Sarantel: about to ride the GPS wave?

Investors are often keen to profit from new trends in consumer electronics. The safest approach, of course, is to bank on some of the big names in the world of gadgets to keep on making products that people will want to buy; for example, Apple may have been regarded as being on the decline back in the late 90s, but then the company produced the iPod.

But while getting on board an Apple or a Sony at the right time can be hugely rewarding, even larger gains can be achieved by picking small technology companies that happen to be in the right place at the right time.

Antenna specialist Sarantel could turn out to be just such a company. Spun out of Nasdaq-listed Symmetricom nine years ago, this technology business has focused on designing and manufacturing ‘filtering antennas’ for use in portable wireless devices but with a particular focus on GPS (Global Positioning System) technology.

The company has made losses every year since it floated on London’s Alternative Investment Market in March 2005, while its revenues have declined for the past two. Needless to say, its shares have had a shocking performance, falling from more than a pound each back in early 2005 to just over two pence each today.

But all that could be about to change as prospects for GPS-integrated electronic devices look set to take off.

Worldwide annual shipments of GPS-integrated mobile devices are expected to grow at a rate approaching 40% until 2012, by which time they will have reached 834 million units, according to Parks Associates. Although personal navigation devices (PNDs) will remain the most widely-used and preferred navigational choice until 2011, by 2012 mobile phones and smart phones will constitute the majority of shipments, said the research firm in a report published last year.

Parks’ view of the GPS-integrated market is backed up by more recent research, released in April this year, from fellow US-based analyst In-Stat. It expects a spurt in GPS growth to come not only from mobile phones that integrate the technology, but also from mobile consumer electronic devices (e.g. portable music and video players) and mobile computing platforms.

Sales of GPS-enabled consumer electronic devices (not including phones) and mobile computers should account for more than 100 million units in 2013, according to In-Stat.

Sarantel’s key technology is an antenna, formed around a core ceramic material, that it claims has a far better performance than conventional antennas. The company says that conventional antennas are generally adversely affected by being held close to the human body, but Sarantel has developed a filtering antenna – combining form, materials and structure to very tightly constrain the antenna’s near field.

This, claims the company, means that its antenna is less affected by the body’s presence, allowing for a much clearer signal. The clearer signal also means that the antenna can also enhance the battery life of an electronic device that incorporates it.

Because conventional antennas suffer low in-use efficiency and de-tuning in the presence of the human body, as well as being highly susceptible to interference from nearby components, each new antenna requires extensive development to get it to work within a particular kind of electronic device. And as devices get smaller, their antenna problems intensify, especially when you are trying to incorporate several wireless functions like Wi-Fi, Bluetooth and, of course, GPS.

But Sarantel claims that its core antenna technology can be used in many different device designs, which means its antenna can be regarded as a standardised component. This shortens the device design cycle, meaning that manufacturers can get their products out to the market quicker.

This ability to sell a standardised GPS antenna has been key to the company building a diverse market for itself of more than 150 customers, serving specialised applications. In recent months, Sarantel has secured design wins with: Harris Corporation, which has selected Sarantel’s LBS Pro miniature GPS antenna for its new Unity XG-100 portable multiband public safety radio; Sonim Technologies, which is incorporating the LBS Pro GPS antenna in its XP3 Quest rugged mobile phone; and G-CORE, which is using the company’s SL1300 GPS antenna in its recently-launched Mini Caddy Golf GPS device.

Sonim’s chief executive officer pointed out that customers for his company’s rugged mobile phones have particularly tough requirements. “Those needs include GPS capability that works under extreme conditions and that’s what we and Sarantel have been able to deliver.”

This July Sarantel started shipping its SL1201 antenna for a more traditional GPS application. The antenna will be used in the new Hertz Neverlost GPS device that is being pre-installed in Hertz rental cars to provide state-of-the-art GPS navigation.

Other sales news from the company includes the shipping of its GeoHelix GPS antennas to defence contractors General Dynamics Corporation and Thales Communications, which will be integrating them into handheld tactical radios to be used by the military.

Meanwhile, back in May, Sarantel won a design and development contract with the US Navy to develop a dual-band GPS/Iridium antenna.

June’s interim results, covering the six months to 31 March, revealed that Sarantel had increased first-half revenues by 64% to £1.7m, with the company reducing its H1 loss to £1.2m (H1 2008: £1.9m loss).

But more important is the company’s recognition that despite a recent tough market for its products, as a result of the worldwide economic downturn, it has the chance to take advantage of its reputation as GPS goes from being a niche to a ‘must-have’ technology in all kinds of mobile electronic devices.

Quite rightly, Sarantel’s management team notes that this transition will present an enormous breadth of opportunities, “any one of which has the potential to generate reasonable volumes.”

Sarantel’s current market cap is currently £4.3m (around £2.2m of which was accounted for by its cash balance at the end of March), so any major contracts signed with big consumer electronics brands would likely have a huge positive effect on the company’s share price. But investors should bear in mind that the firm is, for the moment, still making losses and therefore has to be considered as a high risk, high reward play.