At the Town Hall Meeting (THM) on 2016-05-17 in Toronto, POET Technologies presented its corporate strategy, after having acquired DenseLight Semiconductors and BB Photonics.
Executing Co-Chairman Ajit Manocha, good-humored as always, looked back at the last twelve months and gave an outlook for the next twelve: The past year brought significant personnel changes in the company’s management: Dr. Suresh Venkatesan has been appointed Chief Executive Officer (CEO ), there are new people in the management team and new people in the Board of Directors.
Confident: Ajit Manocha
The new team expanded the corporate strategy: away from purely licensing the POET technology towards a hybrid model with revenues from both licensing and sales of proprietary products. The acquisitions of DenseLight and BB Photonics are essential steps to implement this strategy, Manocha said. CEO Venkatesan detailed this later.
At the moment POET Technologies is working on integrating the acquired companies. Not an easy task, Manocha knows. But he is confident that POET will get this done. He referred to 20 acquisitions he carried out in „previous lives“ and emphasized that he’d be totally focused to support Suresh and the team.
Anyone hoping for detailed figures of the planned business, however, got sobered. Manocha and Venkatesan did not present a business plan yet. A quite intentional omission: The business plan should not be something that was pulled from the sky, Manocha explained, but rather be aligned with customers‘ needs. To learn about these needs and to present POET Technologies and the upcoming POET products, Venkatesan will visit customers over the next three months or so. With DenseLight, POET Technologies has gotten access to an existing customer base. These customers‘ needs are to be factored into the business plan.
Early in the fourth quarter of this year POET is going to provide a first Guidance, i.e. a company statement regarding expected results. But even without a business plan and without guidance Manocha and Venkatesan are convinced to achieve a positive EBITDA, i.e. to make a profit in business operations, in the second half of 2018.
How can you make such a statement without having a detailed business plan? I think either you have to be very naive or you can already estimate the orders of magnitude of where the business is moving, even without knowing the details yet. Well, Manocha and Venkatesan are no inexperienced newcomers. They have decades of industry experience. They are not naive for sure.
Ajit Manocha knows that he is testing shareholders‘ patience for some more months. But he promises: „We know that this has been a long journey and we will make the journey worthwhile. We know that. We will do it.“
Jerry Rodrigues: Combination of companies allows for a quantum leap
Former DenseLight Semiconductors CEO Jerry Rodrigues represented one of the acquired companies at the THM in Toronto. In a short speech he looked forward to „exciting times“.
DenseLight is, simply put, a provider of photonic light sources, Rodrigues said. Now the POET technology offers the opportunity to combine photonic DenseLight products with electronics. „And that’s where we are. So we’ve been delving in this for 15 years waiting for this moment to arrive. And I think we’ve now got the right partnership to take this thing out.“ DenseLight brings best in class technologies and a huge talent pool into the partnership. The combined resources of the two companies would give them a quantum leap, Rodrigues said, to support Ajit Manocha and his vision.
With these words Rodrigues leads over to the person who did a tremendous examination on DenseLight to make sure that what they purchased is there: „rock star“ (Rodrigues) Suresh Venkatesan.
Suresh Venkatesan: growth through integrated photonics
In a one-hour talk Venkatesan presented his corporate vision. „Integrated Photonics – The Next Wave in Photonics Growth“ is his subject. Venkatesan wants to develop POET Technologies into a „one stop shop“ in the field of integrated photonics, a full-service provider with a comprehensive product range in a fast-growing market. In this effort, DenseLight Semiconductors and BB Photonics, the acquired companies, will play a strategic role.
Photonics
So what is photonics? According to Wikipedia, it is is the „science of light (photon) generation, detection, and manipulation through emission, transmission, modulation, signal processing, switching, amplification, and detection/sensing.“
Data transmission
The most important part of photonics today is data transfer. Around the turn of the millennium, the Internet became accepted, and more powerful network infrastructures were needed. They triggered the first wave of photonics. Fiber optic cables for data transport over medium and long distances were deployed on a large scale.
Now we are in the second wave of photonics, Suresh Venkatesan explains. It is bigger and more sustainable than the first wave, because it is driven primarily by the needs of consumers and corporate users. 2015 saw more than 1.6 billion smartphones worldwide. 1.8 billion photos are uploaded every day, and, according to a Cisco estimate, in 2018 we will stream one million video minutes per second through the Internet. More and more companies are storing their data „in the cloud“, i.e. on the computers of cloud providers. These gargantuan amounts of data are driving the demand for ever higher throughputs in data centers and for additional data centers.
