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How the Type-C Connector Could Revolutionize Electronic Devices

You gotta C this.
You gotta C this.

This report was adapted by Cantech Letter from a piece prepared by Sophic Capital. For the original report, and more in-depth research, please visit Sophic Capital’s website, here.

Apple’s decision to replace three legacy ports on its next generation MacBook with the USB Type-C connector is evidence that this connector is about to disrupt the consumer electronics industry. Google then announced dual Type C ports on its Chromebook Pixel. The Type-C’s smaller connector and its thinner cable allow for not only a streamlined physical profile but also faster data rates (10Gbps) and up to 100W of power. Rumour has it that Microsoft will introduce Type-C connectivity for Windows 10 systems. Whether or not the rumour is true, we believe that Apple’s and Google’s commitments to Type-C will force consumer electronics manufacturers to look at this connector in order to satisfy consumer belief that “thinner is better.”

One way to invest in the Type-C theme is via Spectra7 Microsystems (TSXV:SEV, OTC:SPVNF), a Sophic Capital Client. Spectra7 Microsystems’ family of ultra-thin, active-C cables allow consumer hardware manufacturers to implement Type-C connectors without compromising data integrity or form factor.

Introduction

Universal Serial Bus (USB) cables are ubiquitous with consumer electronic devices. Whether you use a tablet, mobile phone, or camera, chances are you can plug a USB cable into them. But USB has a new standard (version 3.1) that could revolutionize the electronics industry. This standard and the new USB Type-C cable offer the potential to reduce the number of connections required for many types of electronic devices. With Apple’s launch of the new MacBook, which has a single Type-C port, we believe the benefits of the cable will spur industry adoption. We also believe that Spectra7 Microsystems (TSXV:SEV, OTC:SPVNF), a Sophic Capital client, is set to take advantage of this shift. On March 5, 2015, the Company announced its new Active-C interconnectivity chips that facilitate ultra-thin implementations of USB 3.1.

 Phil Schiller, Apple’s SVP Marketing Source: The Wall Street Journal
Phil Schiller, Apple’s SVP Marketing
Source: The Wall Street Journal

Apple and Google will use it. Rumours abounded for months that Apple would replace several legacy connectors (ports) with the Type-C on the next MacBook Air. Well Apple confirmed the rumours; on March 9, 2015, Apple announced a new 12 inch MacBook that replaces Thunderbolt, the SD card slot, and power connector with a single Type-C connector. Three days later, Google announced that its Chromebook Pixel will ship with two Type-C connectors (the MacBook Air only has one). We believe the benefits of the cable and its adoption by two major hardware OEMs (original equipment manufacturers) will spur industry adoption.

But Nokia was first. Back in November, 2014, and to much less fanfare, Nokia (NYSE:NOK) announced that its N1 tablet would ship with a Type-C connector.

Microsoft: another potential catalyst. A rumour exists about Microsoft Windows 10 supporting USB 3.1 Type-C. Whether or not the Microsoft rumour is true, the fact that Apple, Google, and Nokia have adopted the Type-C connector validates our belief that Type-C will be one of the biggest consumer device disrupters.

A Brief History of the USB Connector

Source: Dhanbadbiz
Source: Dhanbadbiz

In the old days of computing, several ports were required to connect essential devices like printers, a mouse, and display monitor. In many cases, this limited the ways someone could connect these devices to their computers. This led to the development of the USB, which simplified the connection and configuration of these devices to her computer. USB provided a standardized interface, hot-pluggability (connecting devices without shutting down the computer), plug and play (the operating system automatically detects and configures the device), and the liberation     of a computer’s resources. Compaq, Digital Equipment Corporation, IBM, Intel, and Microsoft started defining the USB specification, and Hewlett-Packard, Lucent, and Philips later joined.

The Different Flavours of USB

Type-A on the left, and Type-B on the right Source: AllUSB
Type-A on the left, and Type-B on the right
Source: AllUSB

Like many things, USB’s shape, (known as “type”) has evolved over the past two decades. The familiar rectangular USB connector that plugs into computers is known as a Type-A connector. Type-A connectors plug into devices that supply power to the peripherals. To prevent connecting the Type-A into a device that draws power, the square Type-B connector was created. But there was a problem with Types A and B: Their physical sizes made them difficult to plug into smaller devices like cell phones and cameras. This led to Mini USB connectors (both A and B versions to ensure proper connectivity of the device supplying power). The Mini A connector was discontinued in 2007 due to some mechanical flaws (poor insertion lifecycle). However, the Micro-USB connector was introduced prior to the Mini A connector’s demise and is now common on smartphones and tablets. All-in-all, there are approximately 2 billion legacy wired USB connections in the world today.

USB also got faster over time. The number that you see after “USB” refers to the data transfer standard (the speed). USB 1.0 allowed for data rates up to 12Mbit/s (megabits per second); version 2.0 provided for 480Mbit/s, and version 3.0 up to 5 Gbit/s (gigabits per second). USB version 3.1 is capable of a theoretical 10Gbit/s potential, doubling the data rate transfer of its version 3.0 predecessor. Version 3.1 also supports power delivery of up to 100 watts, which will be useful for charging devices that operate on five, 12, or 20 volt supplies.

