Another tale of startup woe is playing out in Santa Rosa, California.

Components vendor SpectraSwitch Inc. has asked employees to take a vacation of unspecified duration in an effort to conserve cash while it seeks new funding. The company also did a complete shutdown of its operations during the holiday week of July 4, for the same reason (see Optical Companies Extend Holidays).

But the company's CEO, Lindsay Austin, denies that the firm is going out of business. "It's not true," he wrote in an email to Light Reading. "It is true that it's taking us longer to close our next round of financing. Raising funds in uncertain economic climate has been more time consuming than foreseen."

SpectraSwitch is looking to raise $12 million in its next round, he says. This would be the company's third round of funding. So far it has raised approximately $29 million -- $5.5 million in its first round, $18.1 million in its second in May 2000, and $6 million in a second round extension in September 2001.

Austin expects -- or hopes -- that the majority of the funds for the third round should be committed by next week by the existing VCs, and new investors will then be invited to take part. SpectraSwitch's most ardent supporter is Advanced Technology Ventures (ATV). Other investors include E-Tek Dynamics, (now part of JDS Uniphase Corp. [Nasdaq: JDSU; Toronto: JDU]), CIDB Ventures, and NIF Ventures.

If, as the company claims in a business plan presentation sent to Light Reading, its burn rate is under $500,000 a month this year, then it likely has a few more months to go before it runs out of cash completely. The document also notes that SpectraSwitch expects to consume $15 million before reaching profitability in 2004.

Which products are going to get it there? Right now, SpectraSwitch makes variable optical attenuators (VOAs), optical shutters that can totally block the signal, and small switches based on liquid crystal technology -- the same technology used in laptop displays and watches.

Its VOAs are being evaluated by Alcatel SA (NYSE: ALA; Paris: CGEP:PA), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/Toronto: NT), CEO Austin claims. Meanwhile, Corvis Corp. (Nasdaq: CORV) and Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) are testing out 2x2 optical switches.

Whether these trials will turn into procurement orders is by no means certain. At the moment, Corvis is building its optical switch using liquid crystal technology from Corning Inc. (NYSE: GLW) (see Corvis Upgrades Optical Switch).

But it isn't these products that are expected to bring in the majority of revenues. Back in March, SpectraSwitch introduced a platform for more highly integrated products, such as a reconfigurable add/drop multiplexer -- and these, along with tunable filters, are expected to make up the bulk of its revenues, when and if it reaches profitability (see SpectraSwitch Unveils Wave of Products). The startup is apparently discussing the development of eight and ten-channel "banded" OADMs (ones that add or drop groups of channels) with Lucent and Nortel.

— Pauline Rigby, Senior Editor, Light Reading
http://www.lightreading.com