Chip Startup Adesto Tries to Scale Tech’s Highest Wall

Adesto Technologies Corp. is betting low-energy memory chips used in everything from fitness wristbands to smart buildings will be the next niche product as the memory-chip market goes small.

Samsung Electronics Co., Micron Technology Inc. and Toshiba Corp. haven’t realized fast enough that the $67 billion industry needs to adopt smaller, low-energy chips, said Adesto Chief Executive Officer Narbeh Derhacobian.

Adesto is entering a business where profits are scarce and not even size guarantees success. Intel Corp. and Texas Instruments Inc. have given up on memory chips, while Micron became the largest U.S. producer by buying up failed rivals and has lost money in five of the last 10 years.

“It’s always been a war of attrition among the big memory-chip players,” Derhacobian said. “It’s always been a bloodbath.”

Whether it’s storing data in iPads, laptops or smartphones or handling bigger chunks of information in data-center servers, memory chips have been getting bigger and faster. That’s created an opportunity for companies that make lower-power memory for electronics coming to market that will connect everything from smart watches to industrial machinery to the Internet.

“It’s really hard to break into the memory industry in a big way when you have a few select powerhouses,” said Jim McGregor, an analyst at Tirias Research in Scottsdale, Arizona. Adesto has “a niche, especially with medical and aerospace companies that need very specific memory requirements. However, they are just filling a very small niche at this time.”

Startup Rarity

Adesto’s technology, called CBRAM, or conductive-bridging random access memory, has the ability to get by on a fraction of the energy required by competing types of memory. That’s crucial in things like sensors built into building walls that will have to sustain themselves for years on the power of a watch battery.

The company offers chips that store between 32 kilobits and a megabit of data. The smallest listed part on Micron’s website for comparable technology is 16 times larger by capacity than Adesto’s lowest-capacity part. Some of Adesto’s chips can get by on as little as 200 nanoamps of power.

The Sunnyvale, California-based chip startup -- a rarity in itself -- is targeting a market where products communicate through the Internet without human intervention. Analysts say that’s where the growth will be. The so-called Internet of Things will be a $7.1 trillion market in 2020, up from $1.9 trillion last year, according to market researcher IDC.

High Margins

Adesto’s gross margin, or the percentage of sales remaining after deducting the cost of production, is more than 44 percent, Derhacobian said. That compares with about 35 percent at Micron.

“We have profit margins that would have others throwing their hats in the air,” he said.

Although closely-held Adesto has just 100 employees -- 1,000th the manpower of Samsung -- it generates profit and isn’t looking for more investors, he said.

The company, co-founded by Derhacobian in 2007, secured funding in the middle of the financial crisis from investors such as Applied Materials Inc.’s venture arm.

Derhacobian was part of the memory division that once propped up Advanced Micro Devices Inc. and was spun off as Spansion Inc. The new company then went bankrupt after missing out on a booming market for a new type of memory, Nand flash, which stores files in the iPad and iPhone.

“We have a huge opportunity over the big memory players,” Derhacobian said. “It’s going to be interesting how these companies react, even if they react.”

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