In June, three of the UK’s largest technology stocks, ARM Holdings, Electrocomponents and Logica, crashed out of the FTSE-100. Marconi, following a spectacular fall out of the FTSE-100 in 2001, dropped out of the FTSE-250, accompanying Telewest and Psion into the realm of the SmallCap. And with diving US and UK markets pushed further down by a string of accounting scandals, the chances of technology companies rushing to market, as hordes of them did in the 1990s, are remote.
This is a bit of a shame for Thomas Chambers, chief financial officer of Symbian, a mobile communications software development company. Chambers, you see, was born to IPO. He began his career as corporate financier for Kleinwort Benson where he left for a stint in financial control at a Dutch start-up. After he had pint or two with one of his former KB clients, recruitment specialist Robert Walters, he joined it as finance director and IPO’d two months later. Then, after merging Robert Walters with a US company, StaffMark, through an innovative scheme of arrangement (the method that BP later used to merge with Amoco), Chambers had done his job and was already on his way out. StaffMark missed two quarterly expectations and Robert Walters decided to demerge.
Chambers was still the man for the big deal. He moved to First Telecom, a reseller of discounted voice telephony, where he was brought on board by the investment bankers to IPO the business. When the markets went sour, Chambers was headhunted by the same venture capitalists to try his arm at Symbian.
This time, Chambers has found his path to market blocked by falling prices, investment jitters and delays to 3G – the technology on which Symbian’s product, a cutting-edge mobile phone operating system, depends.
In essence Symbian’s operating system is designed to allow your mobile to also act as your address book, digital camera, multimedia player and email system. But all of this needs bandwidth – broadband is the buzzword, and 3G, the third generation of mobile networks (for which companies such as Vodafone paid billions to obtain operating licenses) is supposed to deliver the capacity.
Unfortunately, only 2.5G (also known as GPRS) is currently available, and while some Symbian devices are emerging, such as the Nokia 9210 and Sony P800, the 15 million handsets that are needed to be sold before Symbian breaks even are a while off.
For Chambers the technology delays are frustrating. He needs the mobile operators to come on board and make 3G a reality. “Nobody is in a panic in here. It’s all about setting expectations,” Chambers says. But the longer Symbian waits, the worse the market is.
“There were rumours in the marketplace that we would be worth, at the top, over £10bn, if we were to IPO. That was ludicrous,” he says. It certainly was. Symbian’s turnover was only £14.3m in 2000, meaning the valuation represented a price-to-sales ratio of 700.
“But as time went on the valuation hovered around £5bn, then £4bn and £3bn. After that, we don’t comment on the value of the company,” he continues.
And, in a rare departure from his previous focus on markets, Chambers is willing, for the moment, to let an IPO pass him by. “It is strange for a CFO to say this, but I really do mean it: valuation at this point is irrelevant to me, because getting the manufacturers on board is the main issue.” But Chambers still thinks Symbian has the potential to become a large public company, perhaps even a player in the FTSE-100.
SHARE THE WEALTH
In the meantime, Symbian has cash in the bank. Funds are raised by encouraging rival handset manufacturers to unite under the Symbian banner and take a stake in the company. The aim is for manufacturers to transcend the high-street battle for sales and, through Symbian, develop a standard operating system for mobile communications devices. The hope is to out-manoeuvre Microsoft, the emerging player in mobile telephony, in the process.
Symbian is attempting to defy a trend in the technology sector where partnerships have come to be associated with financial disaster. Marconi would proudly boast of its partnerships, yet it had no customers. Debt-laden cablecos NTL and Telewest, once bitter rivals, partnered to market their broadband offerings. And US telcos have been accused of swapping telecoms capacity with one another to artificially inflate their top-line revenues.
Partnership is in Symbian’s blood. “David Potter, chief executive of Psion Software (the company from which Symbian originated), got the handset manufacturers together and explained to them that interoperability between handsets would be key. Nokia, Ericsson and Motorola all run their own operating systems on their devices. And while text messages could easily be transmitted between them, to go to true interoperability, transmitting pictures and data, you have to develop a more compatible operating system. We were pushing against an open door,” says Chambers.
So where Psion holds 26.6% of the company, Nokia, Sony Ericsson and Motorola each hold 20%. Masushista (Panasonic), holds 8.4% and Siemens, the latest manufacturer to purchase a slice of the company, holds 5%.
The 5% stake that Siemens took in April 2002 for £14.25m puts a market value on Symbian of £285m. That’s far from the billions mentioned a few months ago, so Chambers is right to avoid the issue of market value. But he may yet need extra funds. And, although the potential for GPRS and 3G uptake is great – Nokia predicts it will sell 12m Symbian mobiles in 2003 – further technological hitches and consumer apathy are not out of the question.
“At the moment, I am not worried about funding. The only problem I can envisage is that the technology is delayed to a point where the royalty streams don’t come in quick enough to cover the cost base, and then we will seek extra funding. But we are so close. Some of these products are here and ready and I have already ticked one of my boxes – FDs should not run out of money,” he says.
