CopperGate: Ahead of the market

Two months ago, CopperGate Communication CEO Gabi Hilevitz resigned from Intel (Nasdaq: INTC), where he was in charge of developing products for DSPC, which was acquired by Intel for $1.6 billion. Hilevitz managed DSPC’s Israeli operations until Intel bought the company.

Some would describe Hilevitz as an unusual character in the Israeli high-tech scene because he gave up a senior position at Intel at a time like this in order to manage a start-up like CopperGate. CopperGate is not just another regular technology company competing for an existing market. It develops products that may or may not be used in the next generation of home networks, but more about that later.

In any event, it’s unusual to see someone resign a senior position at Intel and take a senior position at a start-up these days; it is reminiscent of the boom days of 1999 and 2000.

”I wanted to begin a new field and build it,” Hilevitz says. “CopperGate’s strong kernel of developers and investors, together with the story of the market, which has unrealized potential, are what made me join the company.”

CopperGate operates in the field of third generation home networking over existing telephone wires. This does not refer merely to files and printers; it involves access to advanced services, some of which will be made possible by the future digital home. These include advanced home entertainment and multimedia services, such as multi-channel video and audio streaming, IP telephony, and home networking with multiple lines.

Networking cards for a wide variety of end channels in the home will include the chipsets built by CopperGate. The chips will facilitate connectivity between the various devices, such as the Residential Gateway networking card; a PC that can convert the DSL cable, satellite, and wireless connections to home networking technology; a digital converter, a stereo device, a telephone, and many others.

3G home networking refers to the third standard, which is currently being set. Just as in the wireless communications field, in order for the products of all companies to connect with each other, a uniform standard is required.

CopperGate is a member of Home PNA, a consortium for home communications on telephone wires. CopperGate heads the marketing committee and is a member of the technical committee.

The consortium has managed to set two standards so far: Home PNA1, established in 1998, for technology that transmits 1 Mbps, and Home PNA2, which involves technology for transmitting 10 Mbps.

CopperGate is waiting for the third standard for products capable of transmitting up to 100 Mbps. This field has even bigger Quality of Service (QoS) problems with the streaming of multi-channel video and audio, a large number of telephone calls, high-speed Internet access, and the transmission of files at high speeds.

”The technology for CopperGate’s solution is already fairly cut and dried,” Hilevitz says. “We’re working to make it part of the new standard.”

”Globes”: Does wireless technology compete with home networking technologies, or does it complement them?

Hilevitz: ”Wireless technologies certainly compete with us, but they didn’t begin with a defined focus on home networking. Their appetite has been whetted to some degree; the wireless technologies are also looking at the home as an environment where they can provide a solution. In my opinion, there are too many wireless technologies competing for the same market. In addition to 802.11, there are Home RF and Bluetooth.”

”Wireless technologies have advantages and disadvantages. You can’t always install them where you’d like. There’s also mutual interference in the wireless field – the spectral noise in wireless can certainly make it hard to provide speed and QoS, which are the important elements.”

”It’s possible that a wireless network could nicely complement home networking. For example, someone who already has wireless in his office, where I see good penetration by LAN wireless systems, can hook up to his office with wireless. When he takes the computer home, it could be pretty transparent to work with the same computer through a home wall socket.”

The model for selling home networking products has not been conclusively established. Opinions are still divided as to whether it is worthwhile to allow telephony providers to market home networking products in one package, or whether it would be better to enable consumers to enter computer networks and choose the best products for them, from a variety of products and standards.

Tamir Fishman general partner Shai Saul, who managed CopperGate before Hilevitz arrived, says that people initially tried to sell home networking products through retail outlets, without adequate infrastructure. “People came to the large equipment chains and couldn’t get good enough advice on what equipment was good for them. They bought equipment with different standards, and there were no good remote support infrastructures.”

Shaul: ”People will buy (the equipment) at stores when the market is ready to absorb the technology into the home on its own initiative. In the first stage, telephony providers will have an interest in promoting the technology in order to offer new services, which do not yet exist. When critical mass is achieved, things will turn around and customers will search out the technology.”

Hilevitz says that CopperGate has not yet reached the stage of signed cooperation agreements, but says there is great interest in the company’s technology. The customers are network card, adaptor, and gateway manufacturers. At a later stage, stereo and video equipment and computer game manufacturers will be potential customers.

How does CopperGate plan to compete with Broadcom (Nasdaq: BRCM), its large competitor, in supplying third generation chips?

Hilevitz: ”Since we’re sticking to the third generation standard, we’ll be among the first with a chip in the market. I assume we’ll have products as early as the beginning of 2003, and we’ll be in the lead, together with all the other companies. Broadcom is a large-scale competitor, and was also the first to bring out a second-generation chip. In our case, we can’t bring out products before the standard is signed, which creates difficulties for our development processes. We can always gamble on what the standard will be and orient the company accordingly. In some parts of development, that’s what we’re doing.”

”As far as competing with Broadcom, some Israeli companies have already achieved success. I come from DSPC, which is one such story. There are precedents for successfully competing with companies like Broadcom. It’s true we’re starting out from a tough position, while Broadcom already has a customer base. For that very reason, however, customers may regard them as a company with which it’s hard to do business. Being a lightweight, beginning company may have its advantages.”

Since its founding in 2000, CopperGate has raised $6 million. The company is currently sizing up the market and says that if investors make a good enough offer, it will regard it favorably. The company says, however, that it has not yet begun an official financing round.

Published by Israel's Business Arena on December 18, 2001