How nice to be a spin-off. You get a basic technology, and maybe other things, too, do with it as you see fit, while your friends in your parent company provide marketing services for your finished product. Even financing becomes a secondary worry, since the parent company like any parent concerned for its offspring’s well-being provides sufficient funding for a few years of operations.
Today’s case in point is Elisra Electronic Systems subsidiary Dekolink Wireless. Elisra’s business focuses on two divisions: military projects, and radio frequencies (RF) development. Someone thought that Elisra’s radio technology developments might have civilian applications, especially for cellular networks. The result was Dekolink, Elisra’s first spin-off, which is still a fully-owned subsidiary.
Dekolink’s official founder was Aharon Feigelshtein, who began converting Elisra’s technology for cellular uses two-and-a-half years ago. The spin-off was founded in early 2002, with workers recruited from Ceragon Networks (Nasdaq: CRNT), Foxcom Wireless and similar companies. Dekolink CEO Rami Hasarchi says the main reason for the spin-off was that negotiations for military contracts can take months or even years. The company’s technology becomes obsolete far more quickly, and loses its value. EMS Technologies (Nasdaq:ELMG), which operates in similar markets, also spun off its cellular operations, reinforcing Dekolink’s decision that this is the way to go.
Dekolink has four product lines with sales: two are for long range reception in the field, and two are designed to overcome interference indoors.
Dekolink’s first product is a kind of amplifier placed in cellular base stations to compensate for energy lost when the RF signal is transferred from the ground stations to the antenna on the roof. The component amplifies the antenna’s coverage, thereby supporting cellular systems. It is mainly applicable for iDEN and CDMA networks, but is also being supplied for the IDF’s Vered Harim (Mountain Rose) system.
Dekolink’s second product is a repeater that receives signal from the base station and rebroadcasts the frequencies. The repeater is located in areas where topography limits the main base station’s coverage, i.e. where a mountain blocks reception to a village.
A longstanding real estate adage holds that upper storey rents are always higher than on the lower ones. Dekolink’s third product eliminates the need to place base stations on buildings’ roofs. The product enables them to be based on lower floors, or even the basement, using a fiber optic cable linked to a Dekolink box running between the antenna and the ground station. Cingular Wireless of the US already uses this product, and Hasarchi expects sales will increase next year.
The same product can spread a base station’s traffic, by routing peak weekend operations to crowded areas such as malls, while covering wider areas during non-peak hours midweek.
Dekolink’s fourth product distributes a cellular network indoors, similar to a picocell network. Picocell networks constitute smaller base stations, with ranges typically of only a few tens of meters, compared with many kilometers for base stations. Dekolink’s box can send signals from a central antenna to the antennae that rebroadcast the signal indoors, by using optical or RF links.
These four products are already being sold in Israel and around the world, where they face competition from US and European companies. Base station suppliers like Nokia (NYSE:NOK), Ericsson (NYSE:ERICY) and Motorola (NYSE:MOT) prefer not developing such products, in part because they cut into their revenues, by reducing the need for base stations, but when necessary, they allow the products to be integrated with their base stations.
Dekolink is currently developing next-generation products based on software, rather than hardware. (Hasarchi says, “We really feel like a start-up in this way.”) The software will provide better spectrum management for cellular networks, and allow dynamic changes as needed. This will prevent RF signals leaking into unauthorized frequencies, thereby avoiding reprimands and fines from the authorities. Dekolink’s product is already being tested with an operator, and Hasarchi expects sales to begin within months.
Dekolink’s current sales model dictates direct operations with cellular operators, usually after the operator has deployed the network and discovered weak points in its coverage. Dekolink has won all four of Israel’s cellular networks as customers, and it also has sales in the US, Canada, Mexico and China. Production is subcontracted, and the company’s Petah Tikva plant only tests samples of finished products.
Dekolink had an estimated several million dollars in sales in 2002, and Hasarchi predicts sales will grow next year. “The transition to cellular data communications services cannot take place without optimal coverage of the entire region, and every adjustment will help. I therefore believe our solutions will quickly find their place among operators.”
Dekolink’s products are currently suitable only for 2 and 2.5G cellular networks. Dekolink is collaborating with Canada’s Unity Wireless (CDNX:UWC; OTCBB:UTNY), managed by Israeli Ilan Kenig, to develop solutions for 3G networks. The two companies have applied for an $800,000 grant to the Canada-Israel Industrial Research and Development Foundation (CIIRDF) to develop a joint product.
Elisra gave Dekolink an extraordinary budget, but Hasarchi emphasizes, “We finance ourselves from sales.” Nevertheless, the company is mulling making contact with venture capital funds, and has negotiated with some in the past. Hasarchi has admitted the terms for venture capital investment were inconvenient for the company. All considering, it’s good to have a parent.
Hasarchi does not rule out buying complementary technologies, and hints at initial talks to this end. Asked whether the collaboration with Unity Wireless might turn into a merger, which would list Dekolink on the Canadian Venture Exchange, Hasarchi merely commented, “It’s too soon.”
Name: Dekolink Wireless
Founded: Spun off from Elisra Electronic Systems in January 2002
Product: Solutions to extend the range of cellular ground stations
Ownership: Elisra (100%)
Published by Globes [online] - www.globes.co.il - on December 16, 2002