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Why did Sendo bury the hatchet with MS?

Too expensive to bury it in MS?

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Analysis Microsoft and Sendo have brought an end to a legal war that looked like it could bankrupt the Brummie start-up phone maker. Just shy of two years after the dispute began, the two parties have lit the peace pipe on terms which remain undisclosed.

For the year to the end of September 2003, the case cost Sendo a hefty £6m. That included £2.2m of legal expenses, and stock writedowns and supplier liability claims of £3.8m, with more losses in prospect as the case dragged on. To this must be added the revenue Sendo could have made from a successful smart phone launch into the 2002 Christmas season, if the planned Z100 had ever hit the streets.

Of course, such a figure is a mere rounding error on a rounding error for Microsoft, and the Redmond company seems to have been in no hurry to reach a speedy settlement through the courts. On Friday a Microsoft spokesperson said the company had obtained another three-month delay in proceedings, pushing the hearing back to May 05.

It’s a legal battle of attrition that Sendo never had the resources to win. A glance at Sendo’s latest accounts show the Birmingham outfit making losses that rival even the red ink at Microsoft’s mobile devices division. For the year to 30 September 2003, the company lost a hefty £41.3m on a turnover of £56.1m, not far from doubling the previous year’s loss - £26.2m on a £51.7m turnover.

The resolution comes as things are looking up at the Sendo Base Station, (as its headquarters are whimsically named). Quarterly sales exceeded the 1m mark for the first time in Q1 2004, and the group expects to sell 4m to 5m phones this year. The Sendo X, the Symbian-based smart phone which emerged from the ashes of the Microsoft deal, has been well received.

Sales are rising, with the company finding success in some unlikely looking markets. Nigeria responded particularly well to a yellow phone introduced there last year, and revenues from Africa quadrupled to £12.4m. Mexico and South America are next on the company’s expansion map.

All very encouraging, but of peripheral interest to those asking the big question - did MS stump up a cash payment? It certainly won’t be as much as Sendo was hoping for when it filed its dramatic accusations, alleging fraud, breach of contract, and stealing its technology. We may have to wait until next year’s accounts to find out for sure. Neither party admitted liability. But with Sendo declaring itself "extremely pleased" with the terms, it seems likely there was something to soothe Sendo’s aching balance sheet, and as with Sendo’s related settlement with Orange last year, there may be well be royalty payments involved.

Either way, a settlement has to be a good thing for Sendo. However betrayed and bitter the bosses may feel about the dramatic falling-out with Microsoft, a company with Sendo’s resources can hardly hope for a meaningful victory in the slow-motion world of corporate litigation. As Sendo director of communications Marijke Van Hooren put it: “We felt that we were wronged, and that we had a strong case. But it was a commercial decision. We decided that it makes sense to settle and look to the future.” ®

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