Adding to its collection of optical technologies, Memscap S.A. (Euronext: MEMS) is acquiring optical components startup GalayOr Networks, the companies announced yesterday.

Memscap is offering roughly 19.3 million shares for GalayOr, with another 11.6 million shares potentially added if GalayOr meets certain targets over the next three years. Based on Memscap's price of €0.42 at midday today, the deal could be worth €13 million.

GalayOr CEO Uri Geiger would join Memscap as president and general manager of the optics division. All 16 of GalayOr's employees would join as well, and the GalayOr outfit even plans to hire ten more, Geiger says.

The deal would add to Memscap's arsenal of photonics. The company, a manufacturer of micro-electro-mechanical systems (MEMS), has held an interest in this area for some time, most notably buying up the Cronos foundry from JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) (see Memscap to Buy JDSU's Cronos).

Tiny GalayOr would get design and manufacturing muscle, as well as the ability to sell its parts in bundles with other Memscap offerings.

"We were a technology company. Under Memscap we will be a product supplier," Geiger says.

The deal would also save GalayOr the difficult task of finding extra funding in a tough environment. The startup has $1.5 million in cash, according to Memscap's press release.

The two companies are already working together, developing a variable optical attenuator (VOA) with integrated optical monitoring (see GalayOr Gets Packaging Partner).

GalayOr was founded in 2000 to commercialize a waveguide initially called MOMS, for "micro opto-mechanical systems" (see Israeli Startup Gets $8M Seed Funding). GalayOr officials considered their MOMS special for two reasons: The waveguides are made of silicon, promising cheap manufacturing, and they're bendable, enabling functions such as optical switching.

From there, it's been a quest to find uses for the technology. First came the VOA. That product was expected to sample in July, but its schedule was pushed back in order to move the device's production to Memscap's North Carolina facility. It's now on track to sample in the fourth quarter of this year, Geiger says.

With help from JDS, GalayOr also began developing an optical add-drop multiplexer (OADM), although Geiger wouldn't divulge any details about that product. Plans for small optical switches are still in the works, along with a receiver product that could prevent oversaturation of a transimpedance amplifier (TIA).

All of GalayOr's contracts will continue under Memscap, Geiger says. That includes the development of an all-optical motherboard, supported by startup Infinera Inc. and, separately, by an unnamed PC-industry firm (see GalayOr's Flights of Fancy).

— Craig Matsumoto, Senior Editor, Light Reading