Cost is top priority for data center operators. POET Technologies intends to unfold a huge operating cost reduction potential with its active optical cables (AOC). Short and very short distances are still in the domain of copper cables today and they are relatively energy hungry. Optical cables are carrying data in the form of light signals. However, while consuming much less power, they are simply too expensive – or the optical cables of today are. POET’s optical cable, however, will cost not much more than a copper cable and still provides the user with all the benefits of optical cables. „What you have to sell is what the market needs“, Venkatesan quotes a typical statement from the business. And although POET cables will be much cheaper in sales than other optical cables, they are promising a high return on sales because of their low manufacturing costs.
Photonic sensing
Photonic sensing is another field of photonics. It is dealing with turning optical information into electrically evaluable signals, using a variety of photodetectors. Applications are extremely varied.
On page 25 of his presentation Venkatesan identified the following subdomains and identifies some applications:
- Test and measurement, with a market volume of 10 billion US Dollar (USD)
- Monitoring the structural health of components (6 billion USD)
- Guidance and navigation (4.5 billion USD), for example for self-driving cars
- Healthcare (2.5 billion USD), e.g. blood glucose monitoring or ophthalmological examinations
Venkatesan mentions a POET customer in Canada as concrete example, who monitors the structural integrity of his oil and gas pipelines using DenseLight articles. Another example is a large wind power company in Germany that wants to measure the structural health and stress of turbine arms using photonic sensors.
The applications of optical sensors seem to be very manifold and are probably just beginning to be explored. Following the official event, Jerry Rodrigues showed me some of the exhibited DenseLight products and explained that by means of photonic sensors a wind turbine could detect changes of wind velocity and direction at a distance of several kilometers ahead, so that the system could adjust to changing conditions in time.
Increasingly, there are optical sensors not only in such special equipment, but also in mass products like smartphones or cameras. I believe that for these devices many new ideas for future applications will emerge, opening a big growth market.
Everyone who wants to photonically detect something, also need suitable illumination, depending on the particular application. With the DenseLight products, POET is offering various types of special light sources based on the semiconductor material indium phosphide (InP), in particular superluminescent diodes and various types of lasers. In my opinion combining these light sources with the POET photodetector could be exciting. POET wants to bring the detector to market by the end of the year. Its responsiveness is about 2,000 percent higher than other commercially available products.
Augmented Reality / Virtual Reality
What is Augmented Reality (AR)? Venkatesan explains it using Iron Man as an example: The movie hero sees in his helmet not only the real environment, but additional information, too. To support such an application, the display must provide a particularly high contrast, so that you can properly see the real environment plus supplementary information both in the dark as well as in bright sunlight. If this works in augmented reality, it will also work in virtual reality (VR), which is constrained to just displayed images and information, compared to AR. Market analysts are forecasting gigantic growth rates for AR/VR and the next years.
In this context, POET Technologies has recently launched a development project with the Institute of Materials Research and Engineering (IMRE) in Singapore. Researchers are investigating the options to use the POET VCSEL – a small laser – as a smart pixel, with many of them being assembled to make up a microdisplay.
Integration
For Suresh Venkatesan integration is key to cost reductions, which in turn enables a broad adoption of the cost-saving technology . In electronics, only the integration of transistors into integrated circuits enabled affordable computers for everyone, to be found everywhere as PCs, laptops, tablets and smartphones. In addition to lower costs, integrating opens new perspectives on size, weight, power consumption and performance.
Integration reduces costs
The POET technology enables the monolithic integration of electronics and optics on a single chip based on the semiconductor material gallium arsenide (GaAs). No one else can do this. The crucial difference to competitors‘ products: POET also integrates the laser light sources monolithically while competitors‘ solutions always require external lasers.
Integrated photonics solutions, such as the VCSEL transceiver which is needed for the active optical cable, are reducing costs in several respects:
- Where competitors typically need four chips, POET needs only a single one. POET is saving space, too: Four chips take up 25 mm², the POET chip less than 5 mm².
- But the real cost driver in photonics solutions is packaging, says Venkatesan. Multiple chips not only cost more money, they also must be connected to each other individually – a laborious process driving up the costs. On top of that comes the cost for testing. Since the POET solution integrates everything monolithically into a single chip, the step of wiring together multiple chips is completely eliminated. Testing effort is reduced considerably.