Type-C Connector – One Plug to Connect Everything

Source: Computerworld
Source: Computerworld

The Type-C connector could become the king of connectors. It has the potential to connect everything (including keyboards, mouse, display, and external storage devices) to a PC, laptop, or tablet. And as an added bonus, the Type-C connector is symmetrical, meaning that you won’t have to worry about bashing the connector into your PC’s USB receptacle anymore before you realize that it’s upside down*.

*To plug a Type A connector correctly, insert the plug so that the USB logo faces upwards (assuming the plug has a logo).

The Type-C connector has a downside. The connector won’t be compatible with legacy equipment. However, we envision that some companies will develop cross-type USB converters.

A Way to Invest in Type-C Connector Technology

We recommend that investors seeking to invest in Type-C connector technology should consider Spectra7 Microsystems (TSXV:SEV, OTC:SPVNF), a Sophic Capital client. Spectra7 doesn’t actually make USB cables. However, on March 5, 2015, the Company announced the industry’s first active chipset family for ultra-thin implementations of USB 3.1* consumer interconnects. So why is this important?

*On March 10, 2015, Spectra7 announced the appointment of Jim McGrath, Director of Marketing. Mr. McGrath worked on the establishment of the USB Type-C standard.

Physically, active USB Type-C is 65% smaller than USB Type-A (each cable conductor has a 90% reduced cross-sectional area). Standard USB Type A cables may have up to 9 wires in the cable. A Type-C cable may have 17 wires making the cable larger in diameter and stiffer (less flexible) than a Type-A cable. The Type-C cable plug strain relief for a full featured (all wires) Type-C could be thicker than the Type-C connector. An ultra-thin device requiring a Type-C cable would sit lopsided when the device would be placed on a desk or other flat surface if the connector used a standard Type-C cable. If this device was a tablet or laptop, this tilt would result in an awkward work environment. Plus, the connector would endure a mechanical strain that could break the cable’s conductors. Active Type-C cables with Spectra7’s TC7108, TC7216 and the TC7050 reduce cable diameter such that a device using a USB Type-C cable can lay flat.

As far as we know, Spectra7 is the only company that has the interconnectivity expertise and products to consolidate numerous cables into a Type-C connector. This is not a trivial feat. Separately, higher frequencies and smaller conductors create numerous electrical engineering problems. Combine the two, and you’ll have to pay a lot of money for analog design engineers with decades of experience who know how to maintain signal integrity (high frequency signals propagating through a cable are sensitive to a host of factors). Add power and ground lines inside the cable and most companies would move onto the next project. Not Spectra7; they’ve conquered a host of complex electromagnetic forces of nature that would not seem evident in something that you and I plug into a computer and then ignore. This is cutting edge stuff, and perusing competitor datasheets, we haven’t seen anything similar at NXP, Texas Instruments, and Linear Technology.

Type-C isn’t Spectra7’s first forays into active cables. The Company has a strong footprint with active 4K HDMI cables. Monster Inc., a supplier of audio and video cables, has implemented Spectra7 active cable technology since January 2013. Other vendors indicating that their active HDMI (high definition multimedia interface) cables use Spectra7 RedMere technology include: Monoprice, Samsung, VIZIO, and Rosewill.

Spectra7’s VR7100 facilitates dramatic cabling reduction
Spectra7’s VR7100 facilitates dramatic cabling reduction

And also, Spectra7 also has extensive experience condensing cables for the virtual reality (VR) industry. The company’s VR7100 DisplayDirect™ VR can condense four bulky cables (HDMI, USB, audio, and power) into a single, ultra-thin VR cable. Why is this important? Many HMDs (head mounted displays) are tethered to a computer or other hardware, and four cables introduce significant weight and mobility issues. Although less is more in terms of cabling, Spectra7’s VR7100 does not sacrifice performance. In fact, the VR7100 provides more performance in a smaller package making it one of the most important components in VR hardware, in our opinion. But we’re not the only people who hold this opinion.

Spectra7’s VR700 inside the Oculus Rift Source: ifixit.com
Spectra7’s VR700 inside the Oculus Rift
Source: ifixit.com

Spectra7 Microsystems’ VR7100 powers Oculus headsets. iFixit’s teardown of the Oculus Rift uncovered the chip (right photo) and caused them to comment that it was “Hot stuff!” Given that the VR7100 is part of Oculus Rift, it’s not a stretch to think it is also designed into Samsung’s Gear VR, which Samsung co-developed with Oculus. This is a reason why we recommend Spectra7 for investors who want to invest in VR: Spectra7’s interconnect chips will likely find homes in HMDs. Some HMDs will succeed; others will vanish; and Spectra7 Microsystems will win regardless of which HMDs consumers’ purchase.

Disclaimers

The particulars contained herein were obtained from sources that we believe to be reliable, but are not guaranteed by us and may be incomplete or inaccurate. The opinions expressed are based upon our analysis and interpretation of these particulars and are not to be construed as a solicitation of offer to buy or sell the securities mentioned herein. Sophic Capital Inc. (“Sophic Capital”) may act as financial advisor, for certain of the companies mentioned herein, and may receive remuneration for its services. Sophic Capital and/or its principals, officers, directors, representatives, and associates may have a position in the securities mentioned herein and may make purchases and/or sales of these securities from time to time in the open market or otherwise.

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