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MetroPhotonics Sheds Its Fab

Light Reading
News Analysis
Light Reading
7/29/2005

Optical components startup MetroPhotonics Inc. is slimming down its business by getting rid of its indium phosphide (InP) fabrication facility.

The Ottawa-based company is auctioning off the guts of its fab today. The online sale lasts until 4:00 p.m. Eastern time today and is being handled by DoveBid.

MetroPhotonics CEO John-Peter Bradford confirms that the company is going fabless but wouldn't fully explain why, although it's almost certainly a cost-cutting move. "Our business model makes more sense being fabless," is all Bradford would say.

Naturally, the change to fablessness involves layoffs, but again Bradford was stingy with details. "We're not going to have many fabrication people," he says.

MetroPhotonics does not have a foundry partner lined up yet but is in discussions with candidates.

Many optical components startups built their own fabrication facilities, as InP foundries weren't so easy to find circa 1999, and many of the startups required advanced manufacturing not available on the open market. MetroPhotonics arrived a bit later but still chose to build its own fab in mid-2002 (see MetroPhotonics Opens InP Fab and MetroPhotonics Demos Power Monitor).

Ironically, the wave of fab construction led to a small surge in InP foundry business, as companies including Covega Corp., Vitesse Semiconductor Corp. (Nasdaq: VTSS), and, until now, MetroPhotonics, offered their excess fab capacity to others (see Vitesse Teams on InP ICs). Some pure-play InP foundries have sprung up as well, such as Velocium, a subsidiary of defense contractor Northrop Grumman Corp.

The inevitable consolidation has begun, too. InP specialist ASIP Inc. has been collecting other integrated photonics startups, grabbing ThreeFive Photonics B.V. last year and merging with T-Networks Inc. this week to form Apogee Photonics Inc. (see Survival of the Smallest and ASIP, T-Networks Reach Apogee).

MetroPhotonics, which builds FTTx triplexers, is among the army of startups pursuing Photonic Integrated Circuits, trying to bring the benefits of semiconductor integration to the photonics world. The concept was popular a few years ago, but it's been a rough go for many players, the most famous being Lightwave Microsystems, which was eventually picked up by NeoPhotonics Corp. (see NeoPhotonics Buys Lightwave Micro).

MetroPhotonics' most recent funding was a $5.4 million round in May 2004. Back in 2000, the company raised $62.5 Canadian, or roughly US$51 million based on current conversion rates (see MetroPhotonics Gets $5.6M and MetroPhotonics Raises $62.5M CDN).

— Craig Matsumoto, Senior Editor, Light Reading

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deauxfaux
deauxfaux
12/5/2012 | 3:07:00 AM
re: MetroPhotonics Sheds Its Fab
An interesting business model. Lets see if I have this straight

They are switching to fabless, but don't which fab they will use.

They are selling everything today on DoveBid

Obviously, they haven't built any devices in the new merchant TBA fab that they haven't identified.

They don't know when they will see any devices.

They can't start 5000hr Chip on Submount qualifications to begin shipping to paying customers untill all of this is done.

Conclusion: They have no customers, they are trying to stay alive by selling the equipment, and they will die as soon as that cash is gone because the VCs don't want any part of them.
DZED
DZED
12/5/2012 | 3:06:57 AM
re: MetroPhotonics Sheds Its Fab
It does indeed seem a bizarre move.

If they had a fab lined up and parts in qual then I would say it was a sensible step, fabless ought to be the way to go.

However, with no obvious plan it seems somebody in the exec team been smoking something.

Still, who care if the company lays off all its staff, sells off its eqpt and has no customers? Doubtless the execs sill see the gracy train roll along a while longer.
Balet
Balet
12/5/2012 | 3:06:54 AM
re: MetroPhotonics Sheds Its Fab
As far as I know, this is one the last moves of the dying fish on the dry beach.
They made too many mistakes first hiring Bryant Hichwa and his "team" in Santa Rosa (what's a waste!), then never hiring a strong marketing/sales, then not treating their "smarts" well.
Even with all that canadian government and "private" support they are ready to die!
One more waveguide company to hit the ground. Who is next??
deauxfaux
deauxfaux
12/5/2012 | 3:06:53 AM
re: MetroPhotonics Sheds Its Fab
Neophotonics had to buy photon and go back to TO cans because none of their waveguide stuff worked. But the VCs have just recapped the company so I doubt that it will die soon
Balet
Balet
12/5/2012 | 3:06:52 AM
re: MetroPhotonics Sheds Its Fab
There is a significant difference between Neo and Metro Photonics.
Neoptonics has just made another smart move, while MetroPhotonics is on the way to the cemetery.
deauxfaux
deauxfaux
12/5/2012 | 3:06:51 AM
re: MetroPhotonics Sheds Its Fab
Photon is another barely breakeven business now saddled with the expectation of VC returns. Jenks said it himself, Photon is profitable, but the whole of Neophotonics can't be profitable to late '06. This means that the Sand Hill road boys remain a drag on cash after $300M in investment between Neophotonics, NanoGram and Lightwave Micro.

Balet
Balet
12/5/2012 | 3:06:48 AM
re: MetroPhotonics Sheds Its Fab
You are right; however, acquiring a barely breakeven business for a money losing start-up is a big thing. Now they can show nice revenue flows. It is not often you can see that at a startup, right?
deauxfaux
deauxfaux
12/5/2012 | 3:06:47 AM
re: MetroPhotonics Sheds Its Fab
Certainly, the overwhelming majority of startups in the components sector have failed to get anywhere and have died or been merged and shut down.

However, VCs typically have an expectation of 50% IRR. Putting that on top of a business that is doing 2-5% OI, just to gain some "credibility" concerning revenue doesn't make financial sense; one part of the business is has its head above water, and the other "startup" business is still a cash drain. It looks to me like the Photon guys were promised that they will eventually be able to go public as part of Neophotonics.

It will be interesting to see how this all plays out.
Balet
Balet
12/5/2012 | 3:06:37 AM
re: MetroPhotonics Sheds Its Fab
To be honest, I don't expect Neophotonics team to go public. Smart guys but well too arrogant to pull an IPO. Or better say think too good about themselves.
vermillion
vermillion
12/5/2012 | 3:06:28 AM
re: MetroPhotonics Sheds Its Fab
Some insight into the incestuous Ottawa tech scene may be in order...

I should emphasize that I haven't had a chance to talk to anybody about this, I'm just speculating.

Many key MetroPhotonics people left the National Research Council of Canada to start the company, apparently without any special arrangements to allow them to return to NRC if things went sour.

The NRC now is how to the Canadian Photonics Fabrication Centre, a fab/prototyping facility that is meant to allow start-up photonics firms get off the ground. My guess is that MetroPhotonics is about to become the CPFC's best customer.

The irony here is that the CPFC was built post-bubble, with fewer such firms getting funded. The obvious advantage was that all the gear was acquired at fire-sale post-bubble auction prices.

Still, my guess is that the $#!t has really hit the fan for MetroPhotonics, and they are on the way down. No matter what the scenario, I agree that with the earlier posts that the move is clearly and admission that they lack a meaningful customer base so that re-qualification of their parts in a new fab is a non-issue.

However, if my speculation about CPFC is correct, their need for VC $$$ to keep up the fab and fund R&D will drop dramatically, and they may just squeak through.

That my $0.02 of speculation!
-v


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