Startups rebuild amid telecom’s rubble

July 20, 2005 — In 2001, NanoOpto Corp. burst onto the scene with $16 million in venture capital and a plan to sell its nanofabricated optical components to the telecommunications sector.

It seemed like a good idea at the time.

“Looking at the marketplace logically, folks said, ‘Which market has the greatest appreciation for integrated optics?'” said Hubert Kostal, NanoOpto’s marketing chief. “And that was telecom.”

That was then. This is now, and today NanoOpto is among the survivors that maneuvered out of telecom when the industry collapsed in 2002. For nearly three years, MEMS and nanotech startups that originally eyed the market cocooned themselves as they overhauled products and business plans. This may be the year they re-emerge.

Translume Inc., in Ann Arbor, Mich., hopes to start production on glass microfluidic sensors later this year. The company’s original goal was to fabricate optical components for telecom equipment makers. Translume was honing its technology in 2002, and “long before we solved our problems, the market just disappeared,” said Philippe Bado, president of Translume. (Ardesta LLC is an investor in Translume and Small Times Media.)

Indeed, MEMS and telecom were star-crossed lovers. Most MEMS technology was hatched in the late 1990s, at the height of the venture-capital boom. “There was a huge number of switch companies using the MEMS technique” in 2000 and 2001, said Tom Hausken, a MEMS analyst with Strategies Unlimited in California.

But as businesses prepared to ship product in the early 2000s, telecom carriers realized they had a glut of capacity and stopped capital spending. “Most of them just died a painful death,” Hausken said.

Marlene Bourne, formerly senior analyst for In-Stat/MDR, told Small Times in 2003 that only 24 of the approximately 60 MEMS telecom companies she had identified during the boom survived into 2003. Bourne is now a principal analyst at EmTech Research, a division of Small Times Media.

The key to survival for the likes of NanoOpto, Translume and others has been not patience, but re-invention. Capital spending in the telecom industry is unlikely to return to 2000 levels soon, but the technology underlying optical MEMS components is versatile. With re-organization and support from investors, a startup born into telecom could find a second life in consumer electronics, homeland security or even life sciences.

“It wasn’t difficult to decide to look elsewhere,” said Eric Schmidt, marketing director at Ahura Corp. in Wilmington, Mass. “It was difficult, like it is with any company, to decide where to settle once you decide to go elsewhere.”

Ahura’s founders, all MEMS scientists, raised $12 million in financing for components for long-distance networks. By late 2002, Ahura knew it had to abandon telecom. It re-engineered its laser technology into a self-contained chemical-analysis tool for homeland security (and dropped all use of MEMS), which Ahura unveiled in April.

“We were very lucky,” Schmidt said. “The telecom market was looking stormy from the start of Ahura, so our investors could already see trouble on the horizon. They were more receptive to looking beyond telecom.”

NanoOpto decided to reverse course in late 2002, and by 2003 had taken aim at digital imaging for cell phones, security systems and other flat-panel displays.

The company maintained its technology of fabricating components in bulk on a wafer and dicing them into separate units with nanoscale features, Kostal says, but engineers had to adapt to using new materials and the sales force had to introduce itself to a new customer base.

Telecom remains a gamble for MEMS and nanotech, according to Hausken. The VC glut flooded the market with “a lot of great technology that nobody got a return on” and left many industry players burned, he noted.

But there are optimists, too. Simpler Networks, a startup near Montreal, expects to deliver its first MEMS-based relays to telecom carriers this summer. The company has been developing its product since 2001. Chief technology officer Stephane Menard admits that Simpler slowed the pace of its business because of the collapse, but says that gave his team time to configure relays for large (and lucrative) incumbent carriers.

Simpler also had to tell customers its products automated a pre-existing mechanical process, a function entirely different from the optical MEMS components that flopped four years ago.

“Obviously everyone was a bit afraid of the MEMS,” said Menard.

In March NanoOpto unveiled a new line of isolators. They could lead to a new generation of smaller, more efficient transceivers — a product that could be useful in telecommunications.


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