While the manufacturers are Symbian’s shareholders, they are also its customers, paying a royalty of $5 to Symbian for every handset sold with the Symbian operating system installed. So, if Nokia does sell 12m Symbian phones it will realise $60m for Symbian.
As Symbian receives funding and revenues from the manufacturers, they, in turn, receive a standardised operating system, and benefit directly as shareholders in Symbian from the licence revenues they pay as customers – it should be a win-win situation.
But Chambers has to tread carefully. Having rivals on a board is not conducive to building a consensus, and Symbian must be careful to split its dual relationships with companies as customers and shareholders. “When we sit on the board, the manufacturers are shareholders, not customers.
We also have to consider many thousands of stakeholders: partners, companies, such as Intel and ARM, those that develop software on our behalf, and also the network operators. All these people want different things from the operating system. Symbian sits in the middle of this complex story,” Chambers says. “David Potter, now our chairman, is extremely good at reaching a consensus opinion with all our competing stakeholders.”
Symbian must also be careful to prevent shareholders taking advantage of their board positions to gather intelligence on competitors. Chambers aggregates management accounts so rival manufacturers cannot see line-by-line unit projections for handset sales. But Symbian does encourage debate, and has set up a technical committee so rival shareholders can discuss technology, consumer appetite and the like.
CUSTOMERS AS SHAREHOLDERS
One of Chambers’ biggest problems is keeping a tight rein on the way Symbian treats customers as shareholders, so as to prevent the emergence of an Orwellian state where some shareholders are more equal than others.
Nokia, for example, is Symbian’s biggest customer, but it has the same equity stake in the business as Sony Ericsson and Motorola, so it has the same number of board members and the same voting rights as the others.
“We do not favour any one shareholder and we try to prevent anything that would allow a sub-group of shareholders to be favoured,” he says.
“We are extremely careful to broker relationships. We are holding together a community and have to prevent fragmentation. All decisions made at board level in Symbian are unanimous because we have to reach a consensus. It’s not as easy as going round the table and asking for a show of hands, though.”
A common driver of business strategy in the technology sector currently is a desire to fend off the might of Microsoft, which seems to have its fingers in a growing multitude of pies. And the threat of Bill Gates’ move into mobile telephony – through Microsoft’s Pocket PC operating system, which powers devices such as the XDA phone/PDA on the O2 network – is driving Symbian’s shareholders even closer together. This is so much the case that it is rumoured Samsung may be the next manufacturer to take a gamble and take some equity in Symbian. Symbian’s operating system may just be the only viable future alternative to Windows in mobile communications.
Chambers says he is not worried about Microsoft just yet – it has only sold hundreds of thousands of devices so far, while mobile telephones number in the hundreds of millions. But Microsoft is not generally known for selling in small quantities. “They could throw billions at marketing,” Chambers admits. What Symbian needs to do, he says, is position itself close to the network operators, applications developers and chip manufacturers.
Most importantly, the public needs to made aware. “I hope that one day someone will walk into a high street store and ask for a Symbian phone,” Chambers says. Until then, Symbian must be content that its shareholders will deliver the handsets and the market for advanced mobile telephony will grow quickly.
So, united Symbian stands. But how long will arch-dealmaker Chambers stick around if the revenues don’t come in and the markets fail to pick up? He still has his sights firmly set on an IPO (“it is enshrined in the shareholder agreement”). But there is a sense that, this time, the chase is rather better than the kill for Chambers. He openly admits that the only company he would rather work for than Symbian, is an IPO’d Symbian – and he says he is in the business for the long-term, come what may.
“When I was a corporate financier, I used to meet people whose ambition was to take their company to IPO. I would take them to task about it. IPO is the start of a process and not the end of the process,” he says.
Chambers has a personal interest in the success of Symbian as well – 500,000 share-options worth. There is also the chance that Symbian could be sitting on hundreds of millions of revenue dollars in two or three years – although we all know what the outcome was for the first wave of telecoms opportunists.
But for Chambers, the real thrill is in steering the company into the unknown, staking all – but in a controlled, cash-driven manner. “No one becomes an instant millionaire, you have to work for it,” he says. “A lot of finance directors, in my opinion, do a great job – but they count money in stable industries. They meet expectations all the time. For me, this is the time to set and drive expectations.”
SYMBIAN AT A GLANCE
Sales – £14.3m/£7.4m
Pre-tax loss – £39.1m/£22.9m
Auditor – Andersen
Name: Thomas Chambers Age: 41 Qualifications: FCA, AMCT Career
2001-: Chief financial officer, Symbian
2000-2001: Chief financial officer, First Telecom
1996-2000: Finance director, Robert Walters
1994-1996: Financial controller, TCC Continuity Holdings
1988-1994: Corporate finance, Kleinwort Benson
1986-1988: Price Waterhouse