MIDAS SHARE TIPS: Cash in as UK pioneers chips for everything

By 2002, the dot-com bubble had burst and sentiment about the Internet was decidedly lukewarm. Google was only four years old, smartphones had not yet been invented and tablets were taken with you when you were ill.

Graham Curren and Ian Lankshear were more optimistic. True British entrepreneurs, the duo each founded advanced silicon chip companies – Curren with Sondrel and Lankshear with EnSilica.

Both companies have since grown significantly and went public this year with ambitious expansion plans. They are both worth seeing.

Curren has spent his entire career in technology, particularly the design and manufacture of application-specific integrated circuits. ASICs, as they are called, can be compared to the Savile Row of the silicon chip market – custom chips for specific customers and products. Curren realized 20 years ago that ASICs had enormous potential Sondrel, specialized in this field. Today, the annual market is worth around £230 billion and is growing at a rate of 20 per cent a year.

Sondrel accounts for a fraction of the total market – with sales expected to be less than £20m by 2022. But the company is well respected and Curren is experienced and ambitious, with a plan to reach £100m in the next three to five years million in sales. The group floated on AIM at 55p last month, shares are at 59p and should be up significantly.

Sondrel works for some of the best-known companies in the world, including Apple, Google, Sony, Samsung, Tesla and Mercedes-Benz. They turn to the Reading-based company because they want chips that are smaller and more powerful than standard variants, use less energy and stay cool longer. These small parts are also used in cars, telephones, data centers, virtual reality sets and all kinds of industrial equipment. And demand is booming as technology becomes more sophisticated.

Designing this type of chip is incredibly complex. The process can take a few years and clients often spend up to £20 million on a single design. Sondrel has built a reputation for good work not only with major clients, but also with partners, including Arm.

This broad network has become a real advantage as more and more global companies seek to source goods and parts more locally.

Now the group is moving on to a new chapter, not only designing ASICs, but also managing the production process. Curren and his team will not make a kit themselves, because it would require huge sums of money. But they will oversee the process and basically offer customers a one-stop chip shop.

The initiative is partly driven by customers, but it also reflects Curren’s own ambition, as manufacturing contracts are longer term and much more profitable than design-only deals. As a result, Sondrel is aiming for £100 million in revenue in the medium term and should grow much more in the future. Contracts have been signed and several more are expected, which will translate into increasing sales and profits for years to come.

Sondrel has recovered from Covid-19 and the outlook seems reasonable. Curren has also expanded internationally, employing around 200 people worldwide, including engineers and sales personnel in distant countries such as Morocco, India and China, as well as the UK and Europe.

Midas verdict: Economic conditions are tough, but Sondrel operates in a fast-growing market and is recognized as a leader in its field. At 59p, the shares should go far. Curren also remains a 45 percent shareholder, so his interests are closely aligned with those of his shareholders.

Traded on: GOAL Ticker: SND Contact: sondrel.com or 0118 9838 550

Looks familiar: Ian Lankshear is a Bill Gates lookalike

Based in Abingdon, EnSilica is just over 20 miles from Sondrel and is also well known in the field of ASICs. But it specializes in so-called mixed-signal chips, which are quite different from Sondrel’s in the way they are made and used. The group focuses on four main markets: satellite communications, healthcare, advanced industry and high-end automotive manufacturing.

In healthcare, the company’s chips can be found in diabetic patches that monitor glucose levels, or wearable devices, such as Fitbits, that can monitor users’ heart rates. EnSilica’s kit is essential in the workplace of companies that use robots and artificial intelligence to make their goods. EnSilica chips also allow companies to monitor the security of their devices and automakers are turning to them as they become more sophisticated. The group has also moved into satellite communications, where its chips provide internet access in remote parts of the world, a market with huge potential.

Ian Lankshear, a lookalike of Bill Gates, founded EnSilica in 2001. But the group’s current strategy dates back to 2014, when he partnered with chairman Mark Hodgkins, a former accountant, who spent years advising small businesses on growth.

That’s when the company decided to move from a design consultancy to a full-service mixed-signal chipmaker. Today, EnSilica does what Sondrel will do: oversee the entire chip process from design to production to delivery. Quality is paramount and EnSilica has a reputation for delivering the goods.

Brokers expect a 30 per cent increase in revenue to £19.8 million for the year to May 2023, rising to £23 million in 2024 and over £30 million the following year. Profits are around £1 million today, but should rise sharply over the next three years.

Midas verdict: Lankshear and Hodgkins combine technical know-how with commercial knowledge and EnSilica is well positioned in a growing market. The shares are 49p and deserve to go higher. To buy.

Traded on: GOAL Ticker: ENSI Contact: ensilica.com or 0118 321 7310