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Telsima, WiMAX Gear Maker Sold For Next-To-Nothing

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low-starmax-2150Telsima Networks, a Sunnyvale, Calif.-based WiMAX hardware maker that had raised close to $70 million in venture capital (and $25 million in debt) was sold to Harris Stratex (s HSTX), a Research Park Triangle, N.C., company for $12 million, which will be paid out over next 12 months. Investors in Telsima include NewPath Ventures, CMEA Ventures, New Enterprise Associates, Intel Capital and JAFCO Asia. Telsima and Harris had a partnership prior to this acquisition.

The precipitous decline of Telsima from the status of WiMAX darling reflects the harsh realities of a startup chasing a market fraught with competition. Telsima was not only battling its own peculiar set of problems, but it also mirrors the mixed results for WiMAX in the race for 4G Wireless Broadband. Four years ago when Telsima launched, WiMAX was seen as a disruptive technology that would sweep the planet: A global standards body, dozens of equipment makers and many more carriers would make a ubiquitous, global, high-speed wireless network a reality, bring broadband to the masses in the furthest corners of the world. The reality turned out to be a bit more sober.

WiMAX is struggling in the U.S., one of the largest and most lucrative telecom markets. Clearwire (s CLWR), its biggest proponent in the U.S. has been hit by the credit crunch. Globally things are better, but marginally. WiMAX has been adopted in increasing number by emerging economies and smaller carriers, which by their very nature don’t have that much money to spend. As a result, dozens of equipment makers are chasing a business with razor-thin margins. Telsima wasn’t any different.

Telsima, in addition to the broader macro-economic environment, had to deal with some of its own internal problems. Following my The State of WiMAX report, I heard from a couple of sources that Telsima was on the block, mostly because its current investors were unwilling to pony up big dollars for the company.

Telsima had hired a U.S. investment banker last year to raise money, but that effort didn’t go anywhere. Over last two days I made quite a few phone calls, but before I could get more details, the company released a press statement regarding its sale earlier today. Telsima had also taken money from Reliance Communications, one of the large Indian telecom groups, and there are some rumors that it wasn’t an easy relationship.

The sad part of the Telsima story is that the company is getting sold at a time when it is beginning to get some traction. Not only does it have one of the best and most complete WiMAX product portfolios, it has also signed up customers such as Neotel of South Africa, Tata Communications of India and is in the running for a $1 billion WiMAX network being built by Indian telecom carrier BSNL. Many Telsima-powered WiMAX networks were being put to work in Easter Europe.

Harris, it seems is getting quite a bargain.

8 Responses to “Telsima, WiMAX Gear Maker Sold For Next-To-Nothing”

  1. Habib Ullah Khan

    So I am going to keep it simple. I use Wimax and am in an emerging market economy. It works fine. And since I am in a new housing society built a little away form the city – It’s been two years but not even DSL as made it out here. But the Wimax is running and I actually work from home a lot because of it.

    Yes I can get deeper into the economics of it. One of my partners has deployed the largest Wimax installations in the world and I know the technology well. But I thought I’d keep it simple.

    It works fine. And sometimes when I go to my parents house I take my Wimax and my otspot with me.

    Do that with fiber.

  2. I don’t think Harris is getting a good deal at all! Alvarion, the “market leader” is traded at $180M with $140M in cash – an enterprise value of $40M, and Redline is traded in Canada for less than a Molson bottle of beer. What about Aperto and Soma that raised in excess of $100M each? The only “successful” companies in these space were the ones who took advantage of a high stock market earlier to sell to a larger company (and Navini did not get such a good price).
    WiMax will remain a niche product like fixed wireless before. Niche products that sell in Africa and other parts of the developing world will never receive high PE from investors, and eventually these products will only compete based on price. It is a crowded niche space – not a good place to be!
    While I usually don’t give VCs too much credit for being intelligent, they were smart enough to get out of this market.

  3. Sometimes I pitch my services to VC and institutional investors – not for full blown due diligence, but for technical product strategy review of potential portfolio companies. In order to get work, I will sometimes do a stand up ‘freebie’, to get my foot in the door.

    This and few other Wimax wannabees were the subject of one such freebie that got me naught; however, on the initial call I said, “how can the market support so many small, fragmented players with such slight differentiation? That is the starting point of my technical due diligence: 1) Under capitalized start ups with insufficient product strategy to compete with incumbent giants, 2) even is the case of significant design wins, any of the sector entrants would require OEM licensing or partnerships to realize production, 3) a technology that is just one more common step in ever evolving commodity wireless transmission game.

    All of the above means that fewer, larger and established companies have an edge. Is there room for the 20 – 70M startup? Maybe, but the design win has to be out of the park and I haven’t seen one in the WiMax sector, yet.