PSION TEKLOGIX ACQUIRES SYMAGERY MICROSYSTEMS FOR C$4 MILLION
23 June 2005 - Venture Development Corporation

However, with tough competition from Hand Held Product's Adaptus solutions, among others, and sporadic imaging market growth, how much does Psion Teklogix really stand to gain from this acquisition?

Psion Teklogix acquired Symagery for approximately C$4.5 million or just over two-times 2004 revenues (VDC estimated). Originally a division of Semiconductor Insights, a micro-electronic consulting firm, Symagery Microsystems was spun off in 1997. Since its launch, Symagery has burned through more than US$25 million in funding. Given that context, a C$4.5 million transaction could be interpreted as a stop-loss order.

Psion Teklogix intends to rename Symagery's Ottawa office 'Psion Teklogix Systems Ottawa' and retain its staff of approximately 20 engineers. Ron Caines, former CEO of Symagery, will stay with Psion Teklogix for at least six months taking on the role of VP of Imaging. He will be responsible for evangelizing imaging technology throughout the Psion Teklogix organization and partner network.

At the time of this release, the involvement of Michael Ohanian, Symagery board member and former President and CEO of Intermec Technologies was not announced. Ohanian, once the highest profile executive in the AIDC, RFID and Enterprise Mobility markets, could provide the PT team with invaluable advice on organization integration; RFID solution, industry and market development; and a wide range of issues relating to scaling a mid-sized business operating in a number of mid-sized markets.

Laser and imaging are the primary technologies used for core bar code scanning applications. While laser technology is clearly the de facto standard solution or bar code data collection, imaging solutions are increasingly popular and account for a growing share of the market.

There are two basic types of imaging solutions: linear imaging and arrayed imaging. Linear imaging is similar to laser in that it can only decode linear and stacked linear bar code technologies. Arrayed imaging, basically a digital camera with advanced features, can decode multidimensional symbologies (DataMatrix; MaxiCode; QR Code; etc.). Arrayed imagers can also be configured to capture a broad range of machine- and human-generated images Symagery's offerings and core patents are focused around arrayed imaging solutions.

The overall target market for Symagery solutions, hand held bar code scanners and mobile computers with integrated scan engines, is estimated at over 4.8 million units in 2004 and forecast to grow by 12.7% to reach 8.8 million units by 2009.

Arrayed imagers currently make up less than 10% of units shipped last year, but are expected to climb to more than 20% of the market in 2009, a projected CAGR approaching 50%.

Relative to laser and linear imaging solutions, arrayed imaging offers some unique performance characteristics - most notably being the only technology capable of supporting matrixed 2D symbology decoding. However, with 2D symbology use expected to continue to be limited to industry-specific niche applications, the real adoption driver may be its ability to capture images to support applications such as damage documentation, delivery confirmation, merchandising and signature capture.

For an accurate 'reading' of the market, one should consider arrayed imager opportunities through the lense of these advanced image capture and decoding applications.

Since 1997 Symagery has been developing an OEM business for image capture solutions. The company has been awarded several design-wins from companies such as Psion Teklogix, Unitech, Siemens Dematic and Gtech. However, volume has been sporadic and most design-wins have been highly project specific and not based on broader product platforms or portfolios. Moreover, the company was plagued early on by a lack of market focus that resulted in a management restructure.

The company also experienced some critical performance and design issues, most specifically relating to the footprint of the image-capture engine. However, the most recent product release has addressed many of these issues and is widely viewed in the industry as performance and design-competitive with other leading solutions such as Hand Held Product's Adaptus. Consequently, the timing of the acquisition is appropriate as Symagery's solutions have seemingly just become commercially viable.

With almost $200 million in cash from the sale of its remaining shares of Symbian to Nokia, Psion Teklogix has been considered for nearly two years to be the company most likely to drive a consolidation deal among its peers in rugged mobile computing. However, this deal is probably not what many had in mind. Although VDC views this transaction as a net positive for Psion Teklogix, it is not going to 'elevate' the company to a new playing field. Rather, it is reflective of the conservative approach that has typified the company during most of its last 25 years in operation.

The addition of in-house image capture expertise should enable Psion Teklogix to position its core mobile computing solutions on more equal footing relative to Symbol Technologies, Intermec Technologies and Hand Held Products for high-volume imaging deals. Moreover, Psion Teklogix should also benefit from a performance perspective as their image capture solutions will be designed and tuned according to the specifications of their mobile computing solutions. Executed and marketed deftly, this acquisition could provide a spark for PT in selected vertical markets.

Of question will be Psion Teklogix's focus on an OEM image engine business. While Symagery has experienced wins with a variety of companies, most solutions have been developed for a specific customer or product and do not represent platform-wins with longer-term revenue streams. Psion Teklogix does not have a current channel designed to support OEM solutions and would need to invest significant resources to compete against the likes of Hand Held Products and Symbol Technologies, the leading scan and image engine suppliers. However, with the market expected to reach beyond $100 million during the next few years, there may be more than enough investment for PT to gain profitable share.

All said, given the price tag of C$4.5 million, we really do not see much downside risk to this deal. Sure, the competition is formidable and imaging growth has been more sporadic than exponential, however, Psion Teklogix has filled a clear gap in its offering portfolio and, as a result, is a stronger overall company. Now, what should be done with the remaining $195 million?

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