PowerNetix Nets New Funding

Components startup PowerNetix Inc. has closed a fresh round of funding, Light Reading has learned.

According to sources close to the company, the amount raised -- $3.5 million -- is modest, but should be enough to see PowerNetix through to breakeven. This is the startup's second round. Its first, for $6.5 million, was in December 2000, shortly after it was founded.

The new funding round is being led by Azure Capital Partners, with all the investors from the first round participating again, including Siemens Venture Capital (SVC), Cairncross Ventures, and Star Ventures.

Sources say that PowerNetix's valuation has remained flat compared to its earlier round. That's an achievement in a down market, where many startups have lost so much value that the shares of previous investors get diluted considerably in the new round (see Washed Out in the Valley). PowerNetix's post-money valuation is reportedly $15.5 million.

What's the startup's secret? It has come up with a packaging technology for laser diodes that appears to be successful, not just in terms of yielding a product with an advantage over those from other vendors, but also in allowing the startup to make significant progress while keeping its burn rate low.

PowerNetix's history is interesting. It was founded by four packaging guys from Novalux Inc., another startup developing pump lasers, but in this case based on high-power Vertical Cavity Surface Emitting Lasers (VCSELs) (see Novalux Details Laser Advance).

According to Jay Titus, one of the founders and now CEO of PowerNetix, they saw that even if Novalux's technology was successful, it was going to be a couple of years before it was qualified and available. In the meantime, quality 980 pump laser chips were becoming widely available from a number of vendors. So, they figured, if they could develop a packaging technique for off-the-shelf chips from outside vendors, it would allow them to get to market much faster.

"You could say we got the entrepreneurial urge," Titus told Light Reading at the recent OFC show. "We saw that money was easy to come by. And we said, if not now, then when?"

Novalux has reportedly quit its telecom developments and is now targeting medical markets with its lasers. Novalux did not respond to calls.

The problem that PowerNetix set out to solve was that of aligning the fiber to the laser chip -- this, as it turns out, is the critical step in the manufacturing process.

"You have to do something other than welding or soldering [of the fiber] to be successful," says Titus. "If you weld it, then when you let go, it moves, because of the stresses in the high-temperature welding process." That movement affects the power coming out of the laser and can, in some cases, cause complete failure of the device.

PowerNetix has come up with a process that achieves better stability than welding or soldering, it claims, although it won't say exactly what it is. Plus, it assembles the laser chip and fiber outside the package, so that if there is a quality issue, the package doesn't have to be thrown away.

The process is automated using standard pick-and-place equipment, which is much cheaper than some of the specialized fiber optic automated manufacturing gear that's now reaching the market (see Components: Measure Once, Cut Better). "Rather than automate the existing design, we have designed the module to be automated, so it doesn't require expensive equipment," Titus explains.

Being an automated process, it requires few people to run the production line. As a result, PowerNetix has never had more than 14 employees -- the total today -- and that is a big factor in keeping its running costs down.

PowerNetix's key competitors are also the main suppliers of pump laser chips, namely JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) and Nortel Networks Corp. (NYSE/Toronto: NT). But Titus doesn't see a problem with that.

"You can make a better margin at the chip level than at the package level," he says. "So most people who sell modules are willing to sell us chips." Customers are even able to specify whose chip they want inside PowerNetix's package.

PowerNetix has two main product lines: 240 and 350 mW standard singlemode pump lasers, and "coolerless" pumps offering 200 and 400mW. It manages to get high power without a thermoelectric cooler by putting two lower-power lasers in the same package (see PowerNetix Debuts Pump Modules). Coolerless pump lasers are priced at $2500 in sample quantities. "On a dollar-per-milliwatt basis, we think that's a good deal," Titus contends.

Sources say the funding news is likely to be announced early next week.

— Pauline Rigby, Senior Editor, Light Reading
http://www.lightreading.com