidance electronics fail in crashes. “We want to exploit all possible technologies to avoid a crash but always come back to the message that the drivers are still in control,” says BMW’s Mr. Baloga.

Even Canesta’s Mr. Spare can’t rely on his car’s back-up aid completely. Every time he backs into the garage, it says he will run into something, he says. But he never does.

Contact the Writer: Editorial@RedHerring.com

AMD’s third-quarter net income rose to $134.46 million, or $0.27 per share, from $76 million, or $0.18 per share, a year ago. The computer chip maker, based in Sunnyvale, California, reported $1.33 billion in sales—excluding sales from the memory business AMD spun out—up 32 percent from a year ago. Analysts polled by Thomson Financial had expected an average of $117.2 million for net income, or $0.24 per share, on $1.31 billion in sales.

Although notebook and server chip businesses were strong, AMD’s desktop processor sales were flat quarter-over-quarter, thanks to a lower average selling price. An intense price war between AMD and Intel also caused the overall average selling price to drop for AMD, leading to gross margin of 51.4 percent. AMD’s gross margin was 56.8 percent for the second quarter this year and 55.4 percent for the third quarter in 2005.

AMD said it shipped a record number of notebook and server processors, both of which also had higher average selling prices. The strong financial performance reflected pain AMD has inflicted on its larger rival, Intel.

AMD’s processor shipments rose 18 percent quarter-over-quarter “due to strong demand for all AMD processor brands,” said Robert J. Rivet, AMD’s chief financial officer, in a statement. The company won over Dell, which for years only bought chips from Intel.

With Intel also posting better-than-expected results for the third quarter, however, investors are questioning whether AMD can continue its strong growth.

AMD, which announced its earnings after the stock market closed, saw shares drop more than 13 percent, or $3.18, to $21.05 per share in after-hours trading.

The desktop chip market hasn’t been good to Intel either. Intel, which reported its earnings yesterday, also reported a lower average selling price in the third quarter for its processors (see Under Pressure, Intel Beats Street).

Like AMD, however, Intel also reported a strong demand for its notebook and server processors. Intel CEO Paul Otellini told analysts yesterday that he believes the company had gained market share in the overall computer processor market. The chip giant historically has around 80 percent of that market.

With the new line of chips Intel introduced over the summer, the Santa Clara, California-based company expects to improve its financial performance gradually. Its third-quarter earnings, while poor compared with the same period in 2005, were better than what investors had expected. That has prompted analysts to predict an Intel rebound.

Contact the writer:UWang@RedHerring.com

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The chip giant generated net income of $1.3 billion, or $0.22 per share, on $8.7 billion in sales for the quarter. Analysts polled by Thomson Financial had expected an average net income of $1.01 billion, or $0.18 per share, on $7.62 billion in sales.

Excluding a special charge of $232 million, or $0.05 per share, from share-based compensation, Intel generated $1.5 billion in net income, or $0.27 per share. Excluding a 1.5-cent gain from selling assets worth $230 million and a restructuring charge of $98 million, the profit was $0.21 per share.

Intel has been plagued by market share losses to Advanced Micro Devices, based in Sunnyvale, California. Intel brought out new dual-core processors and began shipping quad-core chips during the third quarter, hoping to catch up to its rival. Mr. Otellini also announced a sweeping restructuring plan to sharpen the company’s competitive edge (see Intel to Cut 10% of Workforce).

The company, which announced the financial results after the stock market closed, saw its shares rise more than 3 percent, or $0.64, to $21.54 per share in after-hour trading.

In a statement, Intel CEO Paul Otellini touted increased chip shipments and the introduction of new dual- and quad-core chips.

The company, based in Santa Clara, California, shipped more microprocessors, chipsets, and motherboards during the quarter, although the microprocessors’ average selling price was lower. Although Intel began selling new chips able to command a premium price during the quarter, it also had to take a $100 million write-off for its inventory of older chips.

While Intel’s year-over-year results were weak, the company showed improvement over the second quarter by improving third-quarter revenue by 9 percent and net income by 47 percent. Nevertheless, the performance fell far from what it achieved a year ago, when it recorded revenue of $5.9 billion and a net income of nearly $2 billion, or $0.32 per share.

