Enablence CEO Stands by His Plan
Arvind Chhatbar defends the acquisitions of fiber-to-the-home systems companies Pannaway Networks and Wave7 Optics Inc. as representing the vertical integration that a transceiver company like Enablence has to have.
"If we decided to remain a single-product transceiver supplier in the marketplace, our life would be very short," Chhatbar tells Light Reading.
The Canadian company has been trying to build its name on planar lightwave circuits (PLCs), integrated devices that don't require the amount of manual assembly of traditional optical components. Like everyone in the sector, though, Enablence has been having a difficult time of it.
The company acquired suppliers Albis and ANDevices in 2007, but the Pannaway and Wave7 moves were what really caught people's attention. It's reminiscent of the waning days of Corvis, when it acquired customer Broadwing in 2003, letting the original Corvis equipment fade out afterward. (See Corvis & Broadwing: Together At Last and Broadwing to Sell Corvis Business.)
That's not Enablence's plan, Chhatbar says.
The problem, to steal a catchphrase, is that optical companies don't get no respect. Too many companies are selling to what's been a dwindling pool of systems companies, a trend that keeps margins pushed downward. (See Optical Components: Still Too Crowded.) A part that's lower cost, or that emits less heat, doesn't necessarily gain the components company any price premium, Chhatbar says.
"The only way to do this is to be vertically integrated, backwards and forwards. When we do forwards integration, it obviously is associated with customers. How else can I do it?" he says.
By owning systems, Enablence can also get a head start with carriers, "instead of waiting for, say, Verizon Communications Inc. (NYSE: VZ) to issue an RFP that the Alcatels and others try to respond to, and they wait for that to be accepted, and then go to the components level," Chhatbar says. "If we did things like everybody else, we would not have the necessary competitive edge"
In a sense, Enablence's moves are similar to what Infinera Corp. (Nasdaq: INFN) did. Infinera's real product is the indium phosphide (InP) chip that integrates handfuls of optical components. But to make sure the chip got used to its fullest potential, Infinera built the system that goes around the chip. (See Infinera Declares WDM War.)
There's still the fact that Enablence is small and has never been profitable. Enablence finished its third quarter, which ended Jan. 31, with cash and equivalents of CDN$18.6 million (US$16.1 million), compared with CDN$32.2 million (US$27.9 million) three months earlier.
To pick up more cash, the company priced an offer on April 30 to sell 40 million stock shares at CDN$0.30 apiece (26 cents U.S.), which multiplies out to CDN$12 million (US$10.4 million).
Investors recently got a bit of good news when Enablence announced Fujitsu Ltd. (Tokyo: 6702; London: FUJ; OTC: FJTSY) as a customer. (See Fujitsu Selects Enablence.) "It is going to be a series of components that are PLC-based, mostly for the metro and long-haul markets, not fiber to the home," targeting Asian and North American carriers, Chhatbar says.
That would suggest it's a deal for ROADMs components, which one source outside Enablence confirms. That source also pins the value of the deal at less than $3 million; Chhatbar won't disclose any numbers related to the deal.
— Craig Matsumoto, West Coast Editor, Light Reading