INTERVIEW: Known for its hardware products, wireless solutions specialists Option is transforming itself in the face of fierce competition and plunging margins.
The company’s marketing director, Jan Poté, tells smartphone.biz-news how the company is expanding to offer complete end-to-end solutions – ranging from its Ucan virtual ‘PC on a stick’ to designing the system board for Sharp’s new 3G Sidekick LX messaging phone.
There is little room for complacency in the technology industry – even for those who pioneer products and establish themselves as market leaders.
So when wireless technology provider Option found itself facing mounting competition in one of its core markets it went back to the drawing board.
The company was founded in 1986 and one of its first products was a modem card for laptop PCs – obviously not wireless in those days.
Jan Poté, Option’s marketing director, said it continued evolving slowly until, in 2001, the firm’s engineers developed the first completely wireless (cellular) PCMCIA data card.
He said that after interesting Vodafone in Europe in the product, the subsequent growth in the market for data cards "kick-started" Option.
This helped establish the company, headquartered in Leuven, Belgium, as the market leader in data cards.
Poté said it then saw USB devices coming – as did others in the industry.
However, the company had to face up to two major issues.
The first was the need to reorganise itself internally after a period of rapid growth.
The second, and perhaps more concerning, was how to address fierce competition from Asian manufacturers.
Among them was the Chinese telecom giant Huawei, which had begun manufacturing the new form USB connectors and was quickly gobbling up market share.
Option responded immediately and last year developed a complete line of USB devices.
But the economic downturn put enormous pressure on pricing and operators were drastically reducing stock levels.
To make matters worse, ZTE, another Chinese competitor, had come onto the scene.
Poté said the result was that by the middle of 2008 the market was in the throes of a "quite ridiculous price war" that drove prices sharply downwards.
While operators such as Vodafone, Orange and T-Mobile continued selling Option’s USB sticks, the volumes were much lower than had been expected.
He said there was a growing realisation within the company that a change of tack was required. "We came up with two things," he said.
The first centered on the idea of selling software with Option’s existing hardware products.
From this was born the Ucan – a virtual ‘PC on a stick’ – a USB device that connects to the internet via 3G and 3G+ (HSPA) and allows users to take all their applications, data, favorite websites and so on, with them.
It can be plugged it into any USB port of any computer and automatically creates a users’ personal digital environment.
Poté said initial feedback from operators about the software platform was very encouraging.
"It is a differentiator for them because it allows them to offer more than just connectivity time," he said.
So they can build services to e-shop, to data storage servers or to carry out security checks.
While Option was pitching the product to appeal to consumers, Poté said operators were keen to offer it into business verticals, such as insurance and banking.
"So we are preparing for certain operators applications for certain B2B sectors," he said.
Poté said the strategy of including software applications to its hardware products is adding quite some value for the company.
"Differentiating in software is the first area where we can make a difference," he said.
"Huawei and ZTE are not going in the same direction and we have 6-8 months of advantage at this point in time."
Work to Strengths
The second thing Option did was to go back to the drawing board and look at its core strengths.
"We knew we were good at working with 3G connectivity and putting that capability in devices," said Poté. "So we said: ‘Let’s see if we can take things a step further`."
Sharp had developed the first 2G Sidekick for T-Mobile and was now looking for a 3G version.
Poté said Sharp came to Option and asked the company to work on the smartphone’s development.
He said the new handset would have to be thinner, faster and produce less heat than its predecessor.
"It wasn’t going to be simple and we told Sharp that the only way is if they let us do our own system board," he said.
The result was that Option’s engineers developed a highly-integrated system board for the Japanese consumer electronics giant, incorporating all smartphone functionalities including 3G mobile broadband.
The new 3G Sidekick LX messaging phone launched a month ago in the US to favorable reviews.
For Option, the result has been a lot of attention from other device manufacturers, including IBM, HP and Apple, who are interested in complex 3G solutions.
And this new market offers a potentially more rewarding revenue source.
"Instead of having to invoice an operator for USB devices, where everyone is negotiating on price like hell, we negotiate with Sharp," he said.
This initially entailed a development fee for the system board, but once in production Option gets a license fee for every Sidekick sold.
Poté said this business model shift – with license agreements – was one they were going to repeat with operators for installing software on USB devices.
He said talks were ongoing with a list of 50 software companies to see how they can integrate their applications onto Option’s Ucan platform.
Poté admits that the process of re-assessing Option’s products and strategies has been a difficult one – and not without some pain.
While the company has strengthened its team of software developers it has also is having to reduce staff in other areas.
As a result personnel numbers are expected to fall from 700 to 570 over the course of 2009.
"This year, revenues from USB devices will still form the majority of our revenues," he said.
"We have had to cut costs down and have moved production one hundred per cent to China.
"We are working on our cost bases and working to strengthen our core competencies. It’s not easy."
However, Poté said the result will be a company well set up to deal with future competition.
"If you look at software, it’s an open field. We can pioneer in that field for 2-3 years, then when it’s a lucrative market we will have competition," he said.
Poté said Option’s partnership with Intel integrating 3G onto its platform for MIDs had enormous potential, as did the possibilities for integrating 3G onto other devices.
He said digital camera manufacturers have already contacted Option to inquire about having 3G on their products.
"The opportunities are big. At this moment we make the smallest HSDPA module in the world – the GTM501 – which is half the usual size," he said.
Despite the difficult economic situation, Poté said he was confident that the company’s result would improve from the end of this year as other products come onto the market.
"We have seen that the adoption cycle for MIDs is slower than expected because of the economic downturn," he said. "This will improve and we are optimistic beyond 2009."