Gemfire Lights Up $37M

When Gemfire Corp. comes up in conversation in optical circles, the name might elicit a "They're still alive?" response with some insiders. (See ECOC Roll Call.)

Yes, Gemfire is still around, but its execs have kept very quiet. [Ed. note: Maybe they're hunting wabbits.] But the company grabbed headlines again late last week by announcing a $37 million funding round. (See Gemfire Raises $37M.)

The round, about double what Gemfire was shooting for, included new investors Loudwater Partners, Centaurus Capital, Palo Alto Investors, and Uberior Equity Ltd.

"We didn't expect to raise that much, but there was a lot of interest, so we opened up the round," says Rick Tompane, Gemfire's CEO.

They don't even give headcount figures to the media, although Tompane says Gemfire employs more than 100, "by a lot."

Gemfire also isn't saying how much it's raised. But the total is at least $122 million, including a $63 million Series C announced in 2001 that included big names like Cisco Systems Inc. (Nasdaq: CSCO), Corning Inc. (NYSE: GLW), Intel Corp. (Nasdaq: INTC), Kleiner Perkins Caufield & Byers , and Mohr Davidow Ventures . (See Gemfire Comes Out Blazing.)

One trick of survival in optics has been to find markets beyond telecom. For Gemfire, that meant tapping the U.S. military, building next-generation devices. Gemfire's advantage in that business is that its manufacturing isn't located in Asia -- specifically, in China.

Gemfire owns a plant in Scotland -- formerly property of Kymata, then Avanex Corp. (Nasdaq: AVNX) -- that builds arrayed waveguide gratings (AWGs). (See Kymata Lives On.) It's also got a U.S. operation that deals in lithium niobate and polymers. The halves come together in devices like a variable multiplexer, which combines a polymer-based variable optical attenator with an AWG.

So, where does the new $37 million go? Prepare yourself for more stupifying vagueness.

"We have a pretty solid plan for what we're going to do. A lot of it is to fund growth," Tompane says.

Gemfire also expects to begin outsourcing some of its manufacturing, a transition that can carry some tough costs initially. Just ask Bookham, which watched losses pile up in 2004 and 2005 as its assembly moved to Shenzhen, China. (See Bookham Still Bleeding .)

"The problem with outsourcing is that lead times can increase dramatically, and the lesson of the last few years is that you don't get the cost savings you expected," Tompane says. Still, as Gemfire grows, Tompane expects to outsource certain operations "that aren't core to the business."

— Craig Matsumoto, West Coast Editor, Light Reading