Could 2008 be the year that Synchronica finally comes of age? The mobile technology firm has seen its share price slide steadily lower for some time, yet it’s made decent progress in the last twelve months and could soon be generating substantial recurring revenues. None of this seems to be reflected in the share price which has carried on southwards as if nothing had happened.
Synchronica has, over the last three years, streamlined its business model to become a true mobile software company by concentrating on two software products for mobile phones.
Mobile Email and Backup
Synchronica´s flagship product is a mobile email and synchronization solution, Mobile Gateway. Although it works with most types of mobile phones, its key selling point is that it allows ordinary mass-market feature phones to send and receive emails plus manage calendars and contact lists.
Normally this sort of functionality is confined to Smartphones such as Blackberries and Windows Mobile devices. Mobile Gateway provides Blackberry-like services on a wide range of devices from all leading manufacturers and supports about 1.5 billion devices in the market today. Unlike other solutions, it requires no additional software to be installed on the handset. Instead it uses industry standards to synchronise with built-in applications, enabling it to address a much larger market than competing solutions.
It’s designed to work with corporate email systems such as Microsoft Exchange and Lotus Domino (and no additional software needs to be installed by IT departments), but also supports all major consumer mailboxes provided by Yahoo or Google Mail.
Synchronica´s Mobile Backup solution, its second product, provides security for social and business networks. It allows you to securely store a back-up of any contact or calendar details you keep on your mobile phone. So if your phone is lost or stolen, or you change your phone, you haven’t waved goodbye to your address book and calendar.
Research shows that it takes the average person three months to replace all their contact information as it’s often the only place people keep these details. During this time mobile phone operators suffer a drop in revenues so, notwithstanding the basic revenues the product generates, it’s in their interest to provide this service.
Contracts Coming Through
When Proactive last looked at Synchronica in October of last year it had just signed what it described as a breakthrough contract with Sun Microsystems for modules of their Mobile Gateway product. Under the terms of this deal, Sun was to pay a $1.8m upfront fee, plus up to $2.40 per user per annum and support fees of up to $150,000 per annum and up to $4,500 per incident. Sun also has the option to pay a one-off fee of up to $4.6m for each major version of the licensed software, rather than the annual per user fee. Sun accepted the delivery of the first major version last December and the $1.8m upfront fee is due to be paid in three equal instalments in March, July and October of this year.
Other deals have been announced since. A subsidiary of the major Middle Eastern and African mobile operator, Zain, has signed up for 200,000 users for Mobile Gateway and 100,000 users for Mobile Backup for a total fee of $0.5m. Global re-selling agreements have been signed with Brightstar and a ‘top 5 global IT services company’. In June, an agreement was signed with a Chinese handset manufacturer for 20% of revenues earned subject to a minimum of $1 per user per year, with no rebates, buy-outs or caps. A leading systems integrator in the United Arab Emirates, Emircom, has also agreed to supply Mobile Gateway to its customers.
There’s potentially a lot of upside in these new relationships. For example, the wider Zain group has over 45 million subscribers. The Chinese handset manufacturer expects to ship 16 million units this year and will offer Mobile Gateway, in partnership with major mobile operators, to China’s market of 580 million subscribers. Eight other mobile operators are trialling Mobile Gateway at the moment so more deals could be announced soon.
On August 18 the company demonstrated its ambition with the acquisition of the trading subsidiary of AxisMobile, a competitor listed on the AIM market. The purchase was paid for by issuing 85m new shares and an additional 169m shares will be placed with institutions at 3p per share to accelerate the sales and marketing efforts of the combined businesses.
AxisMobile has 3 million end users across Central and Eastern Europe and reported sales of $1.4m last year. Its technology will allow Synchronica’s customers to read a greater variety of email attachments on standard phones. An investor webinar is being held at 11am BST on August 27 which should provide more details.
Synchronica’s plan is to concentrate on emerging markets where few people can afford Smart phones and there is limited access to PCs. Research shows that in these countries, mobiles will become the main way that people access the Internet. Email is the most popular application of the Internet with more than 2 billion mailboxes worldwide and Synchronica expects mobile email to be a big success in particular in emerging markets.
