By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
May 14, 2007 (May 16 on OttawaBusinessJournal.com)

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It’s no secret that the wireless consumer market is heating up. One needs only to look around to see how Bluetooth headsets for mobile phones have become the accessory for gadget junkies and the average urbanite alike.

Now Kleer Semiconductor – a California-based startup with its roots and research and development firmly planted on Ottawa soil – is looking to break into the market with its high-fidelity wireless headphone technology, although it faces a tough fight against the industry leaders.

Kleer’s product is a chip that allows headphone manufacturers to make wireless headsets which produce crisp, CD-quality audio, use less battery life and are less bulky than other headsets.

The company says its product uses 10 times less power than a comparable Bluetooth solution, which means its customers can use smaller batteries for their products and design smaller headsets and ear-buds, unlike the ubiquitous ear-clamp style of headset employed by Bluetooth products.

“There’s a pent-up demand for getting rid of wires when listening to music … the last thing people want to do when they’re out jogging is strangle themselves with wires, and often people want to share their music and have lots of people listen at the same time, which isn’t possible with wired devices,” says Kleer CEO Levent Gun. “Yet we felt there were significant constraints with (the wireless standard) Bluetooth.”

Besides requiring larger amounts of power, Mr. Gun says Bluetooth products tend to compress audio quality, producing music that sounds “like it’s coming out of a tin can.”

Kleer’s product, on the other hand, transfers audio in an uncompressed format for high-quality sound. The company has also built a protocol for dealing with the interference which often plagues wireless products using the 2.4-gigahertz industrial, scientific and medical (ISM) radio bands. The frequency is also used by appliances such as baby monitors and cordless phones.

The technology has already attracted the notice of audio industry bigwig RCA, which in January selected Kleer’s Audio LP product for use in its latest generation of wireless MP3 players.

The story behind Kleer’s name fits with the company’s product: Kleer was originally founded by local high-tech entrepreneur Michael Gaffney in 2002 as Ottawa startup ENQ Semiconductor, but the company changed its name a year and a half ago because its products are “all about high-quality, crystal-clear audio sound,” Mr. Gun says.

“I remember a customer in Japan who was listening to music through headphones using our product and he gave us the thumbs-up and said the sound was very clear, so the name worked.”

The company is described by Mr. Gun as having its “heart and soul and development and innovation” in Kanata, chose to go into the audio market instead of voice, data or video because of the challenge presented by the requirements of its applications.

“There was the most need in audio because a high-quality solution did not exist at the time (when we were deciding on an application), although it was a gamble since portable MP3 players were not that popular in 2003. But it was the right bet because of the success of the iPod in 2004 and 2005,” says Mr. Gun. “And we wanted to build a lot of barriers of entry at the same time to make it difficult for competitors to catch up, so beyond the low-power aspect we needed to build wireless link management and interference management protocols; it was a big challenge for the technology.”

But what do analysts think of Kleer’s chances in a market dominated by other wireless standards, whether they are high quality or not?

“Kleer certainly has an innovative technology, but the question is how it’s going to go to market,” says Jon Erensen, Gartner senior research analyst for consumer electronics and semiconductors.

Mr. Erensen says Kleer can either try to push its proprietary wireless technology straight onto the market – bringing it directly into competition with companies which already have a high adoption rate – or to take what’s different about its product and apply it to its competitors’ products.

“Kleer could run into push-back from vendors that say Bluetooth is enough (for the applications Kleer is interested in) and that they need clear demand for its higher-quality products in order to invest in it,” says Mr. Erensen. “A couple of these technologies don’t do (audio) as well as Kleer but they do do them, nonetheless; Bluetooth and wireless local area network products are capable of it.”

As such, the best approach to take might be for Kleer to work with its competitors rather than struggle to push the differentiation of its product to increase its margins.

Greg Quirk, technical marketing manager for Semiconductor Insights, says smaller companies like Kleer could also run into problems with economies of scale and patents.

Mr. Quirk says Semiconductor Insights hasn’t looked specifically at Kleer, but used the example of semiconductor maker PortalPlayer whose product was replaced by Samsung in the iPod Nano because its smaller portfolio meant it couldn’t offer as many options and price breaks to Apple Inc.

“Also, the problem of patents is key because bigger firms can analyze what’s going on with the market to get around patent claims, while smaller companies are more focused on the technology and may have no time to deal with litigation,” Mr. Quirk says.

Nonetheless, Mr. Gun says the company has high ambitions about where it’s going to take its technology, as he calls the product “fairly fundamental technology” with multiple applications in multiple markets.

Kleer has plans to expand the usage of its product in video, data and voice applications and is currently working on increasing its sales presence in Asia and Europe, Mr. Gun says. As well, the company is looking into listing on the Nasdaq, although discussions on going public are still in the very early stages.

“Our (technology) offerings are starting to change to reflect our eventual move to becoming a multimedia-streaming company, and we believe we have a strong technology to leverage across multiple markets,” he adds. “We’re all sort of bullish about the company and think there’s enough of a basis to go public, but we’re still just building our revenue base and building our internal processes to support an independent company.”