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Optical components

Santur Raises $26.5M, Talks IPO

After closing a fourth, and rather secretive, round of funding, tunable laser vendor Santur Corp. is considering its options for going public.

Santur raised around $25 million early in the summer, CEO Paul Meissner tells Light Reading. News of the round first broke on Thomson Financial 's Private Equity Hub site, which pegged the amount at $26.5 million.

The round wasn't announced because Santur's new investors don't want to be seen in public with the company -- or something like that. "We didn't publicize it much because we've been asked not to talk about who's participating," Meissner says.

It's another sign that venture money is pouring back into optical components. Last week, passive components maker Gemfire Corp. announced a surprisingly sizable round. (See Gemfire Lights Up $37M.)

Santur's C round closed in 2005. The company has now raised about $95 million in its six-year lifetime. Its less shy investors include Menlo Ventures , Sequoia Capital , and Thomas Weisel Venture Partners . (See Santur Raises $16.6M and Santur Tunes In $10M.)

Santur has reached the breakeven point, so the funding wasn't needed for day-to-day operations, states Meissner. Instead, the company now has cash in the bank should it need growth funds.

The company owns a semiconductor fab and handles its own assembly and testing, rather than outsourcing those operations to Asia. That means any expansion would require some cash.

The new round also means Santur doesn't need to rush into an IPO to raise growth funds.

"An IPO is on the horizon for us. We haven't set a date yet. I don't want to be forced to go [to the public market] because of a need of capital," Meissner says.

Santur has been on the IPO radar since early 2006, when then-CEO Richard Craig dropped strong hints at OFC/NFOEC. Thus, unlike Gemfire, Santur can't be put on the list of companies we didn't know still existed. (See OFC: Optics & IPOs and ECOC Roll Call.)

Santur isn't saying what its revenues are, but based on various hints since last year, the annual figure is somewhere in the $60 million to $70 million range.

Santur sells tunable lasers that, obviously, go into tunable transponder modules, and it's going to stay that way. "Our whole long-term positioning is as a device company," Meissner says. "If you start looking at what's happening up the food chain, unless you go up to the system level, the margins are eroding pretty quickly."

Notable vendors such as JDSU (Nasdaq: JDSU; Toronto: JDU) and Optium Corp. (Nasdaq: OPTM) have pursued the opposite strategy, figuring modules had a better future than plain components. Some, such as Opnext Inc. (Nasdaq: OPXT), sell both lasers and modules.

That doesn't necessarily mean Santur's plan is wrong. "You can go either way. Look at CyOptics Inc. and Eudyna Devices Inc. -- they're not module companies," says Daryl Inniss, an analyst with Ovum RHK Inc.

What's more challenging about Santur's model is the manufacturing plant it owns. "If you have a fab, you have to keep it running at some level where you can cover your fixed costs," Inniss says. — Craig Matsumoto, West Coast Editor, Light Reading

Diogene 12/5/2012 | 3:02:15 PM
re: Santur Raises $26.5M, Talks IPO "Santur has reached the breakeven point, so the funding wasn't needed ..... "

I do not understand:

If the company is in good financial shape, why Santur needed to increase its equity, and not look for some bank debt, that is more cheaper than equity, and do not dilute earnings?

Vent 12/5/2012 | 3:02:15 PM
re: Santur Raises $26.5M, Talks IPO Its a pity investors don't do due diligence and lokk at the base technology or open up a santur package and compare it to one of the competitors
JDSU/Agility Bookham or Syntune/Cyoptic. They would find a much more complicated build that long term is not destined to survive especially if you take into account JDSU announcement about the integrated tunable/modulator and recent work on direct modulation.
Just ask why no one has bought them yet

Venting
doodler 12/5/2012 | 3:02:14 PM
re: Santur Raises $26.5M, Talks IPO Dear Vent:

The fact is the others you mention actually are made with far greater complexity than Santur but since the complexity is inside the chip you can't see it. Fab and control and stability of these chips as a result is way harder though they won't admit it. You can't doubt the success of the market leader.

