Signal Technology Corporation (Nasdaq: STCO), today announced a strategic initiative to translate the Company's expertise in the design and manufacture of RF and microwave modules for defense and broadband wireless applications into advanced semiconductor modules for next-generation mobile phones and wireless appliances. The strategic initiative centers on technology and manufacturing agreements with Northrop Grumman Corporation (NYSE: NOC) and Vitesse Semiconductor Corporation (Nasdaq: VTSS). A key component of Signal's strategy for commercial wireless communications growth is the recognition that the underlying semiconductor technology, both silicon and gallium arsenide (GaAs), is central to success in wireless markets, whether it is for multipoint customer premise equipment (CPEs), point-to-point high capacity outdoor units (ODUs) or mobile appliances.
"For years, Signal's products for defense communications and fixed wireless equipment have provided our customers with superior performance across a broad range of applications," said George Lombard, Signal's chairman and chief executive officer. "With Signal President and Chief Operating Officer Jim DiLorenzo and his team's background in producing GaAs cell phone products, we believe it is an opportune time to apply this state-of-the-art RF technology to 2.5G and 3G wireless phones, as well as the emerging mobile appliance markets."
"The wireless appliance marketplace is incredibly fast-paced and consumer-driven, which dictates a very short time-to-market for handset OEMs," Lombard said. "As a result, OEMs are looking for suppliers who can provide the entire RF front end of a cell phone integrated within a single semiconductor module. Our commercial fixed-wireless access products and more than 20 years in the defense electronics business have earned Signal worldwide recognition as a preeminent designer of such advanced RF semiconductor solutions."
Signal's wireless appliance strategy consists of two initiatives. The first is a 10-year license to use Northrop Grumman's GaAs heterojunction bipolar transistor (HBT) and pseudomorphic high electron mobility transistor (PHEMT) semiconductor technologies to produce advanced monolithic microwave integrated circuits (MMICs) and radio frequency integrated circuits (RFICs) for the mobile communications market. "Northrop Grumman's HBT and PHEMT technologies provide the state-of-the-art efficiency and linearity needed for the mobile appliance market, as well as fixed wireless access markets," said DiLorenzo. Northrop Grumman has also agreed to supply devices to Signal for up to 10 years to support Signal's growing line of wireless access products. In return for the technology license and supply agreements, Northrop Grumman will receive approximately 1 million shares of Signal common stock over time, based on the achievement of certain milestones.
Dr. Taylor W. Lawrence, Northrop Grumman's Vice President & General Manager of the Systems Development and Technology Division, commented, "Northrop Grumman has developed numerous high performance technologies for use in our defense systems, and we are excited at the prospect of seeing our GaAs technologies applied to the commercial marketplace. We believe the synergy between our DoD technology and our relationship with Signal will provide significant value to both our DoD customers and Signal."
"One of the key aspects of this agreement is the establishment of a joint technology working group that will provide Signal with a view into Northrop's leading-edge technology, and enable us to couple our defense customers' requirements with those of the next generation of commercial communications products," continued Lawrence. "This will facilitate a flow of technology into Signal products and give our defense customers access to a low-cost commercial production base."
The second initiative announced by Signal today is an exclusive relationship with Vitesse Semiconductor that will provide the Company with a high-volume supply of wafers containing custom RFICs and MMICs. The agreement includes the transfer of Northrop Grumman's GaAs technologies to Vitesse's world-renowned 6" GaAs wafer fab line and the production of Signal's MMIC designs for a period of 10 years. Vitesse will receive warrants for 500,000 shares of Signal common stock, based on the achievement of certain milestones.
"Vitesse has always applied the best silicon semiconductor manufacturing approaches to the manufacture of digital GaAs integrated circuits," said Jim Oakes, Signal's vice president of cellular, PCS and wireless data products. "The combination of Vitesse's manufacturing with Northrop Grumman's technology will create an exclusive high-volume source of RFIC and MMIC wafers for the mobile appliances market, combining the superior performance of GaAs integrated circuits (ICs) with the yield and capacity of silicon ICs. This combination will open new opportunities for Signal in the multi-billion dollar handset market and make Signal an ideal partner for the world's OEMs as they increase their reliance on integrated RF semiconductor solutions as a means of reducing unit costs and time to market."
Vitesse CEO Lou Tomasetta said, "Signal's new strategy builds on the complementary device fabrication, product design and manufacturing strengths of three technology leaders, and combines them into a formidable new presence that spans the entire cycle from design concept to volume production. We are pleased with the prospect of working with a company as experienced and successful as Signal to support their presence in the RF semiconductor business."
"This is truly an unprecedented opportunity for Signal," said DiLorenzo. "We believe the wireless telecom market is poised for a rebound in terms of both infrastructure build-out and handheld appliance demand. In addition, creating the Northrop-Signal joint technology working group assures us of the earliest possible access to first-to-market design-in of evolving enhancements and new technologies vital to innovative product offerings. At the same time, our relationship with Vitesse provides us with an exclusive presence in one of the finest GaAs fabrication facilities in existence. We believe these strategic advantages will position Signal to capture a meaningful share of the commercial market for wireless appliance components when worldwide demand growth resumes. We are equally excited about the advantages this manufacturing capability gives our other commercial wireless initiatives as well."
"Offering state-of-the-art GaAs module technology to cell phone makers is fully in line with Signal's growth strategy, which is to leverage our defense electronics heritage into penetration of commercial wireless communications markets," Lombard said. "This strategy has generated dramatic increases in bookings, sales and backlog for Signal over the past 18 months, centered in both the point-to-point wireless infrastructure and point-to-multipoint fixed wireless access markets. Because our RF module launch positions Signal to penetrate the wireless handset and mobile appliance markets while complementing our presence in the multipoint CPE space, this initiative has the potential to significantly extend the Company's record of commercial wireless growth."
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