Downturn puts a brake on component start-ups

17 Jun 2002

The downturn in telecoms-network investment has put pressure on the many optical-component start-ups that thought the boom would continue. However, Phillip Hill discovers that there might be light at the end of the tunnel.

From Opto & Laser Europe September 2001

The CEO of a European optical-component start-up was recently heard lamenting Europe's general underachievement in fibre communications. "Europe has enormous technological treasures," he said. "But it has been poor in communicating them to potential customers, particularly early adopters in the US."

It has been estimated that there are almost 100 optical-component start-ups in Europe. Several are revenue generating, including Teem Photonics, France, Highwave Optical Technologies, France, Kymata, UK, and Bookham Technology, UK - which is more than 10 years old and, although it is a public company with up and down revenues, has USD 215 million in the bank.

The example of these firms has inspired a new wave of start-ups - some might say too many - which, in the current downturn in the telecoms industry, is catalyzing a period of consolidation witnessed by the recent collapse of Ilotron, UK, and the takeover of Kymata by Alcatel Optronics, France.

While Europe is already home to several major optical-component players, such as Alcatel, Ericsson, Sweden, Infineon Technologies, Germany, and Nortel, Canada, few would disagree that Europe contains a wealth of additional optical technology that is waiting to be translated into successful optical-component suppliers.

However, the problem is that there has been a serious slowdown in funding this year. According to US market analyst RHK, in the third quarter of 2000 there was USD 527 million of investment in optical-component start-ups in the US and Europe, which rose to USD 698 million in the fourth quarter. By contrast, there was a mere USD 366 million in the first quarter of this year, which then fell to approximately USD 262 million in quarter two.

Roy Rubenstein, senior analyst with RHK, estimates that venture capitalists will invest about half as much in the sector this year as they did in 2000.

"However, there is still significant investment going on given the general downturn in telecoms and the amount of inventory that is around," he said. "There has been a change in direction from the system vendors, which have shifted away from new technology and are going with what they have. Optical components are at the bottom of the chain and have suffered the most."

This means that start-ups now have more time to perfect their technology, but it also means that their funding has to last longer. Rubenstein thinks that most companies' roadmaps have been pushed out by six months, maybe more, but predicts an upturn in the industry in 2002.

The latest forecast data from RHK predicts that the worldwide market for optical components will decline by 11% in 2001. John Lively, director of optical components at RHK, said: "The dramatic fall-off in revenues this year is the result of aggressive purchasing by system vendors last year. We believe that after the excess inventory is worked through this year, we can expect a more rational purchasing environment with solid double-digit growth rates into 2003 and 2004."

The dense-wavelength division multiplexing (DWDM) optical-component market will grow from USD 5 billion in 2000 to nearly USD 14 billion by 2004, says RHK. One product group that is expected to grow strongly is active terminal components, such as lasers and receivers. RHK expects this category to grow from USD 2.7 billion in 2001 to USD 6.6 billion by 2004 as carriers light additional wavelengths.

Three regions in Europe with prominent start-up activity in optical components are Scotland, England and France. Scotland can certainly boast a cluster of start-ups with four new spin-offs expected from Glasgow University alone. This is a result of research talent at European universities combined with funding incentives from a government that is keen to encourage long-term indigenous jobs in the high-tech sector. They include Kymata, which makes variable optical-attenuator arrays and arrayed-waveguide gratings (AWGs); Terahertz Photonics, which makes coatings and semiconductor optical amplifiers (SOAs); and Intense Photonics, which produces pump lasers.

Intense Photonics is expected to unveil its first product - which was built using a quantum-well intermixing structure - at the European Conference on Optical Communications in Amsterdam, the Netherlands, next month. The technology is interesting because it promises the integration of passive and active components on a single indium phosphide platform. The firm attained a further USD 11 million of funding in June.The jewel in Scotland's crown that tempted Alcatel is undoubtedly Kymata, which was spun out of Southampton University in the UK in 1998 to make planar devices based on silica-on-silicon technology for DWDM systems, as opposed to Bookham's silicon-on-insulator technology for similar devices.

Optical-components players in England are more widely distributed, but there is one optical hot spot in the southeast: Ipswich. This is where BT's Adastral Park laboratories, Corning's research centre, Agilent Technologies and the University of Essex - which houses the Photonics Networks Research Centre - are based.

Bookham and Kamelian, which specialize in SOAs, are located near Oxford, while other English start-ups are university spin-offs: Southampton Photonics (dispersion-compensation modules and erbium-doped fibre amplifiers (EDFAs)), emerged from the Southampton University's Optoelectronics Research Centre, while the recent start-up Blazephotonics (holey fibre), was spun out of the University of Bath.

"Southampton Photonics is probably at the most advanced stage after Bookham and Kymata," said Rubenstein. "It will start manufacturing soon and has an interesting technology. But the firm is currently in a critical period. It raised USD 55 million in first-round funding, which is more than many US start-ups have received."

Kamelian offers SOAs either as discrete items or as building blocks for more complex systems. Long term, it plans to integrate passive and active components in a hybrid device. "This is an interesting firm to watch," said Rubenstein. "It has recruited senior staff from Kymata and Bookham."

Blazephotonics has a "potentially exciting" technology, according to Rubenstein. "But that is farther down the road," he said. "There might be some products in a year or two but the real impact won't be for another five or 10 years."

Indigo Photonics was spun off this year from Aston University and has a tie-in with Oxford Fiber Optic Tools to exploit Bragg grating technology with £4 million of venture capitalist 3i's money.

France boasts two clusters: one in Lannion in Brittany and one in Grenoble in the south. In Lannion, several individuals have decamped from France Telecom's CNET laboratories to set up companies including Highwave - producing optical add/drop multiplexers, EDFAs and speciality fibres - and Algety - working on solitons and taken over by Corvis of the US.

Keopsys, a new entrant into fibre and Raman amplifiers, is also based in Lannion. Tronic's Microsystems, an optical MEMS foundry, and Opsitech, which is developing multiplex/demultiplex planar AWGs, are situated near Grenoble, the site of the French Atomic Energy Authority's LETI laboratories, where much development work is carried out. Teem Photonics is another French firm that manufactures erbium-doped waveguide amplifiers.

Germany has yet to translate its optical expertise into large numbers of start-ups. However, U2T has added two optical subsystem start-ups, CoreOptics and MergeOptics. CoreOptics has yet to detail its work, but is believed to be developing high-speed electronics for 40 Gbit/s systems, which it will then integrate with third-party optical components to create subsystems.

Switzerland has done relatively better, considering its size. Its successes include Optospeed, which is producing SOAs; Avalon Photonics, a spin-off of CSEM (the Swiss Centre for Electronics and Microtechnology), which produces VCSELs; and more recently Gigatera, which is in "stealth mode", according to Rubenstein, and has yet to detail its strategy.In Europe, Switzerland is second only to Scotland in its optoelectronics activity per capita. Moreover, it has expertise in manufacturing microdevices through CSEM. Its specialist firms include Sysmelec, which is turning its attention to optical-component making, and Microcut, which has highly accurate drills for fibre alignment.

Other countries are also trying to push their R&D expertise. Earlier this year Delft University of Technology, the Netherlands, spun out ThreeFive Photonics to commercialize indium phosphide-based components. Ionas - a spin-off of the NKT Research Centre in Denmark - has set up Koheras to produce fibre lasers based on Bragg gratings.

All of which goes to show that Europe looks as though it now has the will to transfer its technological treasures out of the laboratory and into the market-place. Visit RHK