Synchronica: now ready to tackle mobile phone markets in developed economies

Internet-based social networking has taken up plenty of column inches in the financial pages of newspapers in recent years as investors have come to realise that there are big bucks to be made from the sector. The story of Facebook was even the basis of an Oscar-winning film, released last year.

Meanwhile, after last month’s US$4.3 billion flotation of LinkedIn – the networking site for business professionals – as well as other recent IPOs of social networking companies Pandora and Renren,   speculation is mounting about Facebook’s forthcoming IPO and when (and if) Twitter will eventually choose to float too.

All of these sites are predominantly used by people using a desktop or laptop PC, but social networking is not just restricted to traditional computing devices. Mobile phones, particularly smart phones, are playing their part too.

One firm that is involved in bringing social networking to mobile phones is Alternative Investment Market-quoted Synchronica (LON:SYNC). The company develops and sells software that it claims enables e-mails and instant messages to be pushed to any mobile phone currently in the market, without software having to be downloaded to that mobile phone.

Its flagship Mobile Gateway software provides push e-mail, synchronisation, instant messaging, ‘backup and restore’ and mobile connectivity to social networks.

Based in the UK, with development centres in Germany and the Philippines, Synchronica has until recently been focused mainly on selling its technology into emerging economies. However, recently it has been turning its attention to the developed world.

“We have for the last three years been focusing on emerging markets,” explains Synchronica’s chief executive officer, Carsten Brinkschulte, who points out that Latin America, for example, has good good GDP growth and an increasing mobile phone penetration. “Synchronica has agreements with the two largest mobile phone operators in Latin America, so we are in almost every country in the region.”

This month Synchronica signed a significant expansion order with an unnamed tier-one mobile phone operator targeting the region. The deal, a group-wide contract, covers the deployment of the firm’s Synchronica Mobile Gateway 6 platform across all of the operator’s Latin American subsidiaries.

This is the second case of a Latin American tier-one operator expanding to a group-wide agreement with Synchronica, further strengthening the firm’s presence in the Latin American mobile market. According to the firm, the expansion order doubles monthly fees, while recurring revenues per active user per month received by Synchronica will increase significantly.

In aggregate, the firm’s contracts with operators in Latin America now cover more than nine out of 10 mobile users in Mexico and Argentina, and five out of every 10 mobile users in Brazil.

However, Brinkschulte is keen to stress that Latin America is but one of Synchronica’s focus regions in the developing world. The firm, he points out, has contracts with all four major carriers in Russia and dozens of carrier contracts in Africa. Indeed only last week, Synchronica announced that its Synchronica Mobile Gateway had been used by Airtel Africa to successfully deploy a mass-market mobile messaging service in 16 countries across the Continent.

“India is another market where we are strong. There we have two carrier contracts,” adds Brinkschulte.

Synchronica recently teamed up with Indian mobile phone device manufacturer Wynncom to launch a new phone aimed at India’s youth market. To help tap into what its undoubtedly a very significant market, the two firms have signed a big name from the top of Bollywood’s A-list, Saif Ali Khan, making him the face of the new ‘OGO’ brand.

The new OGO phones are bundled with Synchronica’s Mobile Gateway software, which gives the handsets ‘smartphone-like’ features – such as push email, instant messaging, and social networking – at a fraction of the price of higher-specification smartphones. These handsets will be sold for less than US$100 each.

The reason that phones with smart features are taking off in developing countries, and why Synchronica has managed to do so many deals with mobile network operators in these countries, is because a smart-enabled phone makes for a useful alternative to a PC, particularly among people who want to network. “PC penetration remains very low in these countries,” explains Brinkschulte. “So, the mobile phone becomes the window to the world. It is not just for phone calls.”

Synchronica is also popular with mobile carriers – and, increasingly, with device manufacturers – for two other reasons, according to Brinkschulte. “Firstly, we have a broad product portfolio in the messaging vertical,” he says. “Most of our competitors are more limited, but we’re a one-stop-shop for next-generation mobile messaging.”

The other aspect is more technical. “Our solution works with smartphones, but it also works with medium-range phones and the low-end basic phones,” says Brinkschulte. “Most of our competitors are focused on smart phones only.”

Consequently, the firm now has deals with 80 mobile operators worldwide.

But Synchronica is now ready to take on competitors in the developed world, after it acquired the assets and contracts of Neustar NGM Services in February this year. In that deal the firm gained instant messaging technologies that it has added to its feature set. “With this expanded product we are going into North America and Europe too,” says Brinkschulte.

Recent results from Synchronica showed that first quarter revenues increased by 270 percent compared with US$1.9 million in Q1 2010. Recurring revenue now represents more than 75 percent of total quarterly revenues, which is up considerably from a year ago when it represented just 37.6 percent.

Pre-tax profit came in at US$787,000, compared with a loss of US$2.3 million in Q1 2010, although this profit included a US$3.8 million gain attributed to the acquisition of assets from Neustar.

On an EBITDA basis, excluding exceptional items, Synchronica increased its losses to US$2 million during the first quarter from US$1.8 million versus the same period 2010.

Synchronica’s house broker Northland Capital Partners is upbeat about the firm’s prospects, particularly with regard to its deal in India with Wynncom, which it describes as “a competitive knockout”.

Northland expects revenues for the whole of this year to come in at US$18.6 million (2010: US$10.9 million), increasing to $25.4 million in 2012. A $1.2 million pre-tax loss is estimated for 2011, turning to a profit of $3.4 million next year.

Now that Synchronica has established itself in developing regions like Latin America, investors in the firm will be keeping a close eye on progress in the US and Europe.

Market: AIM

Symbol: SYNC

Price: 21p

Market cap: £20.6m