Secrets of success

31 Oct 2003

With all the talk about Ireland’s declining manufacturing base and the threat from low-cost economies, it is good to know some pockets of resistance still exist, and in some unexpected places too. In Finglas, on Dublin’s northside, is a facility run by Sigma Wireless. The plant, formerly owned by Philips, the Dutch electronics giant, now makes among other products sophisticated 3G radio antennae for the global telecoms market – a market forecast to be worth some US$1bn over the next five years.

In appearance, it is an old-fashioned type of place both inside and out that’s more akin to a traditional workshop than a modern production plant. However, looks can be deceiving: this is where Sigma will fulfil its newly inked contract for 3G antennae with O2 Ireland believed to be worth in excess of €5m. This follows hot on the heels of an even bigger deal for the product with O2 UK, which recent press reports have valued at over €20m. France Telecom has also been signed up. Its initial order is worth a more modest €0.5m as it is for a 3G pilot network, but more lucrative orders are expected to follow if the trial is successful. On top of this, Sigma has tendered for the 3G antenna business of Spain’s Telefonica to which it is already the largest supplier of another antenna type called Tetra. Further afield, Sigma is conducting antenna trials with a major US operator and is also looking to cultivate the rapidly growing Chinese market. In fact the company’s head of manufacturing visited China earlier this month as part of a government trade mission, on the agenda of which were meetings with several large network operators.

Every technology firm likes to portray its technology as in some way unique, but Sigma has ploughed €6m into research and development (R&D) over the past few years to ensure that this actually is the case. The 3G unit incorporates a patented, remotely managed electronic tilting mechanism – an industry first – which allows network operators to more finely hone the area covered by each cell. For the end user, this boils down to fewer dropped calls and better quality of service, thus helping to cement the bond of loyalty between customer and network operator, a key issue in an increasingly competitive market.

The initial splash made by the 3G antenna has prompted Sigma to increase its investment in the technology and last month it announced that it would be creating 70 new research jobs in the area to supplement the 15 engineers already employed there.

The success of the manufacturing operation owes much to the drive and vision of the chief executive of Sigma Wireless, Tony Boyle. He is one of those who believes that manufacturing has a future in Ireland but that it will depend on two things. “Firstly, the product must be a leadership product; if it’s just a me-too product, it’s down to lowest cost manufacturing. That’s why I believe that the future of the industry lies in R&D. The second factor is that even if something has leadership quality, its manufacture must require very high skills,” he insists.

Warming to the theme, Boyle is fully supportive of the Government’s strategy to boost the amount of R&D in the economy, believing it to be the only way to retain long-term investment from the multinational sector and he adds his voice to those who have called for tax breaks for R&D as a means of spurring investment in this area. “If a product is designed here and owned here there is a much better chance the multinational will keep manufacturing it here. If the multinational is simply a contract assembler for a product that’s developed somewhere else ultimately it’ll go to the lower cost manufacturer,” he argues.

For all his commitment to manufacturing and his grasp of technology, Boyle is a salesman not a technician by background. His career began with Philips, which he joined in the late Sixties. From there, he went to Motorola, where at one stage he led a 1,400-workforce engineering unit. Sigma was formed in 1991, when Boyle performed a management buyout of a Motorola unit with his business partner, Michael McGinley (father of golfer, Paul). A year later, they bought the old Philips premises, taking over the manufacture of radio antennae there.

The telecoms crash has created difficulties for all suppliers and Sigma is no exception, but the event has had some useful side effects, Boyle notes. “Three years ago we had difficulty attracting people from the multinationals; it’s now the opposite. People have been burned by the withdrawals and the closures, and they know that their input is valued here and that makes a difference. The decisions are made here. It’s not going to be a decision made in Nebraska that the plant’s going to move to Singapore. So we are having no problem hiring people.”

Aside from manufacturing, there are three other legs to the Sigma business: retail, mobile distribution and systems integration. The newest of these is retail: the company acquired the leasehold of the 18-strong Eircom Stores retail chain in May for a reported €3.5m and is in the process of relaunching them under a new brand, 3G. The first rebranded store opened in Dun Laoghaire last month and the key Henry Street branch is on course to be unveiled in time for the Christmas season, says Boyle.

The venture represents a return to retail for the company, which sold its Person2Person chain of mobile phone stores to Eircell just five years ago for a sum believed to be in the region of €25m.

Having exited the business so profitably, it might seem to be tempting fate to go back in, especially when the mobile market is much more mature and competitive than it was four years ago. Boyle rationalises the move by arguing that the 3G stores are total communications stores – not simply mobile ones such as those of Vodafone, O2 and Carphone Warehouse. As part of the agreement with Eircom, Sigma signed a three-year deal that will see Eircom Connect Centres being established within all 3G stores nationwide. These will act as demonstration centres for the full range of Eircom products and services.