Intel expects to generate between $9.1 billion and $9.7 billion in sales for the fourth quarter and a gross margin of 50 percent, plus or minus a couple of points.

Contact the writer:UWang@RedHerring.com

The cheery news, delivered by Intel’s general manager for Asia, John Antone, during Intel’s developer conference in Taipei, came a day before the chip giant is scheduled to announce its third-quarter earnings. Mr. Antone said business is better than what the company had expected earlier this year.

Financial analysts said they don’t expect great third-quarter earnings but are happy to hear Intel’s hint of a good fourth quarter. If Intel indeed finishes the year on a strong note, then it’s expected to recover from its past mistakes in 2007.

The company is undergoing a massive restructuring that will slash the workforce by 10 percent and cut billions in spending in the next few years (see Intel to Cut 10% of Workforce).

“Intel’s new products and restructuring activities should further help improve margins and yield strong year-over-year (earnings per share) growth,” according to a research note by Deutsche Bank posted Monday.

Intel shares rose $0.04 to $21.64 per share in recent trading.

Recovering from Stumbles

The company, based in Santa Clara, California, has stumbled in recent years when it didn’t introduce chips that impressed customers. At the same time, its rival, Advanced Micro Devices (AMD), was able to wow server makers with its low-power Opteron processor. The result: Intel lost market share and investors’ confidence to stop the slide.

Intel’s come-back strategy was to introduce a new line of server, desktop, and notebook chips based on a new microarchitecture that promises to create better-performing and energy-saving processors.

The company introduced the new processors over the summer, although it wouldn’t give a bullish sales outlook for the third and fourth quarters (see Intel Sales Outlook Dims).

By sounding a more optimistic outlook, Intel executives hinted at a company that was picking itself up after being knocked down by a smaller foe in the playground.

Demand for notebook chips is strong, Intel executives said. The notebook segment has been Intel’s strong suit and a faster-growing business than the desktop market.

Notebook shipments from Taiwanese manufacturers Quanta and Compal grew 22 percent in September from a year ago, according to a research note from A.G. Edwards.

Intel’s own third-quarter earnings outlook calls for generating revenue between $8.3 billion and $8.9 billion. Analysts polled by Thomson Financial are expecting an average of $8.62 billion in sales and $0.18 earnings per share on $1.01 billion in net income.

Intel is scheduled to announce its earnings after trading on the United States stock markets closes Tuesday. AMD is scheduled to deliver its numbers on Wednesday.

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The lawsuit, filed Wednesday in U.S. District Court in Delaware, claims that Intel used 10 of Transmeta’s power management and other patents in designing its chips, including Pentium 4, Pentium M, and the latest product line, Core 2.

Transmeta, based in Santa Clara, California, filed the suit 17 months after it announced plans to shift its focus from making chips to licensing technologies, particularly for controlling a chip’s power consumption, to other chip companies (see Transmeta Re-Invents Itself). It discontinued making the older Crusoe line of chips but said it would continue to sell its Efficeon processors.

By relying on licensing fees and royalties for its revenue, Transmeta has an even stronger interest in pursuing companies whose designs it believes have infringed on Transmeta’s intellectual property. Yet revenues from the first half of this year didn’t come from licensing fees.

“It’s a reflection of where they are,” said Eric Ross, an analyst at ThinkEquity Partners. “It will be an expensive fight for Transmeta.”

Intel spokesman Chuck Mulloy said the company will carry out a “vigorous defense” against Transmeta’s claims.

The 11-year-old company made a splash in 2000 when it came out of stealth mode to announce it had developed designs that would make it a serious challenger to Intel, the world’s largest computer chip maker. Transmeta was founded by David Ditzel, a chip industry veteran who led the development of SPARC chips at Sun Microsystems.

In 2000, Tansmeta raised $273 million through an IPO. But the company never became a significant player. Intel came out with its own low-power laptop processor, the Pentium M. The chip was sold under the brand Centrino, and became a huge seller. Intel has since put the design into its desktop and server processors as well.

