The main event this week on the technology scene will, without doubt, be on Friday when Apple Inc.'s (AAPL) second generation of its iPhone goes on sale at stores worldwide. The impending recession has often been referred to of late in connection with the great depression of the 1930s. I expect that the scenes of long queues stretching all the way down Manhattan's Fifth Avenue will be seen once more; only this time, they won't be handing out food vouchers - even though the US is now in the grip of a recession - but rather the new iPhone for the fairly modest sum of $200. The new method that both Apple and its communications provider AT&T Inc. (T) have now adopted whereby the activation of the handset is done at the store, rather than by the buyer in his own free time, guarantees endless queues.
Many companies and sectors in the food chain of the production of this handset are eagerly awaiting the launch, since there is no question that Apple's sales are set to soar sky high over the coming months. Unlike last year, this time round not only will buyers know more or less what they're getting when they finally leave the store after a wearying wait, but the launch will take place simultaneously in twenty other markets outside the US, with thirty more to follow by the end of year. Goldman Sachs, for example, predicts that Apple's device sales in the 2009 calendar year will reach 18 million units. Even that, it feels, is a conservative estimate that does not take into account a potential penetration of the enterprise sector as well.
The NAND flash chip sector is pinning high hopes on this launch and the parallel launches of compatible handsets. Judging by the multiyear low that the shares of SanDisk Corporation (SNDK) and Micron Technology (MU) have both reached, no one is expecting a rerun of the "iPod Nano effect" of the summer of 2005. It was then that Apple made the switch from players based on miniature hard drives to ones based on flash, and SanDisk, because of the royalties it collects on these chips, climbed from $20 to $80 by the end of the year.
There may be a similar effect this time, albeit far less intense, one I would describe as the "$200 iPhone effect", which will increase demand for flash far more than was expected on the eve of the launch. This will be even more likely if it turns out that, like last year, the overwhelming majority of buyers will once more opt for the handset with the larger storage capacity - 16Gb.
With the launch process on Friday, it won't take past Saturday for the publication of the list of the suppliers that will produce components for the iPhone, and the posting of the list of names on Internet. It will be a huge surprise, for example, if it turns out that the handset's 3G telecommunications processor has not been made by German chip maker Infineon Technologies AG (IFX), which pays Israeli technology licensing company Ceva Inc. (CEVA) several cents per handset for the use of its intellectual property.
Marvell Technology Group (MRVL) is expected to continue to supply the wireless communications chip for the new handset as well as the old one, due to it being low in energy consumption, compared with the products of competitors like Broadcom Corp. (BRCM). The latter will not be left out either, since it will apparently be supplying the handset's new GPS application as well its touch-screen controller. Samsung Electronics Co. Ltd. (KSX:5930) and the Micron/Intel (INTC) partnership will share the flash pie, but Samsung is the only one that pays royalties to SanDisk.
Too little, too late
Many people will commonly associate the term "Survivor" with one of the most successful programs ever in the world of reality television. But over in the Yakum Industrial Park in the heart of the pastoral Sharon region, a real battle for survival is now being played out. Managers at wireless chip company Metalink (OTC:MTLK) are walking around shell-shocked. They cannot understand how after working for years on the development of one the world's most advanced wireless chips, the company finds itself in dire financial straits of a degree it has never experienced before, not even during the slump that followed the bubble years.
I have referred on several occasions to the comment of Metalink founder and CEO Tzvika Shukhman, who quite rightly said of his wireless chips, "I launched an intercontinental missile years ago and I hit the target." It now turns out that Shukhman, who has gained a reputation for himself in the telecommunications chip sector as an engineering genius, miscalculated the "fuel" requirements, the missile's cash burn. He failed to take into account that if the world he dreamed of five years ago - of a wireless digital home, loaded with rich video content downloadable onto an entire range of devices - didn't arrive by 2008, his missile was likely to crash after running out of fuel, which in this case means cash.
The wireless home, clearly, is not quite here yet. Current developments center mainly around advanced routers for wireless broadband, a market in which Metalink has only just won its first order. Too little, too late. Wireless televisions probably won't be here until 2010 at the earliest, and even interim solutions such as the Apple TV set-top box haven't really taken off. With a situation like this, and with only enough cash in hand to hang on for a few more months, Metalink has had to publish a shelf offering to raise $25 million, more than the entire company is worth at present.
If Shukhman, who holds 25% of Metalink, and Uzi Rosenberg, who holds 20%, want to maintain their proportionate stake and control after the offering, they will have to stump up some cash of their own. Shukhman deserves full credit for buying shares at prices many times higher than today during the years since the post-bubble slump because he passionately believed in his approach.
Metalink's offering, should it go ahead, is a stop gap, and it will have to look for strategic alternatives. Speaking unofficially, I believe the company is on the shelf since its situation is known on the market, certainly to the big WiFi chip players - Intel Corporation, Broadcom, Marvell, and Atheros Communications Inc. (ATHR). The first three have a substantial presence in Israel, so it would not be an earthshaking event were they to acquire another company at the value of a start-up, even if the price is far higher than it is today.
Another alternative is to go for a sale or a funding and collaboration arrangement with a chip company in the telecommunications sector, but one that does not have any WiFi solutions of its own. In today's world, one needs an entire suite of telecommunications solutions, from wireline DSL to wireless solution such as WiFi, WiMAX, or Bluetooth, and even GPS solutions. Metalink has proven capabilities in the WiFi niche and I believe that no one in the market questions the quality of its technology.
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.