19 December, 2006 - 11:39 By Staff Reporter

Paul Johnson, CEO of AIM-listed Cyan Technology

Paul Johnson tells Ben Fountain how he managed to turn an insolvent company into one of the country's brightest prospects in the electronics market.

1) Can you give a thumbnail sketch of the company, giving information on the company's history, technology platform, products and main markets?

Cyan Technology originally spun out of Cambridge Consultants in June 2000 and was funded by venture capital. During 2002, when a new round was approaching, it was clear that the appetite with VCs to invest after the dot bomb was not there and that we would not raise any further money in the timescale we had.

The company was put into voluntary liquidation with something like £200K in the bank. I purchased the assets from the liquidator shortly afterwards.

Cyan is a fabless semiconductor company like CSR and Wolfson. It specialises in 16 bit and 32 bit microcontrollers which is a $15 billion market with some 8 billion units shipped last year. Microcontrollers are in all electronic products from humble to super sophisticated where more than one microcontroller would likely be present.

The market is some 25 to 30 years old and all the major semiconductor companies are there. Cyan, however, specialises solely in microcontrollers; in particular providing very powerful and flexible microcontrollers supported by novel and unique software development tools.

This combination provides major benefits to our customers. It reduces their development time and costs, it can lower their bill of material cost, and it shortens their time to market. The easy to use software development tools are needed so that the customer can write the necessary software and load it into the chips to achieve the desired results for their end product. Unlike our competitors Cyan gives away the software tools for free. Our competitors rely mainly on third party tool suppliers which charge several thousand dollars per user.

We don't deliberately focus on specific applications but this does happen by default as certain applications are becoming popular with our microcontrollers such as battery powered applications and embedded communications. 2) The company has unquestionably turned a corner since you purchased it out of administration. How much is attributable to your management team/board and how much attributable to the upturn in the technology market?

The microcontroller is and has been continually increasing. When the assets were first acquired there was only myself and a few of the original employees involved. These original employees worked part time for share options and I owe a great deal to those guys as they kept the name alive during troubled times.

I worked full time, obviously on no salary, whilst funding the operation out of my own pocket. The turning of the corner came when Cyan was able to raise our first round of private funding in Jan 2004. Those original investors, particularly our first chairman Barry Muncaster (who I have known for years) really stuck their wallets out and gave us the initial chance. The upturn in the technology market and the flotation of CSR and Wolfson certainly helped. 3) Is it possible to build a long-term, sustainable business around the relatively lowly 16-bit microcontroller?

Half the market is still the lowly 4 bit and 8 bit microcontrollers. 16 bit should not be regarded as lowly. For many applications it is very appropriate and its market is continuing to grow. We are not just building our business around the 16 bit market as we have from the very start been planning and working on our own 32 bit product range.

The 16 bit and 32 bit market together will out grow the lowly 4 bit and 8 bit and provide significantly better ASPs and therefore overall profitability. Indeed a number of analysts have pointed out that the market drivers are the movement of 8 bit designs to 16 and 32 bit, the increased level of internal peripherals and the need for more memory as products become more and more complex. I recognised this long ago when I specified the original eCOG1 chip back in 2000. So in answer to your question it is an emphatic yes! 4) What are your main targets/objectives for the business for 2007? For example how many units do you intend to ship? Can we expect any significant design wins in the next year? Can you hint at with whom?

I cannot give forecasts as we are a public company and such specific forecasts are prohibited. However, with the new eCOG1X product family I feel confident in expecting some significant design wins next year. Also I find it hard to believe that the Chinese Tax Control system, in which we have a major opportunity, will not roll our next year. It has been delayed now for a year for various reasons, none of which are to do with Cyan or our customers.

The Chinese government decided some time ago that VAT would be monitored and collected through tax control terminals. The numbers are huge and China wants to collect its VAT! There has been for a long time the requirement to have this system rolled out and operating long before the 2008 Olympics, which is now only 18 months odd away. It can't be delayed much longer if this target by the Chinese Government is to be met. 5) What do you see as the most important markets for your technology both in terms of products and geographies?

The three most important things in this respect are China, China, China! We have a great product line up now, geared up for the future. China's market is just so big and is now dominating the semiconductor industry. Most of our future potential is China and the proportion is growing. Also to note is that of all the design wins and opportunities we have in China, all are for the indigenous Chinese market and none for export. An interesting example is a design win for maritime navigation buoys. The idea is to use wireless networking so that 1000's of buoys can communicate by way of a 'mesh network.'

6) What will be the key drivers of growth? Will it be organic or do you plan to bolt on any new capabilities? If so, what and where?

For the medium term growth will be organic. Cyan will be concentrating on growing a market share in the microcontroller space. Just 1 per cent by 2010 would give Cyan revenues of $200 million to $250 million. Why stop there! We will grow the market share as much as we can. The market has not seen anything like the CyanIDE tools, which coupled with highly integrated and low power chips should grab more attention and therefore, finally, sales revenue. 7) Do you plan to expand any of your UK operations in the near-term? The UK is the centre of our R&D capability and this will certainly grow as we expand to further increase the rate of growth by providing an increasing product range and expanding the capability of CyanIDE to the point where its use will become compelling to the industry. Please also refer to question 5. 8) What has precipitated the slump in your shares since March? I believe it to be the delay in the roll out of the China Tax Control system, which we could see was going to affect our 2006 revenues, so it was mentioned in our Annual Report. The markets in general may also have had an effect subsequent to that. There are few semiconductor companies on the LSE and all have experienced a slump in their share prices over the year. Note that I am referring to fabless model companies and not IP companies. 9) What do you see as your key challenges in the medium to long term? I designed my first computer in 1975 and have been involved in small computers (which is what a microcontroller is) ever since, so product specification doesn’t worry me. I designed my first silicon chip in 1982 and have been involved in chip design ever since so that area doesn’t worry me.

What does worry me is being able to recruit the right people, as it is becoming increasingly difficult in the UK. Another challenge that I welcome is how to really impact the industry with our chips and tools and, when we do, managing the problems that will come with the explosive growth. CSR managed it and so did Wolfson so it can be done. Clearly that growth will be China, so successfully expanding the operation there will be challenging and extremely interesting. 10) How important it is for the company to hit and then maintain profitability? What are the timeframes?

Incredibly important. That is when our shareholders will really reap the reward, particularly those private investors who deserve a big upside on their highly speculative investment at the very start. Also as our revenues grow we will be able to attract even more design wins. Customers feel more relaxed if they are one of many; it validates their choice. What is interesting is that a microcontroller is a single sourced product.

Once our customer has finished their design and it goes into production we move from a technical sale into order taking. Our customers will only take what they want, so our success is based on our customer’s success in their respective marketplaces.

So clearly the more design wins that go into production, the more comfortable Cyan becomes and the less dependant we become on particular customers and applications.

Maintaining profitability should be down to controlling our costs in line with the level of our business. Something I have had to do many times in the past. I see no reason why Cyan cannot repeat the success of CSR and Wolfson, with the benefit of many different markets and applications.

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