Transmeta needs to get aggressive if it wants to pursue a licensing strategy. For the first half of this year, the company posted revenues of $28.84 million, which came from selling products and services but not from collecting licensing fees. In comparison, the $31.56 million the company generated for the first half of 2005 included $10 million from licensing agreements.

The company did improve its bottom line. Transmeta posted a net loss of $10.11 million for the first six months of 2006, compared with a net loss of $14.25 million a year ago. It also has about $52 million in cash.

Although Transmeta is suing Intel, it isn’t likely to do the same against Intel rival Advanced Micro Devices. Last June, AMD said it would market Transmeta’s Efficeon chips for PCs aimed at developing countries.

Transmeta’s case against Intel is likely to go to trial in 2008. Transmeta is asking the court to stop Intel from selling chips that used Transmeta’s designs and order Intel to pay for unspecified damages.

Contact the writer: UWang@RedHerring.com

Arasor, which develops the optoelectronic chip, and Novalux, which supplies the laser modules, are gunning for the large-screen plasma and LCD TV market (40 inches and up). Company executives said laser TVs offer richer colors but consumes 75 percent less power and costs less than existing flat panel displays.

“With laser, you can see a much larger color spectrum,” said Jonathan Espy, executive vice president of Arasor. Although 6-year-old Arasor is headquartered in Mountain View, California, it’s been called an Australian company because it is expected to raise $35 million Australia dollars ($26 million USD) when it goes public on the Australian Stock Exchange next Thursday.

Arasor and Novalux began work on the laser TV project nearly two years ago and found interest among TV makers who were seeking alternative technologies to plasma and LCD for flat panel displays. Consumers have favored LCD because the displays are cheaper than plasma flat screens.

Families that still watch the old-fashioned and bulky CRT (cathode ray tube) TVs also will have more choices when they are ready to upgrade. Laser technology can produce twice the color content that can be generated by LCD or plasma, said Greg Niven, vice president of marketing at Novalux, based in Sunnyvale, California, which has raised $32.2 million in two rounds since its inception in 1998.

“The sweet spot in the market that everyone is gunning for is 50” sell for under $1,000,” Mr. Niven said. “That’s where we feel where laser TV, and that makes it affordable.”

Aside from Mitsubishi, other TV makers who have announced plans to make laser TVs include Samsung. Mr. Niven declined to name other customers. Attendees of the upcoming International Consumer Electronics Show in Las Vegas in January will see 10 brands of laser TVs on display, he added.

Laser is not the only emerging technology for the TV market. Samsung, a major maker of LCD and plasma TVs, also has demonstrated a 56-inch TV using light emitting diodes (LED) that sported lighting technology from startup Luminus Devices, in Woburn, Massachusetts.

Contact the writer:UWang@RedHerring.com

The company, AMEC, is only two years old, but it’s attracting backing from major venture capitalists in the United States, including Walden International, Lightspeed Venture Partners, and Interwest Partners.

The deal also reflects efforts by China to develop a homegrown semiconductor industry that offers everything from chip designs to manufacturing.

China already is home to a mix of indigenous chip design houses and contract chip makers (known as “fabs”), but it has yet to develop the chip equipment sector.

The multimillion dollar machines used to etch circuitry and cut chips out of silicon wafers have come from large companies in the U.S. and Japan, such as Applied Materials in Santa Clara, California, and Tokyo Electron.

China is the world’s largest chip market—through its large consumer market and booming electronics exports. Yet its chip factories can only meet 15 percent of the demand, said Dave Cavanaugh, an analyst for Semico Research. The Chinese government wants the bar raised to 85 percent.

Growing Chinese Market

About $1.33 billion worth of chip equipment, or 4 percent of the world’s equipment sales, is expected to be sold to China this year, according to Semiconductor Equipment and Materials International, a trade group.

The equipment sales are expected to grow 78 percent in 2006, however, reaching $2.37 billion.

“To have a Chinese equipment manufacturer fits into the overall strategy of the Chinese government,” Mr. Cavanaugh said. In the past, the government has supported the local chip design houses and manufacturers through loans and other incentives.

