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

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In 2002, the dotcom bubble had burst and feelings about the internet were decidedly lukewarm. Google was just four years old, smartphones had not been invented and tablets were something you took when you were ill. 

Graham Curren and Ian Lankshear took a more upbeat view. True British entrepreneurs, the duo each founded cutting-edge silicon chip firms – Curren with Sondrel and Lankshear with EnSilica. 

Both businesses have grown considerably since then, floating on the stock market this year, with ambitious plans for expansion. They are both worth watching.

Forward thinking: True British entrepreneurs, Graham Curren and Ian Lankshear each founded cutting-edge silicon chip firms ¿ Curren with Sondrel and Lankshear with EnSilica

Forward thinking: True British entrepreneurs, Graham Curren and Ian Lankshear each founded cutting-edge silicon chip firms – Curren with Sondrel and Lankshear with EnSilica

Curren has spent his entire career in technology, particularly the design and manufacture of application specific integrated circuits. ASICs, as they are known, can be likened to the Savile Row of the silicon chip market – bespoke chips for specific customers and products. Realising 20 years ago that ASICs had huge potential, Curren set up Sondrel, specialising in this area. Today, the annual market is worth around £230billion and growing at 20 per cent per year. 

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

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 firm because they want chips that are smaller and more powerful than off-the-shelf varieties, use less energy and stay cooler for longer. These tiny pieces of kit are used in cars, phones, data centres, virtual reality sets and all kinds of industrial equipment too. And demand is soaring, as technology becomes ever more sophisticated. 

Designing this type of chip is incredibly complex. The process can take a couple of years and customers often spend up to £20million on a single design. Sondrel has gained a reputation for good work not just with big-name customers but also with partners, including Arm. 

This broad network has become a real advantage, as more and more international firms try to source goods and components more locally. 

Now the group is moving on to a new chapter, not just designing ASICs but managing the production process too. Curren and his team will not manufacture kit themselves, as this would require huge funds. But they will oversee the process, in effect offering customers a one-stop chip shop. 

The initiative has partly been driven by customers but it reflects Curren’s own ambition too, as production contracts are longer-term and far more profitable than design-only deals. That is why Sondrel is aiming for £100million of sales in the medium term and should grow much more than that further into the future. Contracts have been signed and several more are expected, translating into rising sales and profits for years to come. 

Sondrel has bounced back from Covid-19 and prospects seem set fair. Curren has expanded internationally too, with around 200 employees worldwide, including engineers and sales staff in countries as far afield 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 recognised as a leader in its field. At 59p, the shares should go far. Curren remains a 45 per cent shareholder too, so his interests are closely aligned with his shareholders’. 

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

Looks familiar: Ian Lankshear is a Bill Gates lookalike

Looks familiar: Ian Lankshear is a Bill Gates lookalike

EnSilica, based in Abingdon, is little more than 20 miles from Sondrel and is also well-known in the ASICs field. But it specialises in so-called mixed-signal chips, which are rather different from Sondrel’s in the way they are made and used. The group focuses on four main markets – satellite communication, healthcare, advanced industry and high-end car manufacture. 

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’ heartbeat. EnSilica’s kit is essential on the factory floor of companies that use robots and artificial intelligence to make their goods. EnSilica chips also allow firms to monitor the safety of their appliances and carmakers turn to it as they become increasingly high-tech. The group has moved into satellite communications too, where its chips provide internet access in remote parts of the world, a market with vast potential. 

Ian Lankshear, a Bill Gates lookalike, founded EnSilica in 2001. But the group’s current strategy dates back to 2014, when he teamed up with chairman Mark Hodgkins, a former accountant, who has spent years advising small firms on how to grow. 

That was when the company decided to move from being a design consultancy to a full-service, mixed signal chipmaker. Today EnSilica does what Sondrel is about to do – overseeing the entire chip process, from design to production to supply. Quality is paramount and EnSilica has a reputation for delivering the goods. 

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

Midas verdict: Lankshear and Hodgkins combine tech know-how with commercial nous and EnSilica is well-positioned in a growing market. The shares are 49p and deserve to move higher. Buy. 

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

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