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Last Updated: Tuesday, 25 March, 2003, 08:18 GMT
The unlikely heroes of the digital boom

By James Arnold
BBC News Online business reporter

Pure Digital Evoke-1
The elegant but elusive Evoke-1
You can forgive Hossein Yassaie for seeming a little shell-shocked.

Imagination Technologies, the Hertfordshire-based firm Mr Yassaie runs, launched Britain's first sub-100 digital radio last July with the hope of shifting a few before Christmas.

In fact, the Evoke-1 radio - a chic blend of Ikea blond wood and industrial steel - sold 40,000 during the Christmas rush, more than most radios do in their lifetimes.

Three months later, it shows no signs of slowing down: Evokes are still as rare as hen's teeth, and John Lewis on Oxford Street says it has 3,000 customer orders unfilled.

Licence to thrill

The unstoppable rise of the Evoke is all the more impressive because Imagination Technologies has never been a radio company.

Digital broadcasting uses the spectrum more efficiently, allowing more data to be broadcast
This results in a strong signal, and potential for more channels
Technology offers possibility of combining text, pictures or other interactive services with audio output
UK has up to 50 digital channels, including digital versions of existing broadcasters
Coverage is 85% of the population and rising
Current UK analogue radio will be switched over to digital some time after 2010

Indeed, the firm's core strategy has nothing to do with the dangerous business of filling Christmas stockings.

Imagination Technologies is strictly an ideas company, developing and licensing software and microprocessor technology, with a particular focus on power-efficient graphics.

Although the company's ideas are embedded in a wide range of consumer products, from video games to mobile phones, it has never had any dealings with the public.

In a typical recent deal, electronics giant Sharp has paid to license Imagination Technologies' intellectual property for use in developing its own circuits.

Once those circuits are plugged into marketable products, Imagination Technologies receives royalty income over and above its original licensing fee.

Profiting amid misery

For Mr Yassaie, this sort of arm's length approach has had its compensations.

Hossein Yassaie
Mr Yassaie prefers to focus on the technology
The firm, run by engineers and scientists, is able to focus on technology, while leaving expensive and risky manufacturing, marketing and distribution to others.

And it has allowed the company to ride out - even benefit from - the current gloom among its clients.

As electronics giants scramble to cut costs, licensing and other forms of subcontracting are starting to look increasingly attractive.

Imagination Technologies has signed up about half a dozen licence partners since the middle of last year, including big names such as Intel and Hitachi.

Descending from the ivory tower

Which raises the question: why digital radio?

At first glance, Pure Digital, the company's digital radio subsidiary, stands out like a sore thumb.

But Mr Yassaie insists the venture makes sense, preventing the firm from losing its feel for the consumer market.

"We couldn't just stay in our ivory tower, and then find out that what we are building is not right," he says.

"Pure Digital gives us a channel to experiment with."

The success of the digital radios, Imagination Technologies hopes, advertises the potential of its microchip technology to future licence partners.

"Pure Digital is a showcase for their intellectual property," says John Beddoe, technology analyst at Seymour Pierce.

"The fact that the radios are selling like mad is a nice bonus."

One-way bet

Indeed, the way Mr Yassaie argues it, Imagination Technologies would have been crazy not to have launched into digital radio.

Radio listener
At the cutting edge of digital technology
First, the company has built up such expertise in a few key areas of technology that products can be developed at double-quick speed.

Imagination Technologies has been fooling around with the basic chips underpinning digital radio since the 1980s.

So when it decided to launch a sub-100 product, it took just 18 months to bring it to market - a fraction of the time it would take any other company.

Second, it did not take a wild gambler to see in 2001 that the UK digital radio market was due to grow - admittedly from around zero.

"Usually you create a technology, and there's no content for it," Mr Yassaie says.

"With digital radio, there were 30-40 channels already, but no one had reasonably-priced kit to listen to them on."

Audio dynamite

That insight - scarcely stunning in retrospect - has paid off handsomely.

At the end of 2001, some 50,000 digital radios had been sold in the UK - almost all 400-plus tuners for well-heeled hi-fi buffs.

Since last Christmas, that figure has jumped to 135,000, almost all of which are either Pure Digital products or based on Imagination Technologies' licensed ideas.

Now, the Digital Radio Development Bureau expects digital radio ownership to treble to half a million by the end of this year, and to double again in 2004.

Tough at the top

Whether this will be enough to ignite Imagination Technologies' moribund share price is another question.

Imagination Technologies shares
It will not have the digital market to itself for long: a host of consumer-savvy competitors, including Bush, Goodmans and Alba, are launching rivals to the Evoke this year.

Pure Digital is expanding its range, too, and is bringing out a handheld digital radio in May.

But if it wants to remain competitive, it will have to do something about its production processes - the current three-month lead time needed by its Chinese manufacturers has contributed to the patchy supply of the Evoke this year.

Having waiting lists at John Lewis is all very flattering - but consumers' patience will run out sooner rather than later.

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