Optical components firm DigiLens Inc. shut down its manufacturing facility last week, laying off half its staff of 40 as the company tries to secure the funding to carry on.

The move, following a 25 percent round of cuts just months ago (see Startups Make More Cuts), was prompted when DigiLens signed a contract to have a foundry provide it with wafers. The 20 employees let go were part of the manufacturing team. What's left are the experts in Fiber Bragg Gratings (FBGs), the real meat of DigiLens's technology.

The company's Sunnyvale, Calif., fabrication plant is now up for sale. It cost $25 million to build (although a press release from early 2002 says $35 million) and will probably go for "considerably less than that," CEO Jonathan Waldern says.

Outsourcing is commonplace in the semiconductor industry as a way to keep costs down. DigiLens chose to build its own manufacturing line because it required silicon oxynitride (SiON) wafers, which were relatively uncommon. But SiON manufacturing services are available, and DigiLens is at a point where it needs to trim costs.

"What's critical is to ensure our cost base is at a minimum," Waldern says. "We're in a reasonably manageable situation. For other fabs, the downturn happened so quickly, they had no room to maneuver."

Waldern wouldn't specify where DigiLens is getting its wafers, other than to say it's from a Silicon Valley source. DigiLens will receive SiON wafers from that source and will add its own "active cladding" layer, into which it etches its electrically switchable FBGs (see DigiLens Creates 'Liquid Gratings').

It helps that DigiLens doesn't rely on optical networking for survival. The company started off selling components to the display and imaging industries, which still represent 50 percent of its revenues, Waldern says.

But DigiLens officials do believe their networking products are on the verge of great things. The dynamic gain equalizer demonstrated at last year's OFC (see DigiLens Unveils Optical IC) has begun sampling and is drawing some revenues, Waldern says. DigiLens is also planning to sample a variable gain-flattening filter this quarter.

Separately, DigiLens continues to seek a lead investor for its current round of funding. The company secured $4 million with promises for another $11 million if an outside investor could be found, but that outside investor hasn't been pegged yet, Waldern says.

The funding announcement, in November, anticipated that the round would close in March 2003 (see DigiLens Grabs $4M). But naturally, company officials are anxious to find that outside investor. Waldern notes that there's "no contractual deadline, but as a going concern, we need to have investment in the company."

DigiLens's investors so far are Alta Partners, Amadeus Capital Partners, Apex Investment Partners, BCI Partners, Citigroup, Crescendo Ventures, Johnson & Johnson Development Corp., Keystone Venture Capital, Noro-Moseley, Science Applications International Corp. (SAIC), and Vision Capital.

— Craig Matsumoto, Senior Editor, Light Reading