Infineon Technologies AG (NYSE/Frankfurt: IFX) is to spin out its passives group, which makes Arrayed Waveguide Gratings (AWGs) and related components. A definitive agreement covering the deal was signed on Wednesday and is expected to be announced next week, Light Reading has learned.

All the intellectual property, patents, and products in progress are to be transferred to Optun Inc. an Israeli startup headquartered in Menlo, Calif. In return, Infineon will get an undisclosed equity stake in Optun (not to be confused with Optune Technologies, a StockerYale Inc. subsidiary).

Mark Tyndall, VP of business development for Infineon's wireline communications division says the decision to spin out the passives group was made to allow the company to focus on its core businesses of transponders and communications ICs (that old chestnut).

Although Infineon has been developing AWGs for several years -- since before it was spun off from Siemens AG (NYSE: SI; Frankfurt: SIE) -- work was still in the R&D phase. "Realistically, the passives group will not see significant revenues before 2004," Tyndall says.

Optun is developing silicon-based planar lightwave circuits (PLCs) -- so from that point of view the technology is a good match with Infineon's. Its first product family is a range of optical switching subsystems.

After the transaction, Optun will number 50 people, about half of whom will originate from Infineon. Infineon's passives group is based in Munich, where it is likely to remain for the immediate future. Integrating the group with its new parent could take "up to a year," according to Tyndall.

Tyndall says a key part of the deal is that Infineon will act as the global distributor of Optun products. Having access to Infineon's sales team and a channel to market will overcome one of the disadvantages of being a startup.

One has to wonder, however, if the passives group will fare any better under the auspices of a startup than it would under the parentage of a major corporation like Infineon. After all, even vendors with an established position in the AWG market have gone out of business (see Obituary: Lightwave Microsystems).

One reason given for AWG vendors failing is that they are suffocating under the high cost of their fabrication facilities. Being based on the manufacturing techniques of the electronics industry, AWG fabrication only works out cheap in high volumes, and right now volumes are very small.

Tyndall points out that Optun will avoid this pitfall because it is a fabless outfit, using foundries such as NKT Integration A/S (the former Ionas) to make its products. Infineon's passives group has operated a small pilot production facility, but that's all.

Optun could not be immediately reached for comment.

— Pauline Rigby, Senior Editor, Light Reading
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