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5 September 2019

Verimatrix sheds more fat with SIP sale – was the merger worth it?

It has quickly become apparent that what we initially saw as a stimulating merger of two of the last remaining DRM pioneers on the market when Verimatrix was acquired by Inside Secure in late 2018, has since soured into a crash diet driven by greedy investors.

Where has the innovation gone? The remaining company, now operating solely under the Verimatrix brand, is barely recognizable – this week selling its Silicon IP and Secure Protocols (SIP) business to Rambus for $65 million.

SIP is made up primarily of hardware-related business relating to security toolkits for semiconductor makers, generating around $22 million in annual revenue. But in truth, the writing was on the wall in Verimatrix’s second quarter results filing, as solid growth in the software business unit was more than enough to offset continued declines in the silicon IP segment, down 7% to $5.9 million in Q2.

What remains is a pure software-based security outfit operating in entertainment, mobile and IoT verticals. Verimatrix says the sale will enable it to accelerate revenue growth through investments in new products, citing the ProtectMyApp service which launched in July. But as far as we are aware, ProtectMyApp is yet to land any actual customers, beyond companies which have “lent credibility” to the service, including HBO, Cisco, Amex and Mastercard.

Clearly mobile ventures are high on the agenda. ProtectMyApp arms developers directly with mobile application security – protecting against rampant reverse engineering and tampering activities which Verimatrix warns can lead to hefty financial losses and data theft.

Strangely, or perhaps not, the sale of SIP comes just one week after US-Israeli computer networking supplier Mellanox Technologies licensed Verimatrix Silicon IP security technology for its high-end enterprise SoC offerings, extending the existing customer relationship. Using Verimatrix’s Silicon IP and Bluefield multicore technology across its chipset and network processors, Mellanox can increase economies of scale and accelerate cryptographic operation while meeting performance and power requirements.

Inside Secure investors are clearly unimpressed by silicon ventures, having previously sold off its security semiconductor business to WISeKey, while the company has had successful forays into whitebox encryption, a form of mathematical key obfuscation, when it bought Metaforic, and also into advertising verification and mobile payments. Meanwhile, Verimatrix has acquired two small businesses in video QoE analytics, built its own Verspective analytics product, and also bought a suite of single sign-on technologies from Akamai called nTitleMe.

Q2 revenue grew 5% year on year to $33.3 million – with the Verimatrix side contributing $22.9 million and Inside Secure $10.4 million. On this basis, we can see that Verimatrix generated $0.9 million worth of new business in the quarter while Inside Secure must have incurred some additional costs which dented its overall revenue contribution, while generating no new business in the process.

California-based Rambus will inherit a team of 72 people based in Europe, the US and Asia.

“The embedded security team at Verimatrix has a well-recognized and long-standing history of providing security at the heart of SoCs,” said Luc Seraphin, president and CEO of Rambus. “Their combination of products and expertise is highly complementary to our existing business and will expand our global reach for our worldwide security customer base.”