Santa Rita digital

Deep in mountains of Minas Gerais, some 400 km southwest of the state capital of Belo Horizonte, the 40,000 inhabitant town of Santa Rita do Sapucaí feels pretty much like any other farming center. Or at least it used to. Today, Santa Rita’s heart beats with digital precision and the local economy is focused on electronics, as a cluster of over 130 companies turn out TV and radio transmitters and components for cellphones and bank automation equipment. Together, these high-tech companies bill some R$ 1 billion or US$ 500 million a year. Exports currently represent just a sliver of this, around US$14 million. But since December of 2007 Brazil has been transitioning to digital TV. This could open up new internationalization prospects for Santa Rita’s companies.

After much lobbying and a long dispute with proponents of the American and European digital TV systems, ASTC and DVB respectively, Brazil opted for its own system, a modification of the Japanese standard called ISDB-TB, where the ‘B’ denotes Brazil. Now the government is negotiating ISDB-TB with its neighbors in South America. So far, Peru and Argentina have officially come on board, but Brasília is offering inducements: countries that adopt the Japanese-Brazilian standard get it for free, and Brazil will collaborate without charge in implementing and developing the system. Paraguay, Cuba, Chile, Venezuela and Ecuador are negotiating. If everything falls into place, the result would be a single digital TV standard throughout Latin America to facilitate integration and reduce costs, by virtue of the greater scale of production.
All this potentially represents a fabulous market for Brazilian manufacturers of transmitters and other digital TV equipment. Demand in neighboring countries is as great as, or even greater than, in Brazil, where TV companies are expected to need 100,000 transmitters through the 2016 deadline by when all equipment nationwide must be converted to digital. And the 2014 World Cup football competition may well speed up the change-over.
Brazilian sales and the prospect of boosting exports are bringing smiles to Linear Equipamentos de Eletrônica, a big fish in the Santa Rita electronics cluster. “We plan boosting our annual billing tenfold through 2014 (from R$38.4 million in 2008),” said Vanessa Lima, manager for technological development at Linear. Her father, José de Souza Lima, is president of the company he helped found with a partner back in 1977, to make electric fences. In the 1980s the company started focusing on analog TV transmitters, and now exports to 40 countries including the United States, Canada, Sweden and Mexico.

Linear began migrating to digital systems in 2000. Starting from scratch, it invested in research and development (around R$5.5 million this year) and hired engineers to handle digital signal processing, which is different from the analog environment that company technicians were used to. They started with the American ASTC system. “We worked on that for five years,” Vanessa Lima said, and it paid off. Linear has already sold over 200 transmitters in the United States, where it has an assembly plant in Chicago. Two years later it expanded its range of products with transmitters for the Brazilian standard, ISDB-TB. And a year after that, it added European system equipment: DVB.

Now that it has mastered all three standards, Linear can fight for markets virtually all around the world. “DVB is likely to be adopted in 147 countries, including Africa,” said Lima, who has worked in the family firm since she graduated from university nine years ago and today manages a team of 90 engineers. An electrical engineer with a master’s degree, Lima will soon start studying for a doctorate focusing on neural networks – a model of data processing that attempts to simulate the structure of the human brain – for application in high definition TV.

When she finishes her doctorate, Lima will join a math Ph.D. working for Linear who is involved in the mathematical modeling of signals, something that is necessary for perfecting the process known as linearization. Putting it simply: amplifying an electronic signal creates a distortion; linearization corrects it. This search for technical quality translates into a more efficient transmitter, meaning the TV broadcaster uses less energy.

Linear is seeking other gains for clients. Around 28,000 of the analog transmitters it has sold can be converted to digital more cheaply than buying new equipment, via an operation known as a ‘flash cut’.

The company is also working on a very low cost modulator to bring digital TV to small communities. “This is small, you can carry it anywhere under your arm,” she said The company plans on hiring more Ph.D.s and engineers to break into new markets. One future product will be developed making use of installations and equipment purchased from another local company that shut up shop. It’s a WiMax technology transmitting station for broadband internet and CPE – equipment such as modems, for home use. “We are going to facilitate the installation of broadband in small communities,” Lima said.

It’s unlikely Linear would have got so far, were it not located in Santa Rita do Sapucaí. Until 1959, when the Electronics Technical School (ETE) was opened and became the seed that would change the region (see box on page 26), the town was basically agricultural. Political leaders of the time even banned the main São Paulo to Belo Horizonte highway from passing through the municipality, fearing the consequences of progress – the highway bypasses the town by 20 km. This posture changed in 1985 when a former mayor suggested transforming the town into an electronics hub based on pioneer companies and institutions. The project gained force as neighboring towns like Pouso Alegre joined in. And so, the region became known as ‘Electronics Valley’ – shades of its more famous Silicon rival.

Little by little, the local economy internationalized. Companies that used to buy small quantities of parts from Brazilian distributors now receive foreign trade missions – both buying and selling – and send their own missions to China, South Korea and the United States. The region offers an educational environment that favors technology-based businesses: within just a few kilometers there are schools training labor of all types, from ETE’s general level to doctorate engineers at the Federal University of Itajubá.

