Carsten Brinkschulte, CEO of Synchronica plc, speaks to Stockopedia News

Stockopedia News spoke earlier today with the CEO of Synchronica Plc, Carsten Brinkschulte. The AIM-listed mobile email specialist  today reported a halving of its pre-tax losses to £3.2m in the year to December 2009, with revenues up slightly at £3.8m. During the year the company released an upgraded version of its flagship Mobile Gateway software and, together with its partners, launched a new mobile device called MessagePhone aimed at consumers in developing countries. A £4.7m fundraising last June was followed post year-end by a £2.8m placing in March along with an equity swap that will give it another £2.0m over the next two years. For chief executive Carsten Brinkschulte, the focus has been on signing up new mobile carriers in order to boost the company’s presence in its core markets. Investors didn’t take kindly to the results, sending the shares 6.5% lower to 1.75p. Nevertheless, Brinkschulte remains confident that the company can go on to grow its contract base and move into profitability during the rest of 2010.

Synchronica’s mobile messaging technology and award-winning product portfolio includes the flagship product Mobile Gateway, providing push email, synchronisation, instant messaging, backup & restore and mobile connectivity to social networks. Its products, including the recently launched MessagePhone, are white-labelled and offered by mobile operators in emerging and developed markets to provide mass-market messaging services. In April, the company acquired the Instant Messaging business of Colibria AS, which added 13 operator contracts to Synchronica’s books and accelerated its entry into the mobile Instant Messaging market.

Carsten, in view of your latest results, where were the key areas of progress for Synchronica during 2009?

The key area of progress was our 13 new carrier contract wins; the organic growth and customer acquisition was extremely positive. For a company of our size and stage of development I think that winning 13 carrier contracts in 12 months is very encouraging. Five of those deals were signed with partners and we established global reseller agreements with Nokia Siemens Networks, the second largest network equipment provider, as well as an unnamed Asian top-five network equipment provider and Brightstar [the American distribution group]. These 13 channels produced five contracts last year and we are very pleased about that because these partners allow us to scale our business on a global basis with local presence without having to employ hundreds of sales people. This is important if we want to scale beyond our direct ability to sell products and we are pleased that these channel partners are starting to generate a significant amount of high value contracts for us.

We also invested significantly in our intellectual property, which is what you need to do as a software company. We introduced Synchronica Mobile Gateway 4 during the year and with that we were able to deliver mobile email and synchronisation to any handset for the first time – from the high end smart phones down to the lowest, so-called basic phones. We can deliver Blackberry-like services, such as mobile email, to these devices and that’s a new functionality of the product which has significantly improved out competitive positioning. Most of our competitors are limited to the high-end of the device spectrum. We can work on these devices too, but we can also reach the low end, which is the dominating part of the device spectrum in many parts of the world.

So we think we have significantly improved our competitive positioning with the product and we have invested in the product. We have a very good conversion rate from prospect to customers in competitive situations – we win most of the deals against competition. In terms of revenues, what was encouraging is that that the underlying revenue from Mobile Gateway, which is our core product, went up 175% between 2008 and 2009. While the top line figure did not improve that much, the revenue that is actually coming from our core product has dramatically increased. We are hopeful that we can continue this trend in 2010 and then you should see a significant increase in revenue overall this year.

In terms of overall revenues, you’ve pointed to some delays in converting your sales pipeline. How much of a concern is that?

I wouldn’t say it was a major concern. The conversion of prospects to customers in the first five months of 2010 has not been as quick as we anticipated. You always have a pipeline and a forecast of when that pipeline will convert into contracts. Initially, when we began the year we thought it would convert a bit quicker but it is nothing dramatic or material but we felt we should tell that market that it is not accelerating as it has done in previous years. 

