Today NXP announced that it is acquiring Jennic, the UK based RF design company that specialises in ZigBee chips and stacks. That in itself is not surprising. The market for ZigBee silicon has been consolidating for some time, with the previous acquisitions of One RF, Chipcon and module vendor Meshnetics. It’s something that I predicted would happen last year. It’s good news for the design team at Jennic, as NXP should provide them with the scale to grow and a sales infrastructure and industry stature that increases their customer base.
However, one aspect of the deal is likely to send shockwaves through the industry. That’s the price tag for the acquisition, which is $12.2 million. Compare that to the value that TI paid for Chipcon in 2005, which was around $200 million.
Jennic is one of the last of the original, independent players to be sucked up by the big boys. A few, like Greenpeak – the ultra low power chip company are sitting comfortably within specialist niches, but all eyes must now be on Ember. Ember are the Grand Daddy of ZigBee and have probably seen most success of any of the start-ups, at least in terms of sales. However, this latest purchases pitches them firmly against the battalion of big boys – TI, NXP, Atmel and Freescale, just at the point where the market is starting to see some traction.
A price tag of $12 million for a fabless company is not going to let investors sleep soundly at night. Starting a fabless semiconductor company that is based on a standards compliant radio chip and application stack is not a cheap undertaking. The general consensus is that it costs between $3 and $5 million dollars to spin each new version of chip, and it typically takes three or more versions before it sells in any volume. Add to that the snail’s pace of a standard taking off commercially and you need to invest around $30 – $50 million to even get to first base. Ember has currently raised around $89 million. The question is, after the Jennic sale price of $12 million, who will consider them to be ten times as valuable?
As standards based radios mature, the type of customers for the technology change. In the early days there are typically lots of small, innovative companies who do interesting things with the standards, but in low volume. The next phase, as the standard becomes adopted, is for a few large companies to dominate, with the application for the standard being confined to one particular solution which ships in high volume. The ZigBee community is expecting this to be smart energy, which is already sucking up significant numbers of ZigBee chips. However, this is the point where the contacts and buying power of the larger chips companies can squeeze the smaller, independent players out.
Time will tell whether this happens to Ember; whether they’re acquired, or whether they establish themselves as an independent silicon vendor. But with four of the big boys playing, each taking the view that the target market is smart meters and home automation, their room for manoeuvre may rapidly diminish. A few years ago they struck a joint development agreement with ST, the other major remaining player in this market space. Both sides may be considering it’s time to cash out on that one, but at what valuation? The next twelve months will be interesting, both to see whether ZigBee achieves the momentum it has been looking for over the last five years, and which players survive to profit from it.