Laser Startup Bags $109 Million

A fully automated assembly and packaging plant is at the top of Novalux's shopping list

Novalux Inc., a startup developing lasers for long haul, metro, and local area networks, scored a huge $109 million in a third round of funding yesterday. Most of the cash is earmarked for a new production plant that will provide the vendor with highly automated packaging and assembly facilities.

That's key. By automating the manufacturing process, Novalux should be able to lower the cost of its products substantially, undercutting other component players (see Novalux Promises Cheaper Lasers).

In addition to low cost, Novalux claims its devices will have another big advantage: power. The startup has demonstrated a laser with an optical output power of 1 Watt -- twice that available using singlemode pump lasers from manufacturers like JDS Uniphase Inc. (Nasdaq: JDSU). More powerful lasers drive signals farther on optical networks.

Novalux's products are based on a variation of existing vertical cavity surface-emitting laser (VCSEL) technology. "[Conventional] VCSELs are very nice devices but they tend to stay in the low milliwatt range," says Malcolm Thompson, CEO of Novalux. "We've designed a totally different laser cavity, and that brings two big benefits: high power and narrow linewidth." (Linewidth is a measure of the “spectral purity” of a wavelength; purer wavelengths distort less when transmitted down a fiber.)

Investors seem convinced by the marketing pitch. In fact, William Harding, managing director at Morgan Stanley Dean Witter, which led the investment round, was so convinced that he decided to come on board as a director. Other investors in this round were Cisco Systems Inc. (Nasdaq: CSCO), Credit Suisse First Boston, Intel Capital, Lamoreaux Partners, MSD Capital, NorthEast Ventures, Salomon Smith Barney Sternhill Partners, Telesoft Partners, and U.S. Bancorp Piper Jaffray. Several previous investors also took part in this round, including Crown Advisors, Crescendo Ventures, DynaFund, RWI, Tredegar Investments, and Vanguard Venture Partners.

Automation has been a long time coming in the optical components industry because it requires such a big upfront investment. But with demand for optical components currently outstripping supply in some areas, component makers have a tough choice: Make that investment or fall behind (see Components Shortage Delays Deliveries).

In this respect, Novalux is fortunate: Its technology lends itself to automated manufacturing, according to Thompson. That's due to two advantages that are inherent to all VCSELs. First, it is possible to do on-chip testing before the wafer is broken up into individual devices. "We can predict whether the lasers will work early on in the process, which gives us a real insight into how we can lower the manufacturing costs of the chip," he said. Second, the laser emits a wide circular beam from its top surface, which makes it possible to use much looser alignment tolerances in the optical package.

All this will put pressure on Novalux's competitors, which include VCSEL manufacturers like Honeywell Inc. and Mitel Corp. (NYSE/Toronto: MLT), as well as traditional laser manufacturers like JDS Uniphase.

Novalux also claims to be developing a tunable VCSEL. This puts it on a collision course with several other startups such as Coretek, Nova Crystals Nova Crystals Inc., Cielo Communications Inc., and Bandwidth9 Inc. (see Nova Crystals Demos High-Power VCSEL and Cielo Shows Laser with Sandia Labs and Bandwidth9 Claims Laser Breakthrough).

Novalux's first product, a pump laser, should be available in the first half of 2001.

-- Pauline Rigby, special to Light Reading http://www.lightreading.com