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WaveSplitter has been 'stripped to the bare bones' in an effort to keep it alive, according to its former CEO

December 11, 2002

4 Min Read

Back in October, there was an exodus of top-level executives from WaveSplitter Technologies Inc., which left many in the industry questioning the company's fate.

WaveSplitter's president and CEO Bill Diamond, its CFO Bruce Pollock, and its VP of operations and engineering Ralph Ahlgren all departed the company at around the same time (see Headcount: Shopping, Lifting, Moving On). Their names were removed from the company's Website, which now lists only two members of senior management -- founder Sheau Sheng Chen, who is the new president and CEO; and a VP of sales and marketing, Steve Tsui.

Sources suggest that the executive cleanout was only the tip of the iceberg, with significant numbers of employees affected by layoffs. WaveSplitter's spokespeople declined to elaborate, and most folk jumped to the conclusion that the company was on its last legs -- which turns out to be not far from the truth.

Last week, former president and CEO Diamond resurfaced at another company -- Singapore-based DenseLight Semiconductors Pte. Ltd. (see DenseLight Appoints CEO). He talked to Light Reading about his reasons for leaving WaveSplitter and for taking his chances at another optical startup.

Not unexpectedly, Diamond says that WaveSplitter had been hit "very hard" by the telecom downturn. Its original area of business was in fused-fiber components, such as couplers and combiners, which are mostly used to build Erbium Doped-Fiber Amplifiers (EDFAs) for long-haul markets. Later on, it developed a second line of business in Arrayed Waveguide Gratings (AWGs) and related components, which are geared towards high-capacity, high-channel count systems (see WaveSplitter Gets Dynamic Over DWDM).

"All the technology the company produced is centered around the long-haul, and that's been the most devastated area," he notes. "We had good products, good technology, just no demand for them."

WaveSplitter grew rapidly during the optical bubble years, investing in people and facilities that it no longer has a need for. As a result, it has been forced to cut back severely on both, according to Diamond.

"Now is not the time to spend money on people. We decided we could do without a sophisticated CFO, a sophisticated CEO, and cut right back on engineering. It was almost a hibernation strategy, as we stripped right down to the bare bones."

On the operational side, WaveSplitter's strategy hinges on moving most of its manufacturing over to Taiwan. The investments it made to expand operations, particularly in planar waveguide fabrication, were proving to be a huge financial drain on the company. The company hopes that the more favorable cost structure of a Taiwanese operation, coupled with local government backing, should help improve its prospects.

The move to Taiwan was clearly a factor in Diamond's departure. WaveSplitter's founder, Sheau Sheng Chen, is Taiwanese and "is better positioned to see the company through the next phase," Diamond says. Other reasons for picking Taiwan include the fact that one of the banks associated with the company's line of credit is Taiwanese, and it already has a contract manufacturing partner in the Far East.

WaveSplitter will still be headquartered in the U.S., where it continues to act as a sales channel for active components from NEC Corp. (Nasdaq: NIPNY). In fact, Diamond suggests that WaveSplitter is probably making more revenues as a reseller for NEC than it is from selling its own products right now.

All this is a far cry from two years ago, when WaveSplitter was all set for a monster IPO that would have raised $155 million (see Wavesplitter Files for $155 Million IPO). Now its future looks uncertain. Only time will tell if the company can sucessfully pull off the rescue plan.

But what of Diamond's new gig, DenseLight Semiconductors? At first glance, it appears to be everything that WaveSplitter is not.

Founded in May 2000, by a group of professors from Singapore's Nanyang Technological University (NTU), DenseLight is building a range of active components, including lasers for DWDM, CWDM, pump laser arrays, and superluminescent LEDs (see DenseLight Goes to the Quantum Well). Plus point one, in Diamond's view, is that the market for active components is in a lot better shape than the market for passives -- WaveSplitter's speciality.

Plus point two is DenseLight's location. Based, as it is, in Singapore, it is already taking advantage of a cost structure that is one third to one half that of a similar operation in Europe or the U.S., according to Diamond. It is also in a better position to access the Asian market, which is seeing more action than elsewhere.

Plus point three is the company's status as a newcomer. For starters, it didn't waste resources ramping up to volumes that would quickly go away. In addition, being new it has totally state-of-the-art tools and processes that "put it in a position to compete with companies that have been doing this for a much longer time."

So far, DenseLight has only been shipping samples, and has no volume purchase agreements in place, but it expects that to change next year. The startup claims to be engaged with over 40 customers already, even though it hasn't started actively marketing its products yet. "If it can do all this without trying, it will be fun to see what we can do when we do try," Diamond quips.

— Pauline Rigby, Senior Editor, Light Reading

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