AMEC is developing manufacturing technologies and equipment for 65-nanometer and 45-nanometer, the most advanced processes currently available or under development by its competitors. There is scant information on AMEC’s products. The company, headed by CEO Gerald Yin, has no web site.

The company is counting on its location as an advantage. Shanghai already has several fabs, including Semiconductor Manufacturing International (SMIC), which competes fiercely with the world’s No. 1 and No. 2 fabs—Taiwan Semiconductor Manufacutring (TSMC) and United Microelectronics (UMC), also in Taiwan.

“Its unique Asia-based R&D, manufacturing, and service operations bring AMEC very close to its dominant customer base, thereby enhancing the company’s value proposition and providing a competitive edge,” said Chris Schaepe, a general partner at Lightspeed in Menlo Park.

But location is going to be less important than whether AMEC can offer better and cheaper equipment than its established rivals, Mr. Cavanaugh said.

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The company is teaming up with music service provider RealNetworks and digital music player maker SanDisk to launch the Best Buy Digital Music Store. Best Buy is using RealNetworks’ Rhapsody to run its online shop. Of course, a music service wouldn’t be complete without hardware offerings. Best Buy also is promoting SanDisk’s Sansa portable players for the launch, which takes place on October 15.

The alliance is the latest foray by an electronics retailer into the online music market. Once the market was divided among makers of digital music players and web sites that sell songs individually or by subscription, such as Napster, Yahoo, and RealNetworks.

Apple Computer proved that offering both a music service and music players is a winning formula. Now consumers can buy downloadable songs online from off-line chains such as Wal-Mart, which sells everything from frying pans to fishing tackles. Target, another general-purpose retail chain in the United States, is reportedly working on an online music store as well.

Needless to say, Best Buy, which has 840 stores in the United States and Canada, isn’t at the forefront of the online music business. Its advantage: access to consumers through its physical stores and an already-established online shop that peddles electronic devices and software.

The deal will benefit SanDisk, which has been promoting RealNetwork’s service through its Sansa music players (see Real, SanDisk Team on Music). SanDisk, which made its mark as the world’s largest memory card maker, began selling MP3 players two years ago. The Milpitas, California, company has found success in selling its own branded memory cards in retail stores, and it has used that experience to sell music players.

SanDisk isn’t the only hardware maker that seeks to replicate Apple’s success. Microsoft, which plans to introduce its own portable digital music player, Zune, next month, also plans to launch an online music service (see Microsoft Reveals Zune Price).

Meanwhile, Samsung is working with MusicNet to launch an online store later this year, first in Europe (see Samsung Intros Music Service).

Best Buy shares rose $0.30 to $56.90 per share in recent trading. RealNetworks’ shares rose $0.55 to $11.46 per share while SanDisk’s shares declined $0.98 to $55.40 in recent trading.

Contact the writer: UWang@RedHerring.com

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The Milpitas, California, company announced the latest restructuring plan after posting impressive earnings for its fourth fiscal quarter, which ended August 31. Solectron reported sales of $2.90 billion, up 21 percent from a year ago. Its net income more than tripled, reaching $38.8 million, or $0.04 per share, from $11.8 million, or a penny per share.

Despite the growth, Solectron, the world’s fourth-largest electronics contract producer, must continue to struggle in a competitive market where its rivals are growing at an even faster pace.

Consider this: Solectron’s revenue declined by 10 percent in 2005 from 2004, while the world’s largest contract manufacturer, Foxconn, saw its sales shoot up by 62.4 percent to $27.3 billion.

Solectron’s fiscal 2006 revenue reached $10.56 billion, up merely 1 percent from $10.44 billion for fiscal 2005. Meanwhile, market research firm iSuppli said the global contract manufacturing business is expected to experience a compound annual growth rate of 10 percent through 2010.

New-Contract Woes

Solectron saw one of its main customers, Nortel, giving some of its business to Flextronics of Singapore. It also has had trouble getting new contracts, wrote Morningstar equity analyst Andrew Golomb in research note. “Customers continue to consolidate, which could put Solectron on the losing end of the consolidation,” he wrote.

Investors are not convinced whether Solectron will be able to get out of the slump, especially when the company gave a rather uninspiring forecast for the first fiscal quarter, when it expects to post sales of $2.6 billion to $2.8 billion.

