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Acquisition of Intel spin-off will boost Telit's Wi-Fi capability

Intel invested heavily in the company's technology

Wi-Fi
The acquisition significantly expands Telit's Wi-Fi competence and expertise

Industrial ‘Internet of Things’ (IoT) leader Telit Communications Plc (LON:TCM) has acquired ultra-low-power Wi-Fi specialist GainSpan for US$8mln in cash.

GainSpan designs, develops, manufactures and commercialises ultra-low power Wi-Fi systems-on-chip and modules for battery and line-powered devices. It also owns the Intellectual property in network stacks, system and application software it has developed.

Telit said the acquisition would augment its portfolio of IoT products and services, and positions the group to deliver on its “Sensor to Cloud” vision.

Explaining the strategic significance of the acquisition, Telit said demand for cellular-based IoT solutions is projected to grow strongly, particularly in the field of short range based solutions, where Wi-Fi is the dominant format.

The acquisition of GainSpan positions Telit to capitalise on new short range opportunities and the ubiquity of Wi-Fi by increasing sales to its existing customer base and capturing customers in many new segments.

GainSpan has 96 employees, 60 of which are located in the company’s research & development (R&D) unit in Bangalore, India. The company will be integrated into Telit’s short range business unit.

The acquisition will dilute Telit’s adjusted underlying earnings (EBITDA) in the current financial year by some US$4mln, which probably explains the 1% fall in the share price on the news.

The group believes that once GainSpan is fully integrated, it should make an important contribution from 2018 onwards.

"By adding ultra-low power Wi-Fi technology to our existing product portfolio, we will expand into new markets and segments, and bring further benefits to our existing customers,” said Oozi Cats, Telit’s chief executive.

"With this acquisition, we now have ten R&D centres around the world and a total work force of over 1,000 people. Importantly, GainSpan's R&D centre is in Bangalore - a key centre of R&D expertise, where we plan to expand our capabilities," he added.

Speaking to Proactive Investors, Yosi Fait, Telit’s finance director and president, said the acquisition would form a vital part of Telit’s business model, which is to be an end-to-end solutions provider.

“The Internet of Things is evolving from point-to-point solutions that have been in the market so far – one device connected to the cloud – and we’re moving to more complicated solutions of multi-point, multi-technologies, connected to the cloud,” Fait said.

These technologies include smart Bluetooth – Telit acquired some Bluetooth Low Energy (BLE) assets this time last year from German company Stollmann Entwicklungs und Vertriebs – and smart Wi-Fi.

Fait believes smart Wi-Fi will prove more significant than smart Bluetooth, because Wi-Fi is a more common technology.

GainSpan has developed Wi-Fi technology that, essentially, simplifies the installation of an IoT solution, which in turn will save on costs.

“So, whenever you have a connected office, with sensors on the chairs in the meeting room in the office to see how many spaces are available; sensors on the windows to make sure they have been shut at the end of the day; or sensors that detect whether the lights have been turned off at night – they will be connected by Wi-Fi, and sending information via a gateway into the cloud,” Fait said.

Based in San Jose, California, GainSpan has a fantastic heritage.

It was spun out of computer chip giant Intel, and has had a lot of money invested in it.

The patents and the research & development have been top-notch, but the commercial nous has been sup-optimal, and this is where Telit feels it can add value.

“It has annual revenues of about US$10mln, which is very small. This will grow significantly, and this will be a great addition [to the Telit stable],” Fait predicted, adding that the company has already heard from many existing customers expressing approval of the acquisition.

Shares in Telit were up 2% in lunchtime trading.

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Quick facts: Telit Communications PLC

Price: 161.6 GBX

AIM:TCM
Market: AIM
Market Cap: £214.43 m
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