Sasken sings a new tune

The company hopes to ring in a new phase in its handsets software business model.

Even today Rajiv Mody remembers how difficult a decision it was for his company to exit the electronic design automation business in 2000, because it would mean focussing on a single vertical "� telecom. "It was a bold move that we made," says the founder and CEO of the Rs 308 crore Sasken Communications, adding, "it seems to be paying off".

Sasken's done fairly well in the telecom services space where it caters for customers across the value chain whether they're manufacturers of network equipment, semiconductor or terminal devices. However, on the products front "� it makes software for mobile handsets "� the company has had limited success with revenues plummeting from 40 per cent of sales in FY03 to less than 10 per cent in FY06. Now, Sasken, which has been investing in the mobile handset space for a long time, having put in more than $50 million for which it has 40 IPRs, has got itself a whole new approach to the business.

To begin with, the company has altogether discontinued making software for the wireline products, and is turning out only mobile software. Next, it has switched from a licence fee model to a licence-cum royalty based payment system. Explains Srikanth Kannankote, President and COO, who joined the company less than a month back from Motorola, "We felt we were losing out on much of the upside by settling for just a licence fee from the semi-conductor makers. Instead we have decided to opt for a smaller amount from the semi-conductors and also earn royalty per handset from the Original Equipment Manufacturer (OEM) and we have already signed on with two Tier I mobile phone manufacturers."

Kannankote believes it is better to have a deferred revenue stream, even if it means waiting for six to eight months till the product hits the market, than to give up the upside altogether. If a semi-conductor sells to two OEMs, the company can pick up royalties from both of them. Sasken will not disclose how much it earns in terms of royalty per handset, but the COO claims revenues will go up significantly.

Thus far, Sasken's focus has been at the semiconductor level where it supplies to clients like NEC and Panasonic, which in turn supply to DoCoMo. How, it also proposes to work directly with OEMs and telecom carriers whenever it can. "Every carrier want to customise applications today," explains Kannankote, giving an example of how an SMS and an MMS can be combined and sent together with the relevant software. "Today we are in a position to supply an OEM with all the software needed to build a mobile phone," says Kannakote adding that most of Sasken's competitors do only one part or other. The company plans to continue to set aside 12-14 per cent of its revenues, each year, for R&D: it has been investing in developing the protocol stack for 3G handsets as also in stand-alone GSM/GPRS protocol stacks and multimedia technologies for high-end phones.

Given that there are nearly 800 million handsets in the world today and the market is growing at around 12 per cent, thanks to the declining life of a handset, the addressable opportunity is huge. Even if the larger OEMs resort to creating their own software , it would leave around 200 million handsets for stand-alone software makers, observes Mody.Unlike a Nokia or a Motorola, there are several regional handset manufacturers such as BenQ or Bird who may not want to invest the time and money to create software preferring to rely on external sources. Rajesh Jain, KPMG believes that with convergence coming in rapidly into the consumer electronics space, feature-rich handsets would be in demand. "High end software will be needed for these phone, " Jain asserts.

With the acquisition of the Finland-based Botnia in July, Sasken now has access to testing expertise. With manufacturers looking for "worry-free" products, testing will be crucial. Sasken currently has eight 'design ins'"�or platforms in the pipeline. But what's going to count are are the'design wins.'That's what will bring in the numbers.