Its shares fell 3.8 percent, or $0.13, to $3.29 per share in after-hour trading.

To spur growth, Solectron will have to win more customers in the booming consumer electronics market. Right now its largest customers include network equipment maker Cisco Systems and Nortel.

Foxconn, in contrast, makes iPods for Apple Computer and game consoles for Sony and Nintendo. Foxconn is owned by Taiwan’s Hon Hai Precision Industry, which in June said it would buy digital camera maker Premier Image Technology of Taiwan for $928 million. Contact the writer:UWang@RedHerring.com

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News reports emerged Tuesday that the EU, after five years of investigating the chip giant, may make a decision by the end of the year on whether to charge Intel for allegedly using rebates and other tactics to limit or coerce computer makers from buying chips from Advanced Micro Devices.

Intel, based in Santa Clara, California, should be getting used to defending its business practices against antitrust allegations around the world. Korea has launched an inquiry (see Korea Probes Intel). Last year, Japanese regulators found Intel to have violated its antitrust rules, and Intel didn’t contest the decision (see Intel Behaves in Japan).

Intel has been the reigning PC chip maker for decades, selling processors and related chips for personal computers and servers. It faced antitrust investigations in the United States before, but never formal charges.

The findings by the Japan’s Fair Trade Commission and legal pursuits by AMD seem to have made Intel more vulnerable to antitrust allegations. EU investigators raided Intel’s office earlier this year (see EC Agents Raid Intel Offices).

AMD also has filed an antitrust suit against Intel in Japan and the United States. But the Sunnyvale, California, company received a setback in the United States, where a federal judge narrowed the scope of the lawsuit by tossing out certain claims (see Judge Nixes Claims in AMD Suit).

Contact the writer: UWang@RedHerring.com

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Skyworks, based in Woburn, Massachusetts, will cut 425 jobs, or 10 percent of its workforce, and save $70 million by closing design centers and stopping its baseband chip development efforts, the company said.

Instead, the company will focus on developing power amplifier and transceiver chips for the wireless, automotive, medical, and industrial markets. Those businesses are growing at about 17 percent a year.

Investors cheered the news by catapulting the share price by $1.92 to $6.98 per share in recent trading.

“This focus makes a lot of sense, given the trends in the market and our relationships with top [customers],” said Skyworks CEO David J. Aldrich.

Plan Didn’t Pan Out

Mr. Aldrich said the company began to move away from developing baseband chips, used to process cellular signals in handsets, two years ago because its plan to target smaller handset makers in emerging markets wasn’t working.

Initially, Skyworks was betting that new handset makers in fast-growing markets such as China would grab a large chunk of business selling cheap phones. But that trend didn’t last long because major cell phone makers such as Nokia, Motorola, and Samsung began to put lots of marketing and R&D dollars in serving those emerging markets.

Those major handset makers also have long-established relationships with larger baseband chip developers such as Texas Instruments and Freescale. Skyworks saw its baseband revenue decline from $108 million in fiscal 2002 to an estimated $50 million for fiscal 2006, which ended on September 29 this year (the company is scheduled to announce its four-quarter earnings on Nov. 1).

But Skyworks does sell its power amplifier and transceiver chips to those top handset makers. Those businesses together increased the company’s revenue from $396 million in fiscal 2002 to an estimated $730 million in fiscal 2006.

Bigger Contenders

Although Skyworks has improved its business by developing those chips, it still has to contend with larger competitors, including ST Microelectronics out of Geneva and Texas Instruments.

Skyworks was created in 2002 as a merger between Conexant Systems’ wireless business and Alpha Industries. Conexant also spun off its chip manufacturing operation that year and named it Jazz Semiconductor.

Jazz Semiconductor, which makes chips for Skyworks, is being sold to an investment firm formed by former Apple Computer co-founder Steve Wozniak and former Apple CEO Gil Amelio (see Woz Firm Nabs Jazz Semi: $260M).

Skyworks expects to take a charge between $85 million and $95 million as a result of getting rid of the baseband business. The charge, mostly non-cash, would be recorded in the fourth-quarter financial results.

