ROADM Show: Funding & Feuding

The ROADM market is getting rough and tumble. Capella raises $10M, while Metconnex engages JDSU in a courtroom battle

September 22, 2005

3 Min Read
ROADM Show: Funding & Feuding

It's been a very different week for two of the startups in the reconfigurable optical add/drop multiplexer (ROADM) space.

Component vendor Capella Photonics Inc., based in Silicon Valley, scored a $10 million round of funding yesterday, its fourth, signifying investors' optimism around the ROADM market. (See Capella Closes $10M D Round.)

Up in Ottawa, Metconnex was having a less cheery week. The startup got sued in July by JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) over patent claims, and Metconnex this week engaged the giant in battle, filing an answer and some counterclaims on Sept. 20.


Metconnex officials' explanation of the counterclaims is short and sweet. "The counterclaim states, as we have said consistently, that we have not infringed on the patent we are accused of infringing upon," says Barbara Darlow, Metconnex's CFO. (See Metconnex Denies Claims .)

Capella and Metconnex -- and JDSU -- are each hawking a wavelength selective switch (WSS), the central component for ROADMs. The WSS is considered more advanced than the wavelength blockers that populated older ROADMs, offering more flexibility in deciding which wavelengths can be dropped at which nodes.

The WSS is being accepted among ROADM systems vendors, including Fujitsu Ltd. (Tokyo: 6702; London: FUJ), which Heavy Reading pegs as the market leader. "Our big pitch was trying to convince service providers that wavelength-selective switching was the way to go. It seems the industry is past that," says Ken Falta, Capella's vice president of marketing.

ROADM technology recently gained the limelight in an active RFP at {dirlink 5|205} (See Tellabs Running ROADMs at Verizon .)

With this week's money, Capella has closed four investment rounds but remains cheap compared to some startups, with just $38 million raised in total venture funding. Heck, some companies chew up that much in one round. (See Force10 Takes $40M, Talks IPO.)

The 30-employee startup has had to keep frugal, obviously. Its manufacturing is handled by Fabrinet Co. Ltd., and much of its sales work is handled by Asian distributors. The new money will be used for "blocking and tackling," says Ken Falta, vice president of marketing. (That involves hiring people, not actually blocking them and tackling them.) "We need to establish a volume ramp."

Investors in the fourth round included Bay Partners, BCE Capital, and Vanguard Venture Partners.

Metconnex, meanwhile, will have some other scores to settle with JDSU. Aside from the patent suit, filed in the U.S., Metconnex faces a complaint filed in Canada, in which JDSU accuses some of its former employees of bringing proprietary technology with them to Metconnex. JDSU is seeking $11 million in damages, according to the Ottawa Business Journal.Metconnex hasn't filed a response in that case, "but we plan to vigorously defend ourselves," Darlow says.

Not surprisingly, Capella is quick to distance itself from the fracas. "We're outside of all that," Falta says.

Lawsuits aside, both startups face the usual question of how quickly ROADM deployment will go, as early signs of carrier interest turned out to be overstated. The general slowness of metro upgrades "will keep the ROADM market on a modest track for two years, with broader growth expected in 2008 as price declines in WSS subsystems make these systems more price-competitive with traditional metro DWDM systems," writes Heavy Reading chief analyst Scott Clavenna in a report titled "ROADMs and the Future of Metro Optical Networks." (See ROADMs Roll On.)

— Craig Matsumoto, Senior Editor, Light Reading

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