SAN FRANCISCO -- Investors had two reasons to stick with Sirf Technology ( SIRF) as the chipmaker floundered: a takeover or a turnaround. Both of those hopes evaporated with last week's legal ruling against Sirf. The preliminary finding by a U.S. International Trade Commission judge that Sirf is infringing on six of Broadcom's ( BRCM) patents represents more than the latest in a string of bad news for Sirf -- it marks the end of any reason to care about a company that once seemed poised to be a central player in a new world of iPhone-like gadgets. Shares of Sirf plunged 24% to $2.44 Monday as news of the ITC ruling spread. Sirf developed -- and once ruled -- the market for GPS chips that communicate with overhead satellites to provide an electronic device with its precise geographic location. But a rush of competitors has eroded the price of Sirf's GPS chips and its market share. According to iSuppli, an industry research firm, Sirf had more than a 90% share of the market for GPS chips in cell phones in 2006. In the first quarter of 2008, Sirf's share had dwindled to 36%, while Texas Instruments ( TXN) had grabbed 35% and Infineon ( IFX) had 21%. In the market for portable navigation devices -- a larger market for Sirf than cell phones -- competition has also been fierce with chipmakers Broadcom and ST Microelectronics ( STM)stealing significant share from Sirf at customers like Garmin ( GRMN) and TomTom, according to RBC Capital Markets analyst Mahesh Sanganeria.
The ugly business trend has pushed Sirf's shares down roughly 89% from their 52-week high of $30.61. Given the recent spate of GPS acquisitions (including Broadcom's purchase of GlobalLocate), there was hope that the company's crumpled share price might at least lure a buyer and provide investors with some upside. With Sirf's intellectual property now devalued by the recent ITC ruling though, the company has little to offer. Instead of owning crucial real estate in the booming world of mobile gadgets, Sirf now looks like an ordinary renter, subservient to the whims of other landlords. And the pending suits in U.S. District Court mean that Sirf could also potentially be on the hook for monetary damages if those cases follow the same line of thinking as the ITC. Meanwhile, the legal defeat kills any illusion that the new management team at Sirf might have a strategy to right the ship. The new team got off to a less-than-stellar start by announcing a $13.5 million investment in a private, unnamed GPS firm as one of its first moves, and immediately writing off $11.8 million of the investment the following quarter. The legal defeat removes any remaining reason for confidence. A fresh team might have been expected to re-evaluate the aggressive litigation strategy Sirf was pursuing, and sought to settle with Broadcom -- particularly, given some of the negative signs that were emerging, such as a separate ITC ruling in June - following a complaint by Sirf -- which found that Broadcom wasn't infringing on Sirf's patents.
Sirf's decision to push forward with the patent litigation now looks foolish, if not downright reckless. In announcing the latest ruling, Broadcom said it remains open to "reaching a mutually acceptable resolution of these disputes." In reality, Sirf now has zero bargaining power. Certainly the terms of any deal won't be anywhere near as favorable for Sirf as they might have been had Sirf's lawyers hammered out a settlement prior to the ITC ruling. Perhaps the notion of a new management team turning things around at Sirf was never realistic. The company ousted the CEO and the CFO in April. But the current "acting" CEO, Dado Banatao, has served as the company's chairman from Day One. And Kanwar Chadha, a Sirf co-founder and VP of marketing, has always played a key role at the company and that appears to continue to be the case. With much of the decision and strategy-making structure still in place, the changing of the guard looks less like an attempt to find a fresh start so much as a token gesture to appease shareholders while carrying on with business as usual. Unfortunately, investors are now paying the price.