Start-up Innovent targeting Bluetooth chip market

Innovent Systems, which is expected to announce its product plans Monday, is entering a crowded field for what could be a huge market. So-called Bluetooth chips could eventually enable all types of portable devices, from cell phones to laptop computers, to share data.

The El Segundo, Calif.-based company, started by engineers Reza and Maryam Rofougaran, is currently sampling its first offering and later this year plans to launch a chip that will integrate both main functions.

Innovent's debut comes in advance of a major Bluetooth conference that kicks off June 13 in Monte Carlo. Bluetooth, a standard backed by Ericsson and Intel among others, is named for Harald Bluetooth, the Danish king who unified Denmark and Norway in the 10th century.

The 18-month old company is touting two key advantages for its Blutonium chips.

First, Innovent's chips use a standard complementary metal-oxide silicon (CMOS) manufacturing process rather than one of the more costly and exotic processes typically used for radio frequency chips. Secondly, the chips contain a self-calibration feature that helps improve the manufacturing yields by allowing the chips to adjust themselves for subtle differences along the production lines.

"We've been targeting costs from the get-go," said William Colleran, a former TRW engineer and Merrill Lynch investment banker who joined Innovent as chief executive in March of last year. "That's why we think CMOS is the answer."

Although many companies are developing Bluetooth chips that use more costly bipolar or silicon germanium processes, Innovent is not alone in pursuing an approach using standard manufacturing techniques. At this year's CeBit trade show in February Cambridge Silicon Radio demonstrated a single-chip CMOS offering.

Innovent will find itself against a host of bigger names, including Texas Instruments and Conexant Systems, which have made recent acquisitions in the Bluetooth field, as well as Alcatel, Atmel and Lucent Technologies.

"It will certainly be a crowded space," said Morgan Stanley Dean Witter analyst Mark Edelstone. "I'm sure at some point we'll see a shakeout."

But the opportunity is huge. Cahners In-Stat analyst Joyce Putscher said the Bluetooth chip market should be $1 billion by 2001 and several times that within a few years. Others, such as Micrologic Research, have cautioned that widespread adoption may be more than two years off because of the costs and difficulty of adding the wireless technology to consumer devices.

Analysts were impressed both with Innovent's approach and its backers.

Putscher said Innovent and Cambridge Silicon Radio are among the furthest ahead with plans to integrate the functions of the RF, the component that transmits the signal, and the baseband, which decodes the signal.

Edelstone said Innovent's combination of standard process with a method to improve yields makes sense.

"It appears to be the right direction," he said. "Cost is a huge key."

Colleran said the company is targeting $5 for each of its separate RF and baseband chips with a goal of less than $10 for the merged chip. The whole industry is shooting for a $5 offering, but Colleran thinks that is at least a year to 18 months away.

"We can be very cost competitive," Colleran said.

Innovent has $3.5 million in venture funding from Crosspoint, Smart Technology Ventures and Broadcom, among others. Innovent also said it has strategic relationships with Broadcom, as well as Samsung, which plans to make a "limited investment" in Innovent's next round of financing.

Broadcom, which has been on an acquisition spree of late, recently acquired Pivotal Technologies, which is working on a Bluetooth offering of its own.

As to whether Innovent is a potential acquisition target, Colleran said his goal is to build the company.

"We think an IPO is a distinct, not even possibility, but probability," Colleran said. "That's Plan A."

However, Colleran said he expects more acquisitions, as larger players realize their development efforts are behind some of the start-ups, and said he would have to consider any offers.

For now, Innovent is looking to close a new round of financing in the next few weeks, adding new stakes from its existing holders along with new strategic partners such as Samsung.