But we have announced three carrier contracts in 2010 and one of them is our largest carrier deal to date, with a commitment for 300,000 licences over one year, which is worth US$1.05m to us. We were happy with that because it is in Indonesia, which is one of the fastest growing emerging markets that we know of. We were also pleased with the progress that we made with the MessagePhone last year. The agreement with Brightstar to produce the MessagePhone is our answer to Blackberry, if you like, for emerging economies. So it is a low-end, mass market push email optimised device bundled with our software. We completed the product in February and so far have won two carrier contracts for the device. The MessagePhone was key last year and is developing quite positively. In terms of deals this year, we have a very large pipeline, larger than ever, consisting of both carriers and device manufacturers that are interested in our product. We have got deals at various stages and varying value and we are confident that we will see an accelerated conversion rate and higher value per deal for the remainder of the year. But we will have to increase our conversion rate and deal values in order to meet the targets which are in the market.

On the subject of competition, Nokia has launched a range of low cost devices for emerging markets. How do you deal with that sort of competition? 

Clearly, it is tough competition; Nokia (HEL:NOK1V) is not the smallest manufacturer. But we do have a key area of differentiation in that Nokia is launching its devices with their own bundled services under their own brand. This is fundamentally different to how we have positioned the MessagePhone, which is a white-labelled product that is typically branded by the carrier that is launching the device. So it will not be sold under an independent brand, it will be sold under the carrier’s brand whereas the Nokia devices are always sold under the Nokia brand. In the case of Nokia, the email and instant messaging service that is offered with the devices is also owned, branded and operated by Nokia while with the MessagePhone it is branded, owned and hosted by the carrier. What that means is that we are a carrier-friendly version of Nokia, which puts the carrier back in control of the device and the service. Nokia’s strategy focuses on their brand and establishes a direct connection between Nokia and the end user, which reduces the carrier’s position to a bit-pipe. If Nokia succeeds in its strategy the carriers will left with providing mobile data access with no value added services, allowing users to switch easily from one carrier to another while still using the same Nokia device. With the MessagePhone, the carrier is in control and can establish a very strong relationship with the end user, which prevents churn and prevent carriers from becoming a bit-pipe.

Is there any likelihood of opening up sales channels in China and India and why isn't MessagePhone available for sale in the UK or US?

We see right now that our target markets are Asia, Africa, Latin America and to some extent Eastern Europe – we announced a lot of deals in Africa last year along with a two deals in Asia and other deals in Latin America. India is very attractive for us, we would really like to have a carrier contract there and we are working on deals. We did announce a carrier contract in Pakistan and that region is very important to us. China is a bit more difficult to enter because there are basically only three carriers and everybody wants to do a deal with them. Likewise, China is very much focused on local suppliers, so doing a deal is possible but uncertain. India is certainly more likely.

Our strategy is clearly to focus on developing countries because we see a bigger potential for our product and a stronger competitive position in those markets, as well as a stronger demand. Naturally we have focused our sales and marketing efforts and our product development efforts on these regions. Products in the mobile world are often very local in their appearance, so a product you develop for one region is not necessarily successful in another. By targeting developing nations we are going after 87% of the world’s mobile phone population in terms of volume, and we think that is the right choice for us. Since we are a small company we have to be focused, if you try to be everybody’s darling you will end up winning nobody. So we have chosen our focus and we are executing on it, so we don’t anticipate trying to make sales in Europe. Although technically possible, it would require certain modifications of the product, different partners and a different marketing strategy.

On a separate note, has there been any advancement in the company’s efforts to get Mobile Gateway Enterprise Edition out into the market?

We have Mobile Gateway Enterprise and we have several companies that have bought the product. We don’t make a big deal out of it; it is just a technical product for us to cover that market. The bigger revenue potential for us is clearly in the carrier version of the product.

Wrapping up, what are your expectations for 2010? Are you on course to meet revenue forecasts and where is the company currently focused? Are you likely to need to raise any new money?

Our focus is on growth and market penetration and we want to win as many carrier contracts as possible and to become profitable while we are doing it. Ideally we will achieve both and I think we can achieve both. Obviously, if we reach profitability it should remove the need for further fundraisings - unless we were to make another acquisition.

Thanks for your time Carsten.