Synchronica mobilises for emerging markets success

In the iPhone and Blackberry-obsessed West it is all about apps, music downloads and the latest touch-screen technology.

The mobile phone is the object of desire. Among fashion-conscious teens it is more of an accessory.

The handset market here is a highly sophisticated one. But it is also a mature market and as the latest results from Sony Ericsson and Nokia will attest, it has gone ex-growth.

The real action for the manufacturers and phone companies is in the emerging economic super-powers of Latin America and Asia.

Here’s a stat for you: there are 4.9 billion handsets out there. Yeah, I know, mind blowing.

But wait. Around 87 per cent of those phones are not in the UK, Europe and the US, but in the developing world.

Countries such as India, Brazil and China have really bought into the mobile revolution. But in Beijing, Delhi and Rio it’s not just about texting your mates or staying in touch with relatives. The mobile phone is the first and sometimes only means of access to the internet and email for tens of millions of people. Mobiles are portable and more to the point far cheaper than desktop computers and laptops.

But in markets such as India or Brazil, it’s not the latest Apple iPhone that sells.

No, it’s the cheap, mass produced generic models and the US$20 ‘dump phones’ that make up the bulk of the handsets.

And it is in this developing market AIM-listed technology firm Synchronica  (LON:SYNC) plans to establish a very big presence.

Its flagship product, Mobile Gateway, turns emails into SMS format that can be read on any phone from high-end touch-screens right down to throwaways.

The acquisition of Canada’s iseemedia, which completes at the end of the month, gives Synchronica access to additional technology that streams attachments to mobiles.

Mobile Gateway is cheap and easy to install - and tailor-made for the emerging markets.
Demand for mobile telephony and the next-generation applications might be booming, but costs must be kept low.

“You will find very few smart-phones in these countries,” says Synchronica chief executive Carsten Brinkschulte. “It is a very different demographic where mass market handsets and US$20 dump phones continue to dominate.

“Our Mobile Gateway works with Smartphones, but more importantly, also with mass market phones and even with dump phones. Most of our competitor products don’t work with the entry level phones.”

“(The developing economies) are the largest and fasted growing market and our product has a unique selling point in those regions.

“We think the concept of low value but high volume is a very compelling commercial strategy.”

The iseemedia deal works on a number of levels for Synchronica. It broadens the product portfolio with the document streaming software and it also gives the enlarged group a very big toe-hold in India, where the iseemedia has negotiated agreements with local giants Tata and Reliance, who between them have a 140 million-strong customer base.

Add in Synchronica’s operator customers (there are 40 in total with 660 million end-users) and you have and addressable market of more than 800 million potential users of the company’s products.

Many of these tie-ups are licence agreements, though Brinkschulte says a number of the later contracts have been negotiated on a ‘recurring revenue basis’, which simply means the firm receives a monthly subscription fee.

“The objective for us is to be the market leader in next generation mobile messaging for the developing countries,” says Brinkschulte.

“I think with the acquisition we get a significant step closer. We substantially improve our addressable market, remove a competitor and improve our product.”

After the acquisition of iseemedia, the company will list on the Toronto stock exchange as well as AIM.

Brinkschulte says this ought to give the company’s shares greater liquidity.

“We are getting access to the entire North American investor base,” he says.

“Canada is a very tech-savvy market, in particular the mobile email space because of Blackberry. “

“RIM (Blackberry’s creator Research in Motion) is a Canadian company and probably its biggest consumer electronics firm.”

“We’ve done a road-show in the last two weeks to Canadian and US investors. And the Canadians in particular absolutely understand the whole market very well.  They also understand the competitive advantages of what we are doing.”

The Canadians also “very much appreciate” Synchronica’s second line of business.

Working with four as yet unnamed device manufacturers, it has developed a product called the MessagePhone, which has most of the functionality of a Blackberry but is a fraction of the price of the iconic black handset.

At a just under US$100 and with three years subscription included it is very firmly aimed at the newly emerging middle classes of the likes of India, Brazil and Russia.

Brinkschulte wants to get the price down to as low as US$50 – which means the product would be around a tenth of the cost of a Blackberry.

“This line of business is increasingly becoming a valuable revenue source,” the Synchronica boss says.

“Around 40 per cent of our revenues in the first half came from device manufacturers. Last year we had nothing.”

“The people we are working with are not the Nokias of this world, but they can shift several million handsets.”

With the latest acquisition bedding down, the City will want to see Synchronica convert this promising strategy into profits.

The first half of the year was a good start, with the group posting revenues of £3.4 million, which puts it on course for annual sales of around £9 million, according to the latest analysts’ forecasts.

Broker Equity Development predicts the company will make a maiden £1.5 million profit in 2012.

“We have laid the foundations,” says Brinkschulte.

“The revenues are gaining traction, the addressable market is increasing and so is our customer base.  Our product is strong and we have some very good partners.....now it is about showing the results.”