• Brian Trotter

DSP Group just acquired Soundchip. Will this make them a real player in ANC headphones?

DSP Group just announced their acquisition of Soundchip, a Swiss company with expertise in acoustics and signal processing that's focused on the headphone ANC (active noise cancellation) space. DSP Group has been facing declining revenues in recent years, and hasn't turned a profit since 2016. Could this acquisition be what's needed to get the company back on a growth path and make them a real player in the ANC space? Here are 3 reasons this acquisition may be just what DSP Group needs:

1. Growing Market

The Headphone ANC space is one of the fastest growing consumer electronics markets. The rapid adoption of devices like Apple's AirPods has attracted many other vendors to the true-wireless (TWS) space. Canalys reports that the TWS market grew 186% from Q3 2018 to Q3 2019 to a total of 43 million units. Yes, Apple dominates this space with 43% market share. But that still leaves almost 25 millions units for other players like DSP Group. Just a small portion of that SAM would make a big impact to DSP Group's bottom line.

2. Experience Working Together

In any acquisition, integration of the new people and culture is a huge challenge. Most of us have been part of acquisitions where this didn't go well, where two teams and cultures just "didn't fit".

DSP Group and Soundchip have been working together since 2018. DSP Group licensed Soundchip's Soundflex IP, and DSP Group is already marketing a product line of ANC-Enabled Audio CODECs for hearables that includes the Soundflex IP.

No acquisition is ever easy, but with a 2 year history working together, DSP Group and Soundchip have a good head start in making the transition a smooth one.

3. Strong and Diverse IP Portfolio

In a high-tech acquisition, one big question is the IP portfolio that the new company brings. Are those innovative products you're acquiring protected against the competition? In the case of Soundchip, the answer is yes.

Soundchip's portfolio includes pending applications and granted patents in diverse technical areas. Not surprisingly, they have a pending application for their ANC system (US2019/0180730). What's most interesting about this application is that it has already been cited by the USPTO in rejecting claims from Bose in one of their ANC applications. This 'forward rejection' is something you should always look for in evaluating the portfolio of an acquisition target. This is the strongest indication that a patent is a key innovation in an area where the major players are active. Soundchip also has patents for headphone testing systems, for example US10313780. These are large systems for testing the final headphone design and they indicate Soundchip is not just a bunch of algorithm experts, but they have strong acoustic expertise as well. Lastly, Soundchip has one patent that is very unique for a company that appears to be a signal processing company. USD787469 is a design patent for a specific physical design of a headphone, shown below:

This is not something you find in the portfolio of an ANC algorithm house, and it brings to mind a unique opportunity for the new DSP Group: combine the processor solutions from DSP Group, with the ANC system, testing and headphone design from Soundchip, and you have a soup-to-nuts ANC solution. They could shop this around to manufacturers that don't have to acoustic expertise for the TWS market, but want to get a piece of this rapidly growing market.

Just a couple new customers for this type of product would make a big impact to DSP Group's financials. It will be interesting to see how this acquisition plays out.