Components startups Arroyo Optics, and Lightcross Inc. announced late yesterday that they plan to merge, in a move aimed at improving their chances of survival in a market that takes no prisoners (see Arroyo, Lightcross to Merge).

The surviving entity will be called Arroyo Optics, and will comprise 45–50 people.

The product platforms sound pretty different: Arroyo makes liquid-crystal based products such as tunable filters, while Lightcross is a developer of silicon-based passive components including Arrayed Waveguide Gratings (AWGs). So what do they have in common?

Two investors for a start: ComVentures and Arch Venture Partners. That helped move the deal along, according to Hatch Graham, interim CEO at Arroyo.In addition, both products involve software-based tuning, which Graham sees as a major upcoming trend, as it improves the speed that devices can be reconfigured. "That's where the future is: software provisioning," he says. "Both of these technologies are leaning towards where the industry's going."

Since Hatch Graham is only interim CEO, the deal gives Arroyo a "real" CEO in the shape of Bob Barron, a minor optical celebrity famous for selling startup Chromatis to Lucent Technologies Inc. (NYSE: LU) for $4.5 billion in 2000 (see Lucent Catches Chromatis)

Financial details of the transaction were not disclosed. However, Arroyo is bullish about its chances of getting VC money in the future. "We will raise additional dollars in the next few months, money that is already reserved for us, providing we meet certain milestones," claims Arroyo's VP of marketing Clarel Thevenot.

It's worth pointing out that Arroyo went nine years without generating any revenues. Founded in 1991, it worked on a string of products, including a liquid-crystal wavelength blocker, never quite getting to the stage of shipping to customers.

The wavelength blocker nearly didn't see the light of day either. When Corning Inc. (NYSE: GLW) released a similar product first, Arroyo retreated and regrouped, according to Thevenot. Following Corning's decision to can its own wavelength blocker earlier this year, Arroyo eventually came out with a second-generation part just last month (see Corning Chops Wavelength Blocker and Arroyo Debuts Wavelength Blocker). Perhaps as a result of Corning's decision, Arroyo now claims to have customers for its product, but isn't at liberty to name them at present.

Founded in 2000, Lightcross has a shorter history, and it too recently released its first product (see Lightcross Debuts VOA Arrays).

— Pauline Rigby and Craig Matsumoto, Senior Editors, Light Reading