The most important institution for Electronics Valley in general and digital TV in particular is the National Telecommunications Institute, Inatel, which is based in Santa Rita. It was at Inatel that Linear – with government financing – helped develop the digital TV project. The institute employs 10 Ph.D.s and 40 master’s graduates, plus 150 engineers. Half of the institute’s annual revenue of US$7.5 million comes from selling services to companies, for example in its software and product testing laboratories. The other half comes from tuition paid by 1,200 students.

The institute’s high fliers either start up their own businesses or are snapped up by local electronics companies. One such, Superior Technologies in Broadcasting (STB), was created six years ago and competes with Linear in digital TV technology. Armando Lemes, STB’s commercial director, studied at ETE and then in Rio de Janeiro, where he built a career in the technical side of various TV networks. Thirty four years later he returned to Santa Rita, sold radio transmitters for another local company called Teclar, then finally took the plunge and created STB.

Remains a partner in Teclar, a maker of radio transmitters. Screen Service do Brasil invested some R$10 million for a factory at Pouso Alegre, the next city along from Santa Rita. The plant comes on stream in September without having to worry about product development, which is handled by 60 engineers back in Italy. The technology is sophisticated and the standard of the transmitter is defi ned by software – in other words, by changing the program the same equipment can broadcast in analog or digital standard, be it American, European or Japanese-Brazilian. “We have the full Italian line of Screen – more than 300 products, including transmitters,” said Prado. The Brazilian company hopes to bill at least 15 million Euros in three years. The strategy is long-term relationships. “The TV network that buys from us will tend to use our equipment for all its stations, because it’s not advisable to have stations with different equipment, so we negotiate packages,” said Prado, who hopes to replicate the strategy in other countries. The company even wants to export to the United States, taking advantage of Brazil’s costs, which are much lower than in Italy. “In theory, given the characteristics of the transmitters, we are very competitive,” said Prado. “But we’re starting from scratch.”

Lemes had no money. But his friend Romildo Resende Soares, an evangelical minister better known as ‘Missionary RR Soares’, was in the process of setting up his own broadcasting network called RTI, and decided to invest US$5 millio on in Lemes’ venture so that he would have his own transmission equipment. Lemes talked a former Teclar director into developing technology for the new company, and today they are managers and minority shareholders in STB.

The company expects to bill R$18 million this year and reach R$60 million by 2014. Being a late starter has had its advantages – STB has developed a line of radio and TV transmitters based on the new Japanese-Brazilian standard, ready for easy conversion from analog to digital.

The company is betting on technological development to bring down costs. It paid French consultants to substitute components imported from Japan for others it could make itself, and it managed to reduce the cost of a 1 kW transmitter from R$300,000 to R$180,000. This year the company will start offering set-top boxes that convert digital signals for analog TV sets and are prepared for T-commerce – buying things via television. The Brazilian market for set-top boxes is estimated at over R$9 billion through 2016.

In 2010 STB plans launching digital microwave equipment for use by TV operators and other clients to transmit digitalized signals of audio, video and data. With an eye on the export market, Lemes started by selling US$60,000 in analog microwave equipment to Paraguay. “Exports are just starting, but every journey starts with the first step,” he said.

SINHÁ MOREIRA – A VISIONARY

SANTA RITA DO SAPUCAÍ is the kind of place where you still hear cocks crowing and cattle lowing, or see coffee growing beside the processing plants. But if many of the 40,000 local inhabitants today live and breathe bits and bytes, it’s thanks to Luzia Rennó Moreira, a lady who was far ahead of her time. Back in the 1930s, Moreira divorced her husband and said that women couldn’t just be housewives.

Sinhá Moreira – she was always addressed in the traditional, respectful manner – was the niece of an early 20th century Brazilian president. But this product of the traditional rural elite was to trigger the transformation of Santa Rita, by giving land and raising money to build the Electronics Technical School, a pioneer institution in Latin America, full name ETE Francisco Moreira da Costa. Why electronics? Because Sinhá Moreira travelled a lot. And in Japan, she saw the future. Anxious to offer local kids something beyond dirt and drudgery, she set up a school to train them for an activity that was exploding on the other side of the world.

Later, in the 1960s, Santa Rita saw the creation of the National Telecommunications Institute, Inatel, a privately funded electronics university. Other colleges came along later, as did small company incubators, some of them within Inatel. Of the town’s current 130 high-tech companies, 30 were hatched this way. The combination of academic knowledge and entrepreneurial pioneers gave rise to a technological cluster that doesn’t stop growing – last year aggregate billing increased by 15%.
At fi rst, components were assembled by hand. Today, several companies use robots and others outsource to four specialized manufacturers. Local factories draw on 14 local suppliers, showing the vertical strength of the cluster. Production is expanding and becoming more sophisticated. Every day, the town ships out over 1,000 household and industrial electronic items. Multinationals and major Brazilian banks order up components for products like cell phones, tokens and ATMs. Exports are currently some US$14 million a year, but growing well. Certainly beyond the dreams of Sinhá Moreira.

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