The other key differentiator, he maintains, is the “independent advice” customers will get when they visit a store that is not owned by any of the operators. That said, the stores will not carry all three operators’ handsets: Vodafone has decided not to be a supplier to 3G, obviously seeing a competitive threat from the company whose first retail chain it acquired back in 1998. In fact, Vodafone blocked Boyle’s move back into retail until now by exercising a non-compete clause that it negotiated as part of the original purchase agreement.

As a retailer, Boyle offers an interesting perspective on the relative performance of each network. Despite Meteor’s paltry 4pc market share (latest Commission for Communications Regulation figures), he doesn’t accept that the mobile market is a two-horse race between Vodafone and O2. On the contrary, he believes that Meteor is gaining on its two rivals, which he attributes to the success of its ‘value’ positioning and the introduction of mobile number portability, which he describes as the single most important development in the mobile industry from the consumer’s perspective. The next six to nine months will be “very interesting”, he predicts.

It is a period that will also be interesting for the expected arrival of 3G services in Ireland. What are his expectations for this much-hyped and vilified technology? “The first thing is that more spectrum is needed for the network: everybody experiences congestion on the mobile network,” he says. “You have to have the extra capacity and with the extra capacity you get the benefit of higher speed. I see [3G] as a very high-quality voice environment with extra capacity and then a lot of additional service offerings. Clearly the operators have slowed down their rollout programmes but they have to do it; it’s evitable in my view,” Boyle says.

Paradoxically, he sees Hutchison, the one 3G licence holder not having its own mobile network, as ultimately the one most likely to succeed because it does not have existing GSM and GPRS revenues to protect and can start its 3G business with a “clean slate”.

The second operating unit is mobile distribution, where Sigma holds contracts with O2 and Meteor for the distribution of phones and accessories to hundreds of retail outlets nationwide. Vodafone is again the exception, the network operator having decided last year to cancel a €40m distribution contract for Ready-to-Go mobile phones. Though this contract was a painful loss at the time, Boyle claims that Sigma “has very successfully realigned” its business since.

The last leg of the business is Sigma Wireless Communications, which involves building and managing radio wireless networks on behalf of state or semi-state bodies such as the Gardaí, the Fire Brigade, Aer Rianta and the utility companies. This includes the so-called Tetra networks – secure networks provided for the emergency services. Sigma recently signed a €1.3m contract to provide in conjunction with Motorola a Tetra network for the emergency communications system of the new Luas light rail network in Dublin. It also claims to have a 70pc share of the smaller Tetra antenna market and supplies these to the UK, Iceland, Hong Kong, Spain, France and Germany among other countries. Its biggest contract to date, worth £4.5m sterling (approximately €5.5m), was awarded by the UK Home Office for upwards of 3,000 Tetra antennae, all of which were made in Finglas.

Though loosely coming under the telecoms banner, the four operating units appear to have little in common at first glance. Boyle disagrees. “The industry knowledge that you learn in one business becomes invaluable in the others,” he explains. “Knowing what customers want helps us to develop products. The retail and distribution businesses are very complementary because if you see what’s working in retail you can be a more effective distributor and so on.”

The only significant area of the telecoms market Boyle is not active in is also arguably the most lucrative: that of network operator. It is a market Sigma tried to enter back in 1995 when, as part of a consortium led by Motorola, it pitched for the second GSM licence, subsequently and now controversially awarded to Denis O’Brien’s Esat Digifone. A legal action brought by the consortium over that decision is currently before the courts so Boyle is unwilling to discuss the details but he claims not to be consumed by regret over the affair, saying that justice will take its course and preferring instead to concentrate on his ongoing businesses.

“One thing we feel quite strongly is that we can develop the rest of our business much more successfully by not being an operator. [Being an operator] is not our business model,” he says simply. “We’re good at distribution; we’re good at engineering.” He adds emphatically that he has no plans to become an operator at this late stage, which is why he applied for neither the third GSM licence nor a 3G licence.

When asked to choose his best business decision he none-too-surprisingly returns to the manufacturing theme and the build quality of the antennae produced in Finglas. Quality is so important to Boyle that it even dictated the name chosen for the business in the first place. Having bandied around words such as ‘wireless’ and ‘communications’, Boyle eventually decided on Sigma – the Greek letter ‘S’ – which was borrowed from Motorola’s widely respected Six Sigma production system. “We called the company Sigma because it signifies quality – it’s the key to everything we do.”

By Brian Skelly

Career milestones

1969: Leaves school, joins Philips
1978: Joins Motorola
1991: Performs management buyout to form Sigma Wireless with partner Michael McGinley
1992: Buys Philips plant in Finglas and sets up HQ
1995: Fails in second GSM licence bid
1998: Sells Person2Person mobile retail chain to Eircell
2003: Opens 3G mobile communications chain