Mosaid rides patent windfall
Chip design firm reclaims heritage, returns
to profits
James Bagnall
The Ottawa Citizen
Prospects for Mosaid Technologies Inc. have brightened considerably this
year thanks in part to the recovery of memory chip industry on which it
depends so heavily.
But the Kanata firm's revenues are rising mostly because it decided last year
to try to coax patent licence deals from global manufacturers already using,
but not paying for, patented Mosaid technology.
This summer, Mosaid revealed that it had signed three patent licence pacts
that are expected to generate $13 million in sales in fiscal 2000. Fujitsu,
NEC and Toshiba are the three contributors.
Mosaid chief executive George Cwynar noted yesterday at his firm's annual
shareholders' meeting that talks were well under way with another four
manufacturers. He added that Mosaid intends to seek deals with at least
another dozen firms.
Assuming the firm manages soon to convert most of these manufacturers into
licencees, Mosaid is staring at a potential windfall of more than $60 million
per year over the next two to five years -- not bad for a firm that generated a
measly $22.8 million during a depressed fiscal 1999.
Of course, there is no assurance that new patent licence deals will actually
emerge. For example, Mosaid may not be able to prove that the targeted
manufacturers are using technology based on one or more of Mosaid's
60-plus patents. The only prediction Mr. Cwynar made yesterday was "You
do the math," in reference to the value of the three pacts already announced.
(An interesting side note: Mosaid is relying on the services of two
regionbased firms -- Semiconductor Insights and Chipworks -- to do the
reverse engineering on many of the manufacturers' products. In other words,
SI and Chipworks are taking the products apart to determine what's in them
and what patents are being used.)
Despite the extra boost from patent licences, Mr. Cwynar was cautious
about whether Mosaid will deliver profits in each of the next three quarters.
"It's a little unpredictable because it's tied to when the licensing deals actually
come in and how front-end loaded they are," he said. "We are also investing
heavily in R&D."
Nevertheless, analysts who cover Mosaid expect the firm will deliver a profit
in fiscal 2000, which ends April 30. Brian Piccioni, an analyst with Nesbitt
Burns, projected in a recent research note that Mosaid would earn 14 cents
per share on sales of $38 million.
Fiscal 2001 could mark the most important phase of Mosaid's plan to
remake itself. That's when it will begin shipping several new semiconductor
products under its own brand name -- a first for Mosaid, which has made a
living designing chips for others. Mr. Cwynar said the move is risky, but
offers the prospect of richer returns.
Mosaid is well aware of the industry's risks. It took a $3.6-million
writedown earlier this year on its investment in Accelerix Inc., a maker of
high-speed graphics chips. While Accelerix offered promising technology, it
didn't adapt its chip design quickly enough in a fast-moving market. Mosaid
has decided to get out of the business of graphics chips and will focus on
designs for networking applications.
But Accelerix has left a legacy. More than a dozen of its engineers now
work at Mosaid. And Mosaid itself has more than $20 million worth of tax
loss carry-forwards it can use to reduce its future tax bill for years to come. |
