This is how Metalink Ltd. (Nasdaq: MTLK) founder and CEO Tzvika Shukhman describes the tremendous gamble he took when he decided to invest all his company's money in a new field - wireless chips for the digital home. It looks to me that the team at the company's headquarters in Yakum Industrial Park can now claim that they most certainly have hit the target. For me, their train has now finally pulled out of the station, as Metalink joins the big league.
On Monday, Metalink made an announcement at the CeBit convention in Hanover, Germany, an announcement which was without doubt dramatic for a small company of its size. Korean electronics giant Samsung Electronics Co. Ltd. and European chip maker STMicroelectronics NV (NYSE: STM) will be jointly launching with Metalink a set-top box, which supports high-definition [HD] TV quality based on 802.11n wireless IPTV.
There will a sizable demand for these set-top units everywhere, but most notably in Asia in the run-up to the Olympic Games, which are due to open in Beijing in the summer of 2008. So Shukhman's missile is indeed an intercontinental one. A collaboration between an Asian and a European giant, with the small chip manufacturer from Yakum juxtaposed between them with its ground-breaking chips for the new 802.11n standard.
With all due respect to the achievement that this development represents, I feel that the closure of a deal like this is Shukhman's most impressive feat, as I imagine that he probably faced some tough competition from gorillas such as Broadcom Corp. (Nasdaq: BRCM), Marvell Technology Group (Nasdaq: MRVL), and possibly also Atheros Communications Inc. (Nasdaq: ATHR), which farms out its chip manufacturing to, among others, Tower Semiconductor Ltd. (Nasdaq: TSEM) in Migdal Hae'emek.
Samsung's set-top box will use Metalink's wireless chips to receive IPTV content downloaded on to home computers, which will then be encoded with STM's chips and transmitted by cable on to television screens. In the future, television sets themselves, which will probably have HD-quality imaging, will also be fitted with wireless chips such as those manufactured by Metalink, and video encoders, thus television cables in the home will be a thing of the past. Metalink, it will be recalled, signed its first agreement in the consumer electronics sector with Chinese television manufacturer Haier.
I don't know how Wall Street will respond to Metalink's news but I imagine that those Americans who understand this field will take a look at the graph of video chip supplier Sigma Designs Inc. (Nasdaq: SIGM), and note what happened to that particular diminutive chip company when the penny dropped that the IPTV train had begun to roll. Sigma rose from $8 in the summer of 2006 to $29 by the year's end, despite an ongoing options scandal. Sigma is due to unveil its results today, and these will give some indication as to which of the service providers across the globe has begun, or is set to begin the roll-out of IPTV services.
When talking about set-top providers on a global scale, the first reference is always to Motorola Corp. (NYSE: MOT), or Cisco Systems Inc. (Nasdaq: CSCO) subsidiary Scientific Atlanta, since not many people know that Samsung is the top company in terms of set-top market share in the Asia-Pacific region and number two worldwide, with set-top sales totaling $1.9 billion in 2006. Its European partner in the agreement with Metalink, STM, is the world leader in the digital encoder market. It is estimated that the set-top box market for IPTV will grow from 4.7 million units in 2006 to 41.2 million in 2011, and Metalink will ride this market on the back of the sector's two gorillas.
Metalink's fortunes took a genuine turn for the better from September 2006 onwards once it had some real news to disclose (it was never short on "sexy" announcements). At the end of January, after a series of meetings, the company announced the appointment of Armando Geday, an American of Lebanese descent and a well-known figure in the telecommunications chip world, as special adviser to the company board.
Geday previously managed DSL chip company GlobeSpan Semiconductor Inc. and then led it into the merger with Conexant Systems Inc. (Nasdaq: CNXT), which he then headed until the end of 2004. "This is the person about whom you wrote several times, both before and during the bursting of the bubble, that he wanted to acquire Metalink while he was managing GlobeSpan and that I turned him down," Shukhman told me recently. Geday was the one who opened doors for Shukhman at SMT, which after conducting extensive testing, pitched Metalink's WLANPlus solution to Samsung, which in turn announced on Monday that it would be incorporating it in its latest advanced set-top box.
This is the second time that I have seen this model - bringing in a well-known international figure with connections in the right fields - produce excellent results for small Israeli companies by opening doors at the relevant sector giants, provided that is, that the company in question has what to offer. The last person to do this most successfully was former M-Systems founder Dov Moran, when at the end of 2002, he appointed Dr. Hans Wagner, a personality with extensive connections to the big European handset manufacturers, Nokia Corp. (NYSE: NOK), and Ericsson (Nasdaq: ERIC), to the M-Systems board.
Metalink's agreement with Samsung and STMicroelectronics is Shukhman's greatest achievement.
MTLK 1-yr chart
Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.