Superconducting Core Technologies Inc. has ended commercial distribution of its cryoelectronic receiver front-end products for the mobile wireless base station market, igniting questions of whether superconductor companies targeting the wireless industry can raise enough capital to operate.
Robert Paige, chief operating officer of Golden, Colo.-based SCT, said the company has released the majority of its employees, reducing its staff from 62 to 20, and is looking to consolidate.
“Our intent is to continue with very minimal product development and to classify our assets and to look at having a smaller company, which we will look to either sell our key assets to players or operate one of the products here by seeking a small amount of capital,” said Paige.
“The financial community as well as the wireless community have both told us the adoption curve for these products will be somewhat slow, although right now carriers are just beginning to look at adopting these products,” he said.
Raychem Corp., SCT’s exclusive worldwide distributor of the receiver front-end products, has chosen to take a write-off on its minority equity stake in privately held SCT. Raychem said its current fiscal quarter results will include a pre-tax, non-cash charge of about $12 million to reflect its write-off. Comsat Corp. also announced its first-quarter results will include a $1.3 million, net of tax, non-cash charge to reflect the write-off of its investment in SCT.
Raychem has realigned its wireless telephony efforts to focus on wireless local loop applications. The company established an alliance last year with Tadiran Telecommunications Ltd. to market Tadiran’s MultiGain Wireless systems. In December, Tadiran transferred operations of its Wireless Systems Division to a new subsidiary. Raychem expanded its commitment to the alliance by acquiring a 5-percent interest in the subsidiary, InnoWave Wireless Systems Ltd.
Raychem and SCT formed a strategic alliance in 1996, calling for Raychem to commit up to $15 million in equity and working capital financing and become SCT’s exclusive worldwide distributor of SCT’s REACH products. The REACH products are designed to enhance the ability of wireless base stations to receive signals from mobile handsets, thus providing better call quality and wider coverage for wireless networks. Paige said SCT is negotiating with Raychem to determine what type of customer support Raychem is willing to give on an ongoing basis to its existing customers. SCT has about 20 customers and potential customers trialing the product worldwide, said Paige.
“I believe all the companies in superconducting space are experiencing difficulty in raising capital,” said Paige. “One of the things the financial community has told us all is that given the slow adoption curve, the complexity of products and the costs to manufacture, it will be important to have some level of consolidation … We’re taking the first steps toward consolidation and looking at putting our assets within an entity that is able to put capital behind them.”
SCT is one of a number of companies that entered the high-temperature superconductor market after the technology was discovered in 1987 to commercialize filter systems for the wireless industry. The low-loss properties of superconductors are proven to be beneficial to communications filters whose increased efficiency leads to enhanced signal strength, improved signal resolution and reduced component size and weight.
Publicly traded Illinois Superconductor Corp., Conductus Inc. and Superconductor Technologies are SCT’s direct competitors. A number of large American, Japanese and European companies also are engaged in research and development programs that have led or could lead to the development and commercialization of superconductive electronic products for the wireless, wireline and other industries.
Theodore O’Neill, vice president of research with Needham & Co. Inc. in New York, said the commercialization of superconducting products for the wireless industry has not gone fast enough for investors, which now are reluctant to invest in the sector. Companies targeting the wireline industry are reportedly doing well.
“Investors are waiting for rewards, and they haven’t seen the rewards yet,” said O’Neill. “There was a great hope that all or one of these companies would be successful by this point. They all are running out of money. They all need to do another round of financing, but aren’t sure where the money is going to come from. If we don’t see consolidation, I’m not sure what the alternative is.”
Illinois Superconductor, Conductus and Superconductor Technologies all have seen their stocks plummet throughout 1997 and this year. Illinois Superconductor, which was once trading in the $20 range in 1996, closed March 12 at $2.19 per share, up from $1 per share the day before. Conductus closed March 12 at $3.38 per share while Superconductor Technologies ended the day at $3.09 per share.
Conductus said it is not having problems raising capital. Following SCT’s announcement, Conductus’ President and Chief Executive Officer Charles Shalvoy issued a statement saying SCT’s move “should not be seen as a reflection on the viability of the other companies who are applying high-temperature superconducting technology to wireless communication applications. Conductus, in particular, continues to be well-positioned to aggressively move forward with its planned products to address significant industry problems such as insufficient coverage, interference, need for more capacity and increasing constraint on subsystem form factor.”
“We have a leading-edge technology. There is a burn-in time. Candidly, that time is just really beginning. You have to prove your worth, and you have to go out and do the missionary work,” said Jim Daley, vice president of marketing with Conductus. “We’re dealing with a major priority with most (wireless) players to convert to digital. It’s very slow and very late on arriving. Once they have the fundamental infrastructure, they’ll look at ways of improving it … The superconductor industry has to be realistic to what it has to do to come into mainstream. You can’t expect too much from the market before it is ready. I don’t see anything in this curve I haven’t seen with other technologies in wireless.”
Peter Thomas, president of Superconductor Technologies, said all companies in the industry are likely to need more money this year and he doesn’t anticipate Superconductor Technologies will have any problems raising more capital.
“Market research suggests the superconducting filter market will reach more than $550 million a year,” said Thomas. “There isn’t any doubt in my mind that by the standards of financial analysts the industry is moving slow. But as a major new technology, it’s moving fast … The amount of activity has dramatically improved. I’m very bullish about our company and the industry.”
Illinois Superconductor could not be reached for comment by press time.
Though the merits of superconducting products have been well documented, O’Neill said no company has demonstrated that it can build a business on commercializing superconducting products for the wireless industry.
“You need a company like Motorola (Inc.), Nokia (Corp.) or Qualcomm (Inc.) to really champion the use of this particular technology. Until we see a larger company champion it, the adoption curve is very long.”
Conductus said it now has eight customers, seven of which put in orders within the last six months. “We’re about a year away from making the product take off,” said Daley. He believes a huge market will exist for its ClearSite product family of front-end receiver subsystems that reduce interference, increase coverage and increase spectrum utilization. “Interference is going to be a serious problem,” he said.
Illinois Superconductor recently sold five RangeMaster high-performan
ce receive filter systems to Bell Atlantic Mobile. Superconductor Technologies expanded it
s sales and marketing efforts this year and said it has multiple customers testing its line of SuperFilter receiver filter subsystems. It expects to conduct trials with six of the 10 top U.S. cellular carriers during the first six months of this year.
