Wavesplitter Technologies Inc. (Nasdaq: WVSP), an optical component vendor, filed for a $155 million initial public offering with the Securities and Exchange Commission on Wednesday.

The filing comes as demand for optical components is heating up. The company focuses on two technology platforms, advanced fused fiber and planar lightguide circuits, which are used in long haul and metropolitan area optical system level products.

With four products in the pipeline -- WaveProcessor interleaver, WavePump pump combiner, WaveMetro multiplexer, and WaveEssentials couplers -- the company currently relies on sales from only one, the WavePump product. But substantial sales are also expected in the near future from its WaveProcessor products, also used in DWDM systems, says the S-1.

Targeted customers are networking system and subsystem vendors, and the company is focusing on optical amplifier and dense wavelength-division multiplexing (DWDM) system integrators.

In the six months ended in June 2000, 83 percent of the company’s $1.5 million in revenue came from one customer, Corvis Corp. (Nasdaq: CORV), which uses pump laser combiners for its ultralong-haul product. The only other customer that is buying products in volume is Corning Inc. (NYSE: GLW).

According to the S-1, the company is also delivering preproduction or evaluation products to a variety of vendors, including Alcatel SA (NYSE: ALA), Ciena Corp. (Nasdaq: CIEN), Cisco Systems Inc. (Nasdaq: CSCO), Furukawa Electric Co. Ltd., Harmonic Inc. (Nasdaq: HLIT), Lucent Technologies Inc. (NYSE: LU), Marconi Communications PLC (London: MNI), SDL Corp. (Nasdaq: SDLI), and Siemens AG (Frankfurt: SIE).

“They are already in high growth accounts,” says Max Schuetz, an optical networking analyst at Thomas Weisel Partners, which has invested in Wavesplitter. “Corvis is just one. With Ciena and some of the other DWDM players also trying to get into the ultralong-haul market, it’s a good place to be.”



The key to the technology is the integration of multiple complex optical components. By reducing the number of optical components, systems can become more efficient, and Wavesplitter will use semiconductor manufacturing methods to produce lower-cost products in high volumes, according to company officials.

But there are risks, as noted in the company’s S-1. The most notable is the huge losses it has experienced in relation to its revenues. The company, which was officially founded in 1996, did not start generating revenue until December 1999. It had only $103,000 in revenue on the books for last year, with losses of $13.7 million. For the six months ending in June the company had $1.5 in revenue but lost $9.8 million.

Another notable challenge is that the company will be going up against some heavy hitting competition like Alcatel, Bookham Technology PLC (London: BHM; Nasdaq: BKHM), JDS Uniphase Inc. (Nasdaq: JDSU), Lucent, and Nortel Networks Corp. (NYSE/Toronto: NT). With the massive consolidation in the market, these companies are combining forces with smaller manufacturers and ramping up production, potentially making it difficult for a small player like Wavesplitter to compete, according to the S-1.

But analysts are positive about the company’s promise and say that its small size can actually be a benefit.

“Sometimes the bigger companies are less willing to work with customers on specialized products,” says Stephen Montgomery, president of ElectroniCast Corporation. “Wavesplitter’s ability to address this can open up new opportunities for them.”

The company plans to spend a majority of the cash from the IPO to increase capacity in its Fremont, Calif., manufacturing facility. It also plans to increase manufacturing of products overseas with its contracted partner in Taiwan.

Goldman Sachs & Co. (NYSE: GS) is leading the underwriting of the offering, along with comanagers J.P. Morgan & Co. (Nasdaq: JPM) and Bear Sterns & Co. Inc..

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com