Global mobile connections are forecast to increase by 1 billion over the next four years to 4.8 billion and nearly all this growth will come from the emerging markets that Synchronica is targeting.
Customers in these regions tend to have pre-paid contracts and churn rates are high - Mobile Gateway and Backup could help operators increase revenue per user whilst also reducing customer losses.
At the moment PC access is required to set up Mobile Gateway, but Synchronica plans to add a mobile signup option soon. They also plan to add email to SMS functionality will allow the most basic mobile phones without an email client to use their technology. Both these developments should help them in the drive to sign up more operators and drive adoption rates in emerging markets.
Financials
Synchronica has a history of losses, as you would expect from a young technology outfit. Revenues dipped from £3m in 2005 to £1.1m in 2006 (the year of the restructuring), but recovered to £2.3m last year. Staff cuts reduced a £7m loss in 2006 to a £3m deficit last year. Brokers have pencilled in a loss of £2m for 2008 followed by a profit of £0.8m in 2009 but these figures pre-date the acquisition of AxisMobile.
On the cash front Synchronica is looking reasonably comfortable for the moment. It had £0.75m at the start of this year but raised £3.9m in placings in January and February. Assuming the placing accompanying the acquisition of AxisMobile is approved in a general meeting in mid-September, a further £5.1m before expenses will be raised.
Nevertheless, the Chief Executive’s closing comments in the most recent annual report made interesting reading. He highlighted the fact the company could be lacking in sales, marketing and engineering resources to exploit the opportunities available. He also mentioned the lack of funding relative to its competitors that may prevent Synchronica developing its products and delivering customised versions to prospective customers. This could be interpreted as a For Sale sign. There has been much activity in this industry, most notably Nokia’s purchase of Intellisync in 2006, a peer to Synchronica, for US$ 430 million in cash.
Synchronica is making all the right noises but given its history investors don’t want to give it the benefit of the doubt. That’s understandable and the shares do remain highly speculative. Small technology companies can get overtaken by events very quickly but Synchronica shareholders may yet come out smiling.
Synchronica has, over the last three years, streamlined its business model to become a true mobile software company by concentrating on two software products for mobile phones.
Mobile Email and Backup
Synchronica´s flagship product is a mobile email and synchronization solution, Mobile Gateway. Although it works with most types of mobile phones, its key selling point is that it allows ordinary mass-market feature phones to send and receive emails plus manage calendars and contact lists.
Normally this sort of functionality is confined to Smartphones such as Blackberries and Windows Mobile devices. Mobile Gateway provides Blackberry-like services on a wide range of devices from all leading manufacturers and supports about 1.5 billion devices in the market today. Unlike other solutions, it requires no additional software to be installed on the handset. Instead it uses industry standards to synchronise with built-in applications, enabling it to address a much larger market than competing solutions.
It’s designed to work with corporate email systems such as Microsoft Exchange and Lotus Domino (and no additional software needs to be installed by IT departments), but also supports all major consumer mailboxes provided by Yahoo or Google Mail.
Synchronica´s Mobile Backup solution, its second product, provides security for social and business networks. It allows you to securely store a back-up of any contact or calendar details you keep on your mobile phone. So if your phone is lost or stolen, or you change your phone, you haven’t waved goodbye to your address book and calendar.
Research shows that it takes the average person three months to replace all their contact information as it’s often the only place people keep these details. During this time mobile phone operators suffer a drop in revenues so, notwithstanding the basic revenues the product generates, it’s in their interest to provide this service.
Contracts Coming Through
When Proactive last looked at Synchronica in October of last year it had just signed what it described as a breakthrough contract with Sun Microsystems for modules of their Mobile Gateway product. Under the terms of this deal, Sun was to pay a $1.8m upfront fee, plus up to $2.40 per user per annum and support fees of up to $150,000 per annum and up to $4,500 per incident. Sun also has the option to pay a one-off fee of up to $4.6m for each major version of the licensed software, rather than the annual per user fee. Sun accepted the delivery of the first major version last December and the $1.8m upfront fee is due to be paid in three equal instalments in March, July and October of this year.