Contact the writer: UWang@RedHerring.com

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Imagination, based in Hertfordshire, United Kingdom, specializes in developing video and graphics semiconductor core designs that its customers use to create complex multimedia processors. Its PowerVR technologies help to bring crisp and color-rich images to computers and consumer electronics.

The intellectual property-focused company is extending is licensing agreements with Intel and TI. Intel, the world’s largest computer chip maker, plans to use Imagination’s digital signal processing cores for engineering chips for various kinds of computers, from desktops to ultramobile PCs.

TI, the world’s largest cellular chip maker, will put Imagination’s technology into OMAP 3—a new generation of mobile chips. TI, based in Dallas, first discussed OMAP 3 at February’s 3GSM World Congress in Barcelona.

Winning Users’ Hearts

Creating more life-like images and processing those images quickly are important for winning consumers’ hearts these days, particularly with the popularity of portable gadgets such as video iPods. Cell phones also increasingly have become entertainment devices, as service and content providers look for ways to make money by selling videos and news programming.

“Intel Capital’s investment recognizes the importance of graphics, video, and display technologies for the PC, mobile computing, and consumer markets,” Arvind Sodhani, president of Intel Capital, said in a statement.

Intel Capital typically invests in young, private companies. With Imagination, it’s investing in a public company traded on the London Stock Exchange. The investment will be used to buy 6 million shares at 88 pence per share.

Imagination isn’t Intel’s first investment in video processing technology. The Santa Clara, California, chip maker bought an Israeli startup, Oplus, for $100 million last year. Oplus developed video-processing chips for LCD and plasma displays, from monitors to TVs.

Intel executives said last year they plan to integrate Oplus’ technologies into Intel’s chip offerings eventually.

Imagination also counts large public companies such as Samsung and Freescale, as well as startups such as Centrality Communications, as its licensees. The company competes with well-known graphics chip developers such as nVidia and ATI Technologies. ATI is being bought by Advanced Micro Devices, Intel’s rival.

Contact the writer:UWang@RedHerring.com

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The Jazz acquisition, announced Tuesday, is the first by Acquicor, which went public last March as part of its strategy to raise money and invest in tech companies. The firm has received considerable attention because its founders include Apple Computer co-founder Steve Wozniak and former CEO Gil Amelio (see Wozniak Raises $150M in IPO).

Acquicor is betting on a business that targets niche markets. Jazz, based in the Southern California city of Newport Beach, is a foundry, meaning it makes chips for other companies. Jazz’ specialty is to make semiconductors that require less common materials and technologies—those chips are analog or mixed-signal chips in cell phones, wireless networking equipment, and consumer electronics such as game consoles.

The majority of the chips made in the world today, including the microprocessors that power computers and servers, are digital and use CMOS (complementary metal oxide semiconductor). Many chip designers strive to develop chips that can be made in CMOS because the material, silicon, and the manufacturing cost are cheaper.

But Acquicor executives told analysts during a conference call Wednesday that the explosion of gadgets and wireless networks and home and office use will fuel more designs for chips that require Jazz’s foundry expertise. Jazz’s technologies include the use of silicon germanium.

”Jazz has specialized processes and intellectual property and technologies that we believe distinguish it from other digital semi companies,” Ellen Hancock, chief operating officer of Irvine, California-based Acquicor, said in the conference call. “This provides a real competitive edge.”

Chip company Conexant Systems spun off its manufacturing facility and formed Jazz as a joint venture with private equity firm The Carlyle Group in 2002. Carlyle put up $52 million to be the majority stakeholder in Jazz. Incidentally, Mr. Amelio once ran Conexant’s manufacturing operation.

Since then, Jazz has gone from serving Conexant to dozens of customers, including Marvell Technology, Skyworks Solutions, Freescale Semiconductor, and Texas Instruments. Jazz has a little over 800 employees.

Limited by its production capacity in Newport Beach, an expensive place to live and work, Jazz invested in fellow foundry Hua Hong NEC Electronics in Shanghai in 2003 to expand its capacity at a cheaper place to manufacture chips. Jazz also provides technologies to Advanced Semiconductor Manufacturing Co. (ASMC) in Shanghai in exchange for using ASMC’s facility. Jazz also has been buying new equipment to expand its production capacity at home.

