Synchronica eyes up another slice of the mobile email pie

Spend some time with Carsten Brinkschulte, CEO of Synchroncia (AIM: SYNC), and you will quickly be transformed into a walking encyclopaedia of mobile email facts!  Brinkschulte has spent years in the mobile applications market, and is clearly submersed in the industry.  Another strong impression left on any encounter is his passion and commitment to the company he co-founded which is now the driving force behind Synchronica’s mobile email and synchronization solutions.

In Western Europe and North America, products like Research In Motion’s (‘RIM’) Blackberry or Apple’s Iphone have transformed the use of the mobile phone for applications like email. This trend is set to continue, as Blackberry and its competitors continue to expand from the very high margin, high price smart phones into the high end of the mass market.   Yet if you look at the global handset market, RIM is small player by volume, shipping around 25 million handsets of the 1.2 billion shipped last year.  Around 11% of those 1.2 billion handset sold last year were smartphones.   This is one of the many facts that keep Brinkschulte excited.
 
Synchronica realised a few years ago that it had a unique solution to offer to the other billion or so handsets that are not smartphones.  The company has developed an email and synchronization solution that allows a standard mobile phone to offer many of the tools of a smartphone, but without the price tag and without the need to upload mountains of software onto the device.  For the last two years, Synchronica has perfected its products, and signed a number of licensing deals with mobile network operators in emerging markets, including Russia, India, Brazil and several countries in Africa to use enable users to mobile email, synchronization and other related services.  Along with the acquisition of Axis Mobile, and subsequent disposal of parts of the business for virtually the same price it bought the entire company for, 2008 results showed a marked improvement on the previous year.  For the 12 months ended 31 December 2008, revenues jumped 61% to £3.7 million while cash in the bank lifted 35% to £3.5 million.  13 new contract wins were announced in 2008 in 12 countries.

Now Synchronica, in partnership with several industry players, has set its sights on a second, complimentary revenue driver.  Synchronica has announced that it will supply its ‘Mobile Gateway 4.0’ product in a new strategic collaboration with an original equipment manufacturer (OEM), and a ‘major’ mobile device distributor.  The two partners have not been named yet, but considering Synchronica has consistently won contracts with companies operating in emerging markets, it will be no surprise if the industry partners emanate from this part of the world.  The three partners will launch a mobile phone for the emerging mass market that is affordable and offers some of Synchronica’s Mobile Gateway products – including push email.  As part of the collaboration announcement, Synchronica raised £4.72 million (gross) at 2.5 pence per share – a slight discount to the market.  The cash will be used to fund its commitment under the collaboration, expected to be around US$1.5 million in the first 12 months, with the remaining cash on the balance sheet to ensure its bigger partners that it was capable of delivering on its part of the agreement.

“This agreement will add a new revenue stream and selling point to Synchronica.  By bundling an optimised device with our Mobile Gateway we can deliver a cost effective solution for mass market mobile email access in emerging economies,” Brinkschulte told Proactiveinvestors.  “Look at all of the announcements of the significant players; they are all focused on the top end of the market. Ours will cost a fraction of that but will have most of the core abilities of a smartphone…A no frills smart phone device priced aggressively.”

It is hard not to see why Synchronica believe this new product could reap significant benefits.  The vast majority of global handsets are mass market entry phones or feature phones. Recent research suggests that 78% of the global phone population in 2011 will be from emerging markets, yet smartphone penetration in these markets is very low due to the high cost.

Specific details of the collaboration haven’t been released yet, but once the first product launches, it will be more clear who the company is working with. In the meantime, Equity Development has released an updated note.  In it, the research house states that the strategic collaboration is “very positive for Synchronica” as it provides new distribution channels, a new source of revenues and a “complementary hardware-based solution to its existing software-based solution”.  Equity Research is forecasting a climb in revenues in 2009 to £5.184 million and in 2010 of £12.3 million with earnings per share of 0.2 pence and 0.66 pence respectively.  That puts Synchronica on a 2010 forward P/E of 4.5 compared to a UK small telecom industry average P/E of 5.9, suggesting that if Synchronica’s new deal delivers the goods, there is plenty of upside in the share price.