Optical/IP Networks

DigiLens Lands Mitsubishi Contract

DigiLens Inc. plans to announce a partnership with Mitsubishi Electric within the next two weeks, giving the startup a foothold as it begins its home-stretch effort to survive the downturn.

It appears Mitsubishi will represent DigiLens in Japan, handling initial sales contacts and then handing off customers to DigiLens proper. In other words, Mitsubishi will be selling the idea, but DigiLens will still be selling the actual product.

It's a fairly common way for large Japanese firms to pair up with U.S. startups, but such deals usually include some kind of equity agreement or product co-development. The latter appears to be part of the package here, as DigiLens's most recent funding announcement notes the company "signed component development contracts with two major Japanese corporations" in early November (see DigiLens Grabs $4M).

DigiLens officials also said they're hoping to enlist a new investor as this funding round concludes, but they wouldn't comment on whether Mitsubishi is being enticed to invest. Nor would they discuss specifics of the partnership, other than to say it's on the verge of being formally announced.

But CEO Jonathan Waldern did comment that Japan is relatively fertile ground for optical-networking buildouts. For example, Waldern says Mitsubishi and Cisco Systems Inc. (Nasdaq: CSCO) have been wiring condominiums with plastic fiber -- which is more bendable than glass, and therefore better suited for wiring buildings. The 100-Mbit/s connections to every unit are used for video-on-demand, games, and voice-over-IP, for a fee of $30 per month.

"At the moment it's mostly high-end condominium buildings throughout Japan, but they're signing up three or four a month," Waldern says.

Aside from optical networking, Mitsubishi has a strength in consumer electronics that could be useful to DigiLens, which was founded to build a solid-state optical filter for projectors and digital cameras. In the case of projectors and projection-screen TVs, DigiLens's filter can replace the spinning filter wheel usually supplied by JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU).

But DigiLens is better known for its optical-networking parts -- dynamic gain equalizers and tunable filters built from liquid-crystal Bragg gratings (see DigiLens Creates 'Liquid Gratings').

The Japanese deals are crucial to DigiLens, which expects to begin volume shipments of its networking components next year. In a sense, the company is launching its make-or-break push. Its most recent funding -- $4 million, with an extra $11 million expected in March -- is intended to keep DigiLens afloat until 2004. "We project that we'll be self-funded after that," Waldern says.

Although DigiLens officials are reluctant to use the word, this does appear to be a "washout" round, erasing much of the company's previous value (see Washed Out in the Valley). "There was some significant valuation shift that took place," says vice president of marketing Mike Adams. "We've cleaned the slate."

In the latest funding round, extant investors contributed the initial $4 million, and DigiLens has wrapped up "well over half" of the $11 million that's still en route, Adams says. He wouldn't comment on whether Mitsubishi is among the candidates being enticed to join in.

— Craig Matsumoto, Senior Editor, Light Reading

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