ttpcom.jpgTTP Communications, an important player in China's wireless chip market, has agreed to be acquired by Motorola for £103m in cash.

The loss-making company, one of the survivors from the UK's dotcom crash of five years ago, has been fighting a long battle to popularise its designs for chipsets with mobile phone designers and manufacturers, many of which are based in China.

The company was hard hit by the fall-out from the dotcom crash but it seemed to have turned the corner a year ago, when it boasted it would expand the number of engineers at its Shanghai engineering facility by 300% to cope with growing demand from the Chinese market, which contributed a third of TTPCom's revenues in fiscal 2005.

TTPCom has been active in China for a decade, although it only opened its first office in 2002. Its success in China — it claims to be number two in its particular niche — rests largely on the popularity of its chipset designs for older GSM/GPRS (2G) handsets with China's local manufacturers.

In the 3G market, TTPCom has had more problems. First, there is the slow uptake of 3G in general. In many countries, 3G has failed to live up to the original expectations of handset manufacturers.

Second, there is the particular problem of China, where the government's wish to promote an alternative home-grown standard, called TD-SCDMA, has created much uncertainty among handset manufacturers and operators.

A better-funded company might have been able to ride out this uncertainty. But TTPCom's latest results show sales dropped 36% to £37m in fiscal 2006 and it slumped into a hefty loss.

Ironically, part of the drop in revenues is due to TTPCom's Chinese licensees facing tougher competition in China's 2G market from international Tier One manufacturers — the likes of Motorola and Nokia.

These long-established giants of the mobile phone industry were initially slow to wake up to the particular needs of Chinese consumers. Nevertheless, they have got much better at developing low-cost multimedia phones for China and other emerging markets.

TTPCom's Chinese customers include TCL, ZTE, Soutec, China Kejian, Yuhua, Simcom and Longcheer. TTPCom does not make chips but licences functional designs for chipsets to these ODMs and OEMs, which then contract a foundry service to make the chips.

(For a description of the mobile phone industry's supply chain and comment from TTPCom managing director Tony Milbourn, see this Financial Times article, written by Geoff Nairn, EngagingChina's founder ).

TTP argues that its flexible licencing model has helped these Chinese companies evolve from simple local branding or distribution outfits to fully-fledged mobile phone designers and manufacturers capable of competing on the world stage with Tier One manufacturers like Motorola.

That competitive threat perhaps explains Motorola's willingness to pay a hefty 246% premium to acquire TTPCom, although Electronics Weekly argues that the move was more than just a spoiler tactic as TTPCom has particular strengths in low-cost handset design and convergence technologies.