April 22, 2004 2:16 PM PDT
Cell phone chip designer rides high in IPO
San Jose, Calif.-based SiRF closed at $15.30 after having released 11 million shares for $12 apiece in its IPO Thursday. Earlier in the week, the company was slated to release 10 million shares at between $10 and $12 a share. The company's stock traded as low as $13.99 and as high as $15.50.
The company makes and designs chips that connect into the global positioning system, a band of orbiting satellites that can pinpoint the location of a person or object rapidly and precisely.
While GPS technology has been commercially available for about a decade, sales were generally relatively modest until recently. In the United States, demand can be largely traced to the Federal Communications Commission's E911 mandate. Under that mandate, cellular carriers must ensure that by the end of next year 95 percent of the phones on their networks can be located by rescue workers when people dial 911.
While carriers have experimented with various ideas for implementing E911, the emerging technology of choice for many appears to be GPS, or a form of GPS that can be enhanced through cellular positioning. Sprint, Verizon Wireless and Nextel Communications are adopting a form of GPS for E911.
Consumer demand for GPS is growing as well. Hutcheson's 3G networks being built in Europe and Southeast Asia will support GPS tracking. In Japan and Korea, NTT DoCoMo, SK Telecom and KDDI are providing location-based GPS services and content.
SiRF has inserted its technology into Motorola phones on the Nextel network, Hewlett-Packard handhelds, and cars from Toyota and Honda. Revenue grew from $15 million in 2001 to $73.1 million last year. The company also turned profitable last year.
Competitor Qualcomm, which boosted its GPS intellectual property by buying SnapTrack in March 2000, has landed deals with, among others, Sony Ericsson Mobile Communications, Samsung, China Unicom and Sprint.
GPS chip designers have tackled many of the problems involved with locating an individual on the globe. Now, much of the development effort revolves around lowering the cost, Kanwar Chadha, co-founder and vice president of marketing at SiRF, said in a recent interview. Cell phone makers want to get the cost of GPS functionality down to $20 per phone or even $10 or $5.
Although the company is relatively small and has only just gone public, it is hardly a start-up. The company was founded in 1995. Investors in SiRF include Dell, Nokia, Intel, Matsushita and MIC, an NTT DoCoMo affiliate.
Age, however, is increasingly a common denominator in IPOs. Investors recently have tended to gravitate toward seasoned companies with $50 million or so in revenue and established profits when it comes to public offerings.
Tessera, a chip packaging company founded in the early 1990s, went public at $13 per share late last year and is trading in the $18 range. FormFactor, another older chip company, went public at $14 last year and is now trading at close to $20.
Still, some recent companies have gone public without rolling in profits. Wi-Fi chip designer Atheros had a stock offering earlier this year while reporting net losses.