"I don't think you need fast breakthroughs in physics. You need science, manufacturing, and automation."

December 19, 2000

12 Min Read
Kevin Kalkhoven

The Light Reading Interview

In The Spotlight: Kevin Kalkhoven

After one of the most successful strategic runs in the optical networking industry, JDS Uniphase Inc. (Nasdaq: JDSU) CEO Kevin Kalkhoven surprised almost everyone by walking away from his job this past May, citing physical and emotional burnout as his reasons for leaving. Though such a move is officially called a "retirement," Kalkhoven hasn't faded from the scene.

In fact, he's remained extremely involved, hitting the ground running in his new role as a venture capitalist, albeit one who is spending his own money, rather than that of institutional investors. In his new role Kalkhoven hopes to find the same magical insight that helped him build JDS into an industry leader, a transition that began when he joined the then-Uniphase (JDS Uniphase was formed on July 6, 1999, through the merger of JDS Fitel Inc. and Uniphase Corporation.) and continued with a string of technology acquisitions that now have JDS atop the optical components world, even before its pending acquistion of SDL Inc. (Nasdaq: SDLI)

Kalkhoven, largely seen as the architect of JDS's success, is now free to pursue that which interests him the most -- the future. Already actively investing (even though the Website for his newly formed KPL Ventures is still under construction), Kalkhoven is also playing as hard as he once worked, and clearly enjoying the freedom and time that boatloads of cashed-in stock options can buy.

When we finally caught up with Mr. Kalkhoven, it was via phone to his hotel room in Las Vegas, where he was attending a week-long certification school -- in order to regain his racing license! In our too-short phone conversation, Mr. Kalkhoven talked about his new concern's investment strategy and waxed philosophical about several other topics, including the future of optical components and basic rules of engagement for startups:

New Gig
Three Themes
Après JDSU
Startup Stuff
Vrooooooom!Light Reading: What are you doing now?

Kevin Kalkhoven: To describe what we're doing now, we have to go back to 1994, when Dan Pettit (who was my CFO at Uniphase) and I dreamt up this madcap idea: Try to determine what the telecommunications world would look like in the year 2000 then go out and get all the technologies. It was a pretty crazy idea, for a company that was fundamentally making lasers for the semiconductor business.

What Dan and I are doing today is the same thing all over again -- we're looking at 2005, and we're looking at the technologies that we think will be important in 2005. But this time, rather than going out and developing them or acquiring them, we're investing in companies, then adding whatever sort of expertise is required, or that we have, in order to help these companies achieve their potential. So we're doing the same thing again, in one respect, only we're not doing it -- this time we're just aiding and abetting.

Light Reading: What is the name of your new operation?

Kalkhoven: It's called KPL Ventures, and it's not a fund; it's just Dan and myself and Jack Levin, and it's our money, so we haven't taken any other money at all. That means we can take bets and make decisions that wouldn't necessarily be taken by a conventional VC company with fiduciary responsibility to all its investors.

Light Reading: Sounds like this gig is a lot easier on the old stress-o-meter...

Kalkhoven: It certainly is high on the enjoyment factor and much lower on the stress meter.

Light Reading: What are some of the startups you've invested in? You've been quite busy, according to our news reports.

Kalkhoven: It's all happening a little bit quicker than we anticipated. There's a company called Innovance Networks [see Innovance Scores $75M ], which is a new photonic-layer, long-haul telecomm company. And it's run by an old friend of mine whom I've known for a long time, Peter Allen, whom I trust very much. We've also invested in a company called LGC Wireless, run by Rod Hoo -- which is part of a theme, involving wireless. And we've invested in Wavesplitter Technologies Inc., because I like some of their new array waveguide technology... That also is part of the theme. And we are in the process of doing another couple.

Light Reading: What exactly are these "themes" you're talking about?

Kevin Kalkhoven: It's our vision of the technologies that will be important in 2005, and it falls into three parts. The first is, obviously we're still going to have optical components, but they're going to go through the same kinds of generations that the electronics media went through, from discrete components to printed circuit boards, to solid-state devices. Today, the component technology is still back in that discrete, bulk-optics phase. And so we are looking at technologies that will provide greater degrees of integration and thereby higher levels of automation in the manufacturing process, and lower costs. And we believe, from the components side, that's going to be key.

On the end-user side, that last-mile and last-inch solution is another area we think is very very key. Today, the vast users of data are still the corporations. If you look at 2005, the potential for vast increases in data capacity come not just from the commercial users, but also from individual consumers, worldwide. And clearly, that's not going to come from them all having PCs. Increasingly, we believe it will be coming from appliances, PDAs, and variations on cellular phones, and all the rest of that.

In order to be able to achieve that expansion, we need new appliances, and new appliances in turn need new semiconductor technology and new display technology, because, fundamentally, battery technology isn't going to change very much. So we need high-resolution, color display systems with very low power consumption, and we need greater degrees of integration in the semiconductor devices within these, all aimed at better performance and lower power consumption.

The third theme revolves around the wireless side itself -- we need the 2.5- and 3-G cellular systems; we need them in greater degrees of abundance. We need buildings that are wired for RF [radio frequency]. One of the things that's kind of neat about LGC Wireless is it's RF and fiber optics, so you can wire an airport, or a building, and get very good reception inside it, at high speed. That's sort of the whole [thematic] point, which is all about how do you get more and greater capacity to the individual user. When you work back from that, what we've got is a situation where we need greater capacity in the last-mile solutions, and that's going to be a combination of the ADSL, cable, wireless, and coarse WDM -- coarse WDM because it provides sufficient capacity at low costs. [editor's note: KPL has also invested in a CWDM startup -- see Blaze Networks Gets $40 Million]

Working back from the last mile are the metro networks, and working back from that are the main trunk nets. So we kinda know how to increase capacity on the trunk routes; we kinda know how to do it on the metro. The interesting things are really in the access and sort of "campus" markets.