CEO Shu Li will continue to head up the company after the acquisition.

Jazz reported revenue of $116 million and an operating loss of $15.5 million for the first half of this year. The handset market is the largest for the company, followed by wireless local area networks such as Wi-Fi, consumer electronics, and others, Mr. Li said.

The overall foundry business is expected to grow 32 percent to reach $22.1 billion this year, according to IC Insights. That’s a huge leap from the 1 percent increase the industry saw in 2005.

Jazz has tried to go public twice. It canceled the first attempt in 2004, citing poor market conditions. In April this year, Jazz said it would try again to raise $105 million, but it since has said it will withdraw the IPO plan again.

Mr. Amelio said he plans to buy other companies or technologies that will boost Jazz’s growth. But he has no current plan to invest in other tech sectors. The acquisition is scheduled to close in the first quarter of 2007.

Contact the writer:UWang@RedHerring.com

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In his keynote speech to kick off the Intel Developer Forum in San Francisco, Mr. Otellini offered more details about the launch of quad-core processors and predicted that WiMAX, a young Internet-based broadband technology, will be as popular as Wi-Fi is today and propel greater sales of Intel computer processors.

Much of the speech covered subjects already widely discussed in news reports in recent months.What Intel’s investors are waiting to see is whether the chip giant can turn its vast engineering resources into impressive sales.

Intel shares rose $0.48 to $19.89 in recent trading.

The Santa Clara, California, company has been struggling to fend off Advanced Micro Devices (AMD), which has taken market share from Intel, most notably in the server chip space. Mr. Otellini is carrying out a massive restructuring plan to cut labor and cost at his company (see Intel to Cut 10% of Workforce).

Here is what Mr. Otellini promises to deliver:

Before the end of 2006:

·          Launch Core 2 Extreme in November: a high-end quad-core processor for gaming PCs

·          Launch a quad-core Xeon in November

·          Launch WiMax PC cards

In 2007:

·          Launch Core 2 Quad in the first quarter. These are mainstream quad-core processors for desktops.

·          Begin 45-nanometer manufacturing in the second half of the year. This new production technology will pack more transistors on a chip and improve performance by 20 percent while reducing current leakage fivefold.

·          Launch a new generation of Centrino code-named Santa Rosa. This bundle of chips will include a Core 2 Duo processor, a chipset with integrated graphics, the next-generation Wi-Fi (802.11n), and NAND on the motherboard. Putting NAND on the motherboard is a new approach and should shorten the time it takes to download a program or kick-start the computer from hibernation mode.

In 2008:

·          Introduce a new microarchitecture code-named Nehalem: This new chip design blueprint will replace the Core microarchitecture unveiled in 2006.

·          Put Wi-Fi and WiMAX on a single chip for Centrino            

In 2010:

·          Introduce a new microarchitecture code-named Gesher. Mr. Otellini said computer performance that can be squeezed from each watt of power will increase from now until 2010.

In 2011:

·          Launch processors with 80 cores that can perform one teraflop, or one trillion floating point operations per second

Million-Dollar Prize

Aside from laying out Intel’s technology timeline, Mr. Otellini is also giving out a $1-million prize to any company that can build a media center computer using Intel’s Viiv brand of chips.

The award is a move by Intel to generate more interest in its Viiv computers, which it launched earlier this year as a hub for the living room (see Intel: Chip Maker to Video Firm). The computers have not been blockbuster sellers, however.

Viiv is a new consumer brand for Intel. In terms of hardware, Viiv is made up of a computer processor, a chipset, and Wi-Fi, much like the Centrino brand for laptops.

But Intel took pains to sign content and service delivery deals with ESPN, Yahoo, AOL, and NBC Universal, to name a few companies, to soup up computers that carry the Viiv chips (see AOL, Intel Team on Viiv).

Marrying hardware with content has been a winning strategy for Apple Computer’s iPod. But it hasn’t done the same for Viiv computers, which can transmit content to a TV using a special cable.

Contact the writer:UWang@RedHerring.com

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