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Optical components

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

Dr_Booda 12/5/2012 | 3:02:22 PM
re: Gemfire Lights Up $37M As they were at $1-2 million in revenue a quarter a year ago, and not cash flow positive, I don't think that these are true Mezz guys. To me, it's more like some Mezz/VC's trying to ride the coattails of Infinera.

They are also adding a second shift to their Fremont Fab, bringing them back to the level of 2002 before the Ch. 11 (120 headcount). Maybe they have the capacity to turn out 300 total units per month (vmux + voa), so I'm guessing that the $2 million/ quarter revenue stream is still about right.

Running a two shift fab in Fremont and another in Scotland will be expensive. In 2002, they burned about $18 million/year on just the Fremont site, so this round should buy them three years at most. Will the NASDAQ tank again by then?
deauxfaux 12/5/2012 | 3:02:24 PM
re: Gemfire Lights Up $37M Mezz guys want about $50M in revenue, profitability, cash flow positive and the chance to put at least $20M to work over 1-2 years at an IRR of 30% or better
redface 12/5/2012 | 3:02:27 PM
re: Gemfire Lights Up $37M ODO wrote: "Didn't know they were close to $100M in revenues - isn't that what's needed to convince the mezzaniners to come in right before a public offering?"

Are you sure Gemfire has close to $100M in revenue per year? That's impressive. Are they at break even or close to it?
Pete Baldwin 12/5/2012 | 3:02:28 PM
re: Gemfire Lights Up $37M Dig we shall. Thanks for the suggestion.
rahat.hussain 12/5/2012 | 3:02:28 PM
re: Gemfire Lights Up $37M Craig - Fair enough. Wabbits, stupendously vacuous (or stupefyingly vapid, or something similar), etc is making fun.

But where's the real story? How did they get this funding? Is optical hot? So hot that VC's will pour $37M into a company not know for its market prowess? Please dig?

odo
Pete Baldwin 12/5/2012 | 3:02:29 PM
re: Gemfire Lights Up $37M I wouldn't say we slammed them. Had some fun with them, perhaps. That's nothing new.

It's great -- and a bit stunning -- to see them raise that much. And deauxfaux called it right: Being the last man standing has its rewards.
rahat.hussain 12/5/2012 | 3:02:29 PM
re: Gemfire Lights Up $37M Didn't know they were close to $100M in revenues - isn't that what's needed to convince the mezzaniners to come in right before a public offering?

Also,what's with the tone of the article? These guys raised a whopping $37M, and just because you didn't get the whole scoop, you slam them? Plum pathetic! This is one way LR loses credibility - get the real story guys!

odo

UberNeoCon 12/5/2012 | 3:02:30 PM
re: Gemfire Lights Up $37M These are definitely some new names. Maybe Mezzanine guys with a lower cost of capital
deauxfaux 12/5/2012 | 3:02:30 PM
re: Gemfire Lights Up $37M Haven't seen that much money into a component startup in a long time....smart VCs....you've got to be the last guy standing
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