An Irish chip design company, born out of the Dublin-based S3 (Silicon & Software Systems), has received just over £2 million (€2.54 million) in seed capital, about a quarter of which comes from entrepreneur Mr Denis O'Brien. The 12 per cent stake has been taken by Island Capital - Mr O'Brien's investment vehicle - and private clients of Davy Stockbrokers.
The investment places an early valuation on Duolog Technologies of around £16 million. The company, which was founded by former S3 managing director Mr Ray Bulger, was officially launched in June and expects to employ 12 design engineers by the end of this month.
It plans to operate in the same market as other chip design companies, Parthus, ARM and RamBus. According to Mr Bulger, Duolog already has two contracts valued at more than $1 million, and is working with industry giants including Siemens, Texas Instruments, Lucent, National Semiconductor, Ericsson and Nokia.
Mr Bulger, who currently holds just over 50 per cent of the company's equity, left S3 last December to work on the Duolog business plan. His co-founder in the venture, Mr Mark O'Donovan, retains an estimated 20 per cent stake. Mr Bulger envisages both shareholdings will be heavily diluted prior to the company's expected flotation within four years. Twenty per cent of Duolog has been set aside in share options for staff.
Duolog is gambling its success on a tried-and-tested, independent chip design model. Initially the company will operate as a silicon and software design service company for clients requiring networking systems and third-generation (3G) wireless communications chips. This activity will generate early revenues and Mr Bulger expects Duolog's turnover to exceed $2 million by next June, and the company to turn a profit by the end of 2001.
Meanwhile the company plans to gradually amass proprietary intellectual property (IP), developed in-house, and license this chip technology to multiple clients.
The profit margins from licensed IP are far greater than from contracted chip design, and Mr Bulger predicts up to 60 per cent of Duolog's activity will eventually be IP-based. Initially it will only account for around 20 per cent. According to Mr Don Harrington, of Davy Corporate Finance: "The members of the Duolog team are industry veterans, with a proven track record. Their intellectual property business model is attractive to investors and partners and creates an exciting value proposition."
Market research group Dataquest has forecast that the number of wireless mobile devices capable of Internet access, including phones, personal digital assistants and other devices, will increase from four million units in 1999, to 800 million units in 2003.
Mr Bulger believes there is plenty of room in this market for new, independent chip design companies. In particular, Duolog hopes to make an impact in the area of transmission systems for 3G communications, where it is currently developing an application incorporating GPS (Global Positioning System) in handheld 3G devices.
Mr Bulger was managing director of S3 - a chip design company 90 per cent owned by Philips Electronics - for five years until his departure last November. Mr O'Donovan, who is a non-executive director, was recently appointed head of a new technology unit at Goodbody Stockbrokers. Prior to that he was founder director of Munich-based technology company, Partners in Europe.