Doodler
paolo.franzoi 12/5/2012 | 3:02:14 PM
re: Santur Raises $26.5M, Talks IPO
Most small growth firms prefer Equity Money to Debt Money as there is no repayment of Equity Money. From an operational standpoint, Equity Money is free.

Assuming that the numbers are correct, the shareholder value is the same.

1 - Equity - Company has diluted it's stock, BUT there is $26.5M has been added to the value of the company. Assuming that this is fairly valued, the value of the individual shares rose the same amount as they were diluted.

2 - Debit - The Company has added $26.5 cash, BUT has added a Long Term Liability or a net gain of $0 in the value of the company. However, the debt has to be repaid with interest which dilutes earnings in the future.

seven
agility1 12/5/2012 | 3:02:10 PM
re: Santur Raises $26.5M, Talks IPO All tunable lasers today are more complex than fixed wavelength lasers in their design, fab, packaging and control. Certain designs have more complexity in the chip and less in the package or control, others less in the chip, etc. Many designs have the performance required by today's systems and the only differentiation is in product mfg costs and in the suppliers ability to ramp - which often depends more on the company's commitment to adding capacity than it does on the design or mfg complexity.

Santur has done a wonderful job of ramping output faster than the competition - congrats to them for that! They could have accepted very attractive acquisition offers (2x the Agility $100 million deal), but instead decided on the IPO route. Rumor has it that several key exec's left because they disagreed with the IPO path - but I'm rooting for them to get a good story together on next gen products and have a successful IPO and hopefully, for public investors, a long run of profits!

paolo.franzoi 12/5/2012 | 3:02:09 PM
re: Santur Raises $26.5M, Talks IPO
Diogene,

My comments have nothing to do with pre/post-IPO. You asked a comment about earnings dilution. You seem to miss the point that repaying the debt ALSO dilutes EPS. The method of dilution is different, but both methods dilute future earnings.

I have no view of the company. I have never heard of them.

seven
Vent 12/5/2012 | 3:02:09 PM
re: Santur Raises $26.5M, Talks IPO I agree that santur has done a great job ramping up but just think that for small scale that's easier at the package scale
Long term and IF volume (and profits) ever comes to tunable lasers integration must be done at the chip level as much as possible.
It is nearly always more cost effective.
Diogene 12/5/2012 | 3:02:09 PM
re: Santur Raises $26.5M, Talks IPO Brook, your points are ok if we were speaking of a company still starting-up. Santur should no more considered a start-up. It is at the top of his market capabilities.

If Santur is not making enough cash today (since they still need a considerable amount of funds), considering that the prices are decreasing, I see tough times.

Moreover more integrated technologies (bookham, jdsu, syntune) are appearing and should be able to sustain price decrease with increase in integration and reduction of the bill of material of their devices.

What is the Santur real advantage?
Had they lost their opportunity?
bollocks187 12/5/2012 | 3:02:08 PM
re: Santur Raises $26.5M, Talks IPO Every startup likes to talk IPO.

The financing trend in the private sector is to raises as much cash at almost any valuation. Ask any CFO of a startup !

Santur is no different.
rahat.hussain 12/5/2012 | 3:02:00 PM
re: Santur Raises $26.5M, Talks IPO Santur is different - they are the market leader, they have an extremely good track record of delivery, and they eat every other competitor's offering for lunch.

High growth market, great new CEO, and same old team - but, the street cares for the CEO to carry this through and given all the info out there on him, he will be able to do it.

Regarding complexity of design, who cares? The only question that matters is if they can deliver and make good margins. Yes to both those questions.

Finally, we may see a real-to-goodness optical company make it in the public markets (as opposed to some other posers who have recently demonstrated their ability to bilk the unsuspecting masses).

odo
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