Other deals have been announced since. A subsidiary of the major Middle Eastern and African mobile operator, Zain, has signed up for 200,000 users for Mobile Gateway and 100,000 users for Mobile Backup for a total fee of $0.5m. Global re-selling agreements have been signed with Brightstar and a ‘top 5 global IT services company’. In June, an agreement was signed with a Chinese handset manufacturer for 20% of revenues earned subject to a minimum of $1 per user per year, with no rebates, buy-outs or caps. A leading systems integrator in the United Arab Emirates, Emircom, has also agreed to supply Mobile Gateway to its customers.
There’s potentially a lot of upside in these new relationships. For example, the wider Zain group has over 45 million subscribers. The Chinese handset manufacturer expects to ship 16 million units this year and will offer Mobile Gateway, in partnership with major mobile operators, to China’s market of 580 million subscribers. Eight other mobile operators are trialling Mobile Gateway at the moment so more deals could be announced soon.
On August 18 the company demonstrated its ambition with the acquisition of the trading subsidiary of AxisMobile, a competitor listed on the AIM market. The purchase was paid for by issuing 85m new shares and an additional 169m shares will be placed with institutions at 3p per share to accelerate the sales and marketing efforts of the combined businesses.
AxisMobile has 3 million end users across Central and Eastern Europe and reported sales of $1.4m last year. Its technology will allow Synchronica’s customers to read a greater variety of email attachments on standard phones. An investor webinar is being held at 11am BST on August 27 which should provide more details.
Synchronica’s plan is to concentrate on emerging markets where few people can afford Smart phones and there is limited access to PCs. Research shows that in these countries, mobiles will become the main way that people access the Internet. Email is the most popular application of the Internet with more than 2 billion mailboxes worldwide and Synchronica expects mobile email to be a big success in particular in emerging markets.
Global mobile connections are forecast to increase by 1 billion over the next four years to 4.8 billion and nearly all this growth will come from the emerging markets that Synchronica is targeting.
Customers in these regions tend to have pre-paid contracts and churn rates are high - Mobile Gateway and Backup could help operators increase revenue per user whilst also reducing customer losses.
At the moment PC access is required to set up Mobile Gateway, but Synchronica plans to add a mobile signup option soon. They also plan to add email to SMS functionality will allow the most basic mobile phones without an email client to use their technology. Both these developments should help them in the drive to sign up more operators and drive adoption rates in emerging markets.
Financials
Synchronica has a history of losses, as you would expect from a young technology outfit. Revenues dipped from £3m in 2005 to £1.1m in 2006 (the year of the restructuring), but recovered to £2.3m last year. Staff cuts reduced a £7m loss in 2006 to a £3m deficit last year. Brokers have pencilled in a loss of £2m for 2008 followed by a profit of £0.8m in 2009 but these figures pre-date the acquisition of AxisMobile.
On the cash front Synchronica is looking reasonably comfortable for the moment. It had £0.75m at the start of this year but raised £3.9m in placings in January and February. Assuming the placing accompanying the acquisition of AxisMobile is approved in a general meeting in mid-September, a further £5.1m before expenses will be raised.
Nevertheless, the Chief Executive’s closing comments in the most recent annual report made interesting reading. He highlighted the fact the company could be lacking in sales, marketing and engineering resources to exploit the opportunities available. He also mentioned the lack of funding relative to its competitors that may prevent Synchronica developing its products and delivering customised versions to prospective customers. This could be interpreted as a For Sale sign. There has been much activity in this industry, most notably Nokia’s purchase of Intellisync in 2006, a peer to Synchronica, for US$ 430 million in cash.
Synchronica is making all the right noises but given its history investors don’t want to give it the benefit of the doubt. That’s understandable and the shares do remain highly speculative. Small technology companies can get overtaken by events very quickly but Synchronica shareholders may yet come out smiling.
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