By Jeff Karoub
Small Times Staff Writer

Jan. 8, 2002 — When the fourth quarter of 2001 began, it was seen as a critical time for MEMS development in optical switching.

Marlene Bourne had hoped to spend the end of the year tallying companies that released new products. But the MEMS analyst for Cahners In-Stat Group was forced to make a couple of new lists: those who delayed and those who dropped out of the game altogether.

Recently joining the latter category was InLight Communications Inc., which shut down


in late November after failing to raise enough money to get its product to market. The end came despite a year that started with great promise: The maker of optical MEMS subsystems secured $11.5 million in venture capital.

Bourne said InLight was one of many firms that hoped to launch a product late last year or early this year. Now she wonders how many more could be close to closing.

“It’s just another signal that maybe it’s beginning,” she said. “One company isn’t necessarily a trend, but it will be interesting to see what happens in the next couple of months.

“It’s hard to see them go. I’m gung-ho for the technology — I want to see it do well. But you have to be realistic. … (The industry) is going to be very much smaller.”

InLight’s woes, though obviously more severe than the survivors’, underscore two problems within the industry: skittish buyers and investors.

Of course, customers are going to be cautious in a sluggish economy. So being able to ride it out means needing more cash on hand, which is where the next challenge comes in.

“These days, compared with 18 months ago, the (venture capitalists) do due diligence at a much greater degree,” said Lawrence Gasman, president of Communications Industry Researchers.

“What we learned in the fourth quarter is that we’re going to have to wait a while before the MEMS revolution in switching happens. … Companies that don’t have enough funding are going to have to find funding to get them through another year.

“A few aren’t going to get that funding and are going to fade away.”

Another of those to fail was Nanovation Technologies Inc., which went out of business in November after trying to reorganize under Chapter 11 bankruptcy protection. The company said it had potential investors, but no firm deals could be reached by the court-imposed deadline.

Still, not all news in 2001’s final months was bad.

Bourne said that three companies moved into full-fledged production on MEMS-based devices for the telecom industry:

  • Movaz Networks launched its RAY line of optical networking equipment, which included an optical switch.
  • Network Photonics began volume production of its CrossWave switches at the end of the year.
  • DiCon Fiberoptics Inc.’s dynamic band equalizer became commercially available in December.

While still shy of launch products, several other small tech telecom companies moved ahead at the end of 2001.

Some announced partnerships with other firms to speed development, others announced successful demonstrations of prototypes and a few even snagged some venture capital. The last group included NanoOpto Corp., a Princeton University spinout and optical communications parts maker that uses nanoscale engineering technology. NanoOpto closed a $16 million round in December.

Gasman said it’s clear the demand for optical MEMS is far more modest than originally thought.

“Even if you’re the leading company in the MEMS switching subsystem business, you need to see immediate prospects as exciting but limited,” he said.

“There’s a nice little business there for maybe two companies. It’s not the rediscovery of the microprocessor.”

For her part, Bourne does not expect a recovery in telecom this quarter, as had been expected last year. That delay also dashes earlier hopes that most companies would be gearing up to sell just as the market rebounded.

“It was going to be good timing,” she said. “A company doesn’t slow down or speed up development. A development process goes as fast as it can.”

But the delayed comeback bodes well for firms like Transparent Networks, which started in August 2000 and expects to launch full-scale production of its optical MEMS switching system by the end of this year.

“The timing seems to be working in our favor,” said Janusz Bryzek, Transparent’s president, chief executive and co-founder.

“It looks like current capacity in optical networking will be sufficient through the third quarter of 2002. Because we’re a relatively young startup, we have time to bring this product to market timed to market need.”

Bryzek touted the mirror array system as the largest mixed signal integrated circuit in the world, with several million transistors on a single chip with MEMS devices.

“The fourth quarter was extremely good for us — we managed to get the technology out of the lab,” he said.

Gasman said Transparent’s approach is that kind that will be necessary to survive in the months ahead.

“When they (started), they said they were planning for shipments two years from now and not, ‘Hey, we’re going to see 20,000 of these things next month,’ ” he said.

Time was, a MEMS concern could get noticed — and probably bankrolled — by merely claiming to have built a better mousetrap. Gasman said in today’s climate, economics and a sound business plan now must take precedence.

“These days when somebody calls me up and says they have the biggest, fastest, cheapest thing in the world, it doesn’t convince me of very much, except they’re thinking of the wrong things,” he said.


Jeff Karoub [email protected] or call 734-528-6291.


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