March 14, 2003 — You can’t say enough bad things about telecom these days. Yesteryear’s highfliers have slammed back down to earth. Component providers have scaled back and cut their losses, if they even managed to survive. Carriers are clutching their purse strings like octogenarian widows on a midnight Manhattan subway.
And yet, some in the industry say, a world of insatiable bandwidth demand and multimedia-rich interactive everything is still ahead. “That future we talked about is still coming,” independent telecom industry analyst Jeff Kagan said in an e-mail interview, “just at a more modest pace.”
That could mean renewed opportunity for component providers, and LNL Technologies Inc. wants to be prepared for it. The Cambridge, Mass., startup announced a whopping $7.1 million in total angel financing earlier this year and boasts a syndicate of backers that includes Adam Chowaniec, chairman and founder of Tundra Semiconductor; Larry Mohr, founder of Mohr, Davidow Ventures; Sandy Robertson, founder of Robertson Stephens Inc.; Tim Costello, chief executive of Builder Homesite and formerly vice president of global operations at Applied Materials Inc.; as well as members of its management.
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That’s no ordinary angel round.
The company is developing photonic integrated circuits, which are micron-scale optical components such as filters and switches integrated on a chip. The company says its integrated components could dramatically lower the cost of telecom’s next generation of products while simultaneously improving performance. The goal is to do for telecom what semiconductors did for computers when they shrank rooms full of components connected by patchworks of cables into tiny chips that fit in your palm.
LNL says its approach would provide greater chip density than current technologies, allow higher yields and lower packaging costs. Its patent portfolio includes technologies originally developed at Massachusetts Institute of Technology’s Microphotonics Center and at Canada’s National Research Council. The company recently demonstrated a prototype that it says is manufacturable and integrates 10,000 photonic functions on a chip measuring one square centimeter.
However, said investor Costello, the technology alone is not what sold him on the company. “They’re selling to one of the worst markets … [a] field crowded with train wrecks already.” So why invest? He said LNL’s IP portfolio and its managements’ prudent approach to cash burn as well as its conservative business plan sold him on the company.
He and other investors predict that in a few years telecom could be ripe for microphotonics. “The power of this technology, long term, is that you can integrate different components together on the same silicon substrate,” Chowaniec said. “What these technologies do is going to be dramatic in bringing down cost in the optical sector.”
Chowaniec believes telecom is already in recovery, although he thinks the upward trend is still slight. “It’s been a long time since that’s happened, especially if you’re a component company selling to the big OEMs. They haven’t been interested in anything new for a couple of years.” He said he expects it will require two to four years for LNL’s technology to get to a manufacturable stage, but a transition to microphotonics is inevitable. “The costs have to come down,” he said. “That means a switch in technologies. You can’t keep hand-assembling stuff, no matter whether you do it in China or what.”
Kagan, bullish on telecom but admittedly not an expert on components, put it this way: “A rising tide lifts all ships … the photonics sector and companies will thrive once again.”
LNL is not alone in its anticipation. Infinera Corp. of Sunnyvale, Calif., has raised $116 million in financing, including $20 million in the third quarter of 2002, and is developing similar technology. Intel Corp. has announced similar research efforts into what it calls silicon photonics. Plenty of others are developing various pieces of the puzzle, such as waveguides, that aren’t integrated with other components.
And then there are the train wrecks, such as the late Nanovation Technologies Inc. of Northville Township, Mich. Before Nanovation shut down in 2002, the company had been integrating waveguides and MEMS to make optical switches. To do so, it had licensed technology originally developed at MIT’s Microphotonics Center by Lionel Kimerling.
However, with LNL, this particular train is at least partly back on track. Rights to those technologies are now at Kimerling’s “accidental” namesake, LNL (Lionel), of which he is a founder, board member and scientific adviser. The company is named after founders Kevin Lee, Mark Noorzai and Desmond Lim.