Light Reading: That can include downtown areas or hotels, correct?

Kalkhoven: Or even Manhattan street corners!

Light Reading: Can you talk a bit about the timing of your departure from JDSU?

Kevin Kalkhoven: Yeah, I left last May.

Light Reading: Can you elaborate as to the why? Some reports cited "burnout." Is that correct?

Kalkhoven: I'd been at it 10 years... enough is enough!

Light Reading: But just a year ago [at the JDSU shareholders' meeting] you told of some advice you got from an uncle, who said, "You never leave a party 'til the booze runs out." Were the bottles empty at JDSU?

Kalkhoven: [laughing] No, the booze hadn't gone, the company will continue to do extremely well, but I had lost touch with some of the things I was really interested in doing, such as looking out five years again with technology... I was also just plain tired.

Light Reading: Where does your interest in looking out into the future come from? Can you pinpoint anything that's kept you interested in the future?

Kalkhoven: Mainly, it's because I have a low threshold of boredom for what's going on at the moment! [laughs] To some extent, that's true... It's much more fun to be looking out and trying to work out what the heck's going to happen, than to be concerned with the detail of today.

Light Reading: Let's go back to your point about the need for greater integration of optical components. At a recent J.P. Morgan & Co. conference [see Packaging the Optical Future], all the vendors agreed that greater integration was important. And everybody also said that, technically, it's not that easy to do.

Kalkhoven: They're absolutely right. And that's what makes it fun and interesting.

Light Reading: So what should investors or potential partners look for? What are the signs of a smart components company?

Kevin Kalkhoven: All of this is relatively linear. The one great thing about photonics is that you can make one of anything. And most people can make five of something. The real issue with photonics, is how do you make 10,000 of them a month? We can even see today how to be able to do far greater levels of integration than we currently achieve. But right now the industry can only make one of them. We may not have even got to the five of them yet, and we're a long way from the 10,000 of them a month.

So... I don't think you need fast breakthroughs in physics to be able to get there. What you need is the science and the manufacturing and the automation and the desire to be able to do it. It's a different set of variables, to some of the other things that are sort of highly theoretical. We pretty much know what will work. The question is: How do we make it work?

Light Reading: One thing's for sure, there's no shortage of capital funding ideas. If you look at venture capital money being put into the components space, is it safe to say that not all of these startup companies will succeed?

Kalkhoven: I think it's not only safe to say, I think it's certain.

Light Reading: What's important for a startup to succeed?

Kalkhoven: That's a separate two-hour discussion. How to make startups succeed is a problem with very interesting dimensions, not all of which are necessarily totally logical. Let's simplify it down to a degree of absurdity: For starters, you've got to have a product idea that is significantly better than anything we've got today, that will arrive in time for a product need trajectory, at some point in the future.

So if you think your whirlwind product or technology is going to be ready in two years' time, you better make sure the customer trajectory is also two years' time, and not one year, in which case you may miss the boat -- or three years, in which case you may miss the boat because you're going to be too early.

The second is, you've got to focus -- and this is something very few startups understand -- you've got to focus on doing one thing, and doing it extremely well. I describe it as putting all the wood behind one arrowhead. That is not totally comfortable to people, because they say, "Well, what happens if we're wrong?" The answer is, you're going to go belly-up!

But that's the nature of high-tech strategies for winning. You've also, then, got to be able to make changes extremely quickly. The whole advantage of being a startup is that you can change direction very quickly. And you should, if necessary. If your first plan doesn't work, try something else, but don't try them all at the same time. Don't do things in parallel.

Also, don't believe it's easy! Just because you've got a great product idea, that doesn't mean the market will beat a path to your doorstep, because it won't. Don't ignore the customer. So many technologies get developed out of context of customer need.

Light Reading: You mentioned your friend Peter Allen at Innovance. Are there any other bright people in the industry you admire and would like to work with?

Kalkhoven: Sure. But they're probably not dumb enough to want my money.

Light Reading: Tell us more about what you're doing in Vegas this week. Is it true you're going to race-car driving school?

Kevin Kalkhoven: Yes. I used to race motorcars 30 years ago, and I decided I'm not too old to go do it again. They're single-seat Formula cars. Life is a wonderful tapestry; you've got to go out and enjoy all of it. It's just one of the many things I do in life. I do scuba diving, I do skiing, I do flying... It's what you need to keep yourself interested and continually learning.

Light Reading: And when you're running a company like JDSU, you probably don't have a lot of time to have fun.

Kalkhoven: You have no time to go out and enjoy yourself.

Light Reading: But was the time you spent there worth it, even beyond the money?

Kalkhoven: It was gratifying, being part of building a wonderful company, with great people... and it's nice to have made sure that everything's pretty solid.

Light Reading: Is your retirement somewhat like Michael Jordan's, going out on top?

Kalkhoven: [laughs] I wish I could ascribe to myself the unique skills of Michael Jordan, but I can't. I was very much a part of a team.

Light Reading: How old are you?

Kalkhoven: I think I'm 55... Wait, I lied, I'm 56. You see, senility has already crept in.

-- Paul Kapustka, Editor at Large, Light Reading http://www.lightreading.com

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