NeoPhotonics Chases Access
For one company, at least, the bubble might really be back.
NeoPhotonics Corp. scored a $40 million round last week to continue building its planar lightwave circuits (PLCs), devices that integrate optical components by borrowing techniques from the semiconductor world. Its previous round of funding, for $35 million, came in early 2002 (see NeoPhotonics Pockets $40M and NeoPhotonics Gets $35M).
Compared with most funding rounds lately, $40 million is quite a package. While some venture capitalists speculate that the money includes a bridge loan or pieces of a previous, unannounced round, NeoPhotonics officials insist that's not the case. "It's clean," says Paul Schroeter, senior vice president of operations and engineering.
NeoPhotonics is the company that finally ended the saga of Lightwave Microsystems, the Arrayed Waveguide Gratings (AWGs) company that shut down in October 2002. NeoPhotonics ultimately acquired the company in February 2003 for a reported $2 million, then spun out its medical division and became primarily a vendor of AWGs and integrated photonics (see Obituary: Lightwave Microsystems, NeoPhotonics Buys Lightwave Micro, and NeoPhotonics Spins Out Medical Biz).
The company is still selling AWGs but with a fiber-to-the-premises (FTTP) twist, following the trend of every optical company trying to find an FTTP angle (see AFOP Intros FTTP Gear, Centillium Joins FTTP Party, and Atrica Dials Into FTTP ). By integrating AWGs with lasers and photodiodes, for example, NeoPhotonics produced a passive optical networking (PON) triplexer (see NeoPhotonics Launches Access Products).
Some of the $40 million will go towards ramping production of the new products. "We're broadening our product line. We want to get more into access products, and VCs wanted to see us have lots of runway," Schroeter says. He wouldn't say how long the money is expected to last, other than to note the company will be "comfortable in case the market does slip."
The company also makes a wavelength blocker for reconfigurable add/drop multiplexers (ROADMs), targeting another hot area.
Whatever NeoPhotonics' prospects are, $40 million seems a bit much, given the continued weak market for optics. "If I invested [in them], I think it would be at a different valuation," says Benjamin Xu, a partner with Harbinger Venture Management.
But funding isn't a science. This may have been more a case of relationships and charm, says one VC who requested anonymity. "People do it not because of the reality but because of personality and track record."
NeoPhotonics' round won't trigger a new Golden Age for components firms, but it does indicate that the space has hope, albeit at lower levels than before. "Volume is picking up, but the margin is very low," Xu says.
It's even possible to get early-stage funding. Xu says he and two other investors are wrapping up Series A for a laser startup. He wouldn't name the startup, but all signs point to Acceeze [Gesundheit!] Communications, which pitched Harbinger in January, according to the Wall Street Journal.
In a sense, NeoPhotonics has become Lightwave Micro. The company has fewer than 100 employees, with only a smattering of pre-merger NeoPhotonics engineers left. "It's more than zero, but [the company is] predominately Lightwave people," says Schroeter, who was the chief operating officer at Lightwave (see Headcount: Tell It Like It Is).
NeoPhotonics' product line is being kept on the bench. "We just consider that longer-term. We're not directly shipping 'Neo' products right now; they're in the background," Schroeter says.
NeoPhotonics inhabits Lightwave Micro's San Jose, Calif., headquarters and operates its fab, which is already paid for, a factor that Schroeter says helped attract investors. The lease on the building dates back to 1999, before the height of the bubble, so NeoPhotonics' rent is reasonable, he adds. Two other Lightwave buildings that did carry huge rents were dropped when the company went out of business.
— Craig Matsumoto, Senior Editor, Light Reading