POET technology brings dramatic cost savings
POET Technologies has calculated the manufacturing costs of various POET components and compared them to how much competitive products would cost. As shown on page 17 of Venkatesan’s presentation, even in the worst case POET needs only half of the costs a competitive product would require. In the best case, the single detector, the difference is even 33 times. In other words, for manufacturing this particular component POET needs only three percent of what the competition would have to spend – not to mention the fact that the POET detector outperforms everything else available in the market today by far. So the cost advantages of the POET technology are not only five or ten percent or so, but they are rather in the range of 100 to 1,000 percent.
Acquisitions integrating experts and procedures
DenseLight and BB Photonics are advancing photonic integration, too, Venkatesan points out without going into details. At any rate, in his opinion the acquisitions are offering mutual complements, although DenseLight and BB Photonics are primarily working with indium phosphide.
The acquisitions are also bringing together experts, processes and IP (intellectual property) from various photonic fields. Suresh Venkatesan believes that this is the foundation of innovation and the engine of steady growth. He is expecting innovative, integrated products that each company on their own would not have been able to develop, but only become possible through collaboration. Innovation happens when experts rub shoulders and gain insight into each other’s technologies, making eye-openers possible: „Ah! I can now do this and this with this.“
Venkatesan said he highly respects Yee-Loy Lam and Yuen-Chuen Chan, the scientific minds of DenseLight, and William Ring and Mirek Florjanczyk of BB Photonics. They are people who have been in the industry for a very long time and have been very successful at what they have done. However, for a creative and successful collaboration the chemistry must be right, too. Suresh Venkatesan and Ajit Manocha obviously believe this is the case. Venkatesan: „There is IP and know-how that comes from both DenseLight and BB Photonics that can enable us to leverage POET technology in ways that even I didn’t think it was possible.“
Silicon cannot lase
Of course photonic integration is not an invention of POET Technologies. Other companies are also on it, for example with the highly successful Silicon Photonics technology. However, Silicon Photonics is missing something important, which I mentioned already: the light source. Silicon, the foundation of Silicon Photonics, cannot lase, it cannot produce laser light.
That could be beneficial for POET Technologies in two respects, Venkatesan explains: „The good thing about Silicon Photonics and indium phosphide is every Silicon Photonics chip requires an indium phosphide laser. It puts us in a really good growth position even from that perspective, because we’re a laser provider. We can provide into the Silicon Photonics industry while, at the same time, making our own integrated chip to compete for those same pockets. It gives us kind of a foot in both camps, if you will, in terms of integration.“
The business model
POET Technologies wants to earn money by developing, producing and selling integrated optoelectronic products. The company focuses on large, commercial markets, first of all on data communications, telecommunications, sensing and displays.
According to Suresh Venkatesan, the Internet of Things (IoT) is a major driver. There have been 25 billion networked objects in 2015, he cited a Gardner study.
In IoT, three things do always come together: a sensor detecting some data, a processor processing these data, and data transmission, of course.
For markets that are non-consumer or non-commercial, POET’s strategy is to partner, license, or co-develop, but the company does not intend to manufacture a product. Currently they are in advanced negotiations with prospective customers from the aerospace and defense sectors, Venkatesan explained. He is expecting income from licensing the technology („NRE revenue“) within the next twelve months. Applications include infrared sensors and high power laser sources.
Acquisitions enable synergies
POET has several options for manufacturing. Thanks to the DenseLight takeover the company can produce in their own foundry in Singapore, or alternatively have contract manufacturers like Wavetek do the job. The latter is particularly advantageous for high-volume production, such as the VCSEL transceivers needed for the AOC. POET wants to expand its fab capacity and upgrade the indium phosphide and gallium arsenide production lines from two-inch wafers to three- or four-inch wafers. The upgrade should be implemented within the next twelve months, would cost about 1.6 million USD and would increase capacity by a factor of 2.5. POET also wants to increase the headcount. There is also the opportunity to get some government support in Singapore.
DenseLight’s distribution structures to accelerate market entry
The acquisition of DenseLight has turned POET Technologies into a company that not only manufactures semiconductor products, but also distributes and sells them to customers world-wide. According to POET’s press release dated 2016-04-28, revenues in 2015 stood at 2.6 million USD. Despite a gross margin of over 40 percent, this is not much, considering DenseLight has 35 staff. So revenue through the current DenseLight sales might be nice, but they are not the pivotal catalyst bringing POET Technologies forward .
Much more exciting, however, is the distribution network DenseLight in bringing into the new POET Technologies. DenseLight distributors already have their products for sale, a fact that is of great importance for the distribution of new POET products. As a manufacturer, you could easily go to your customer or distributor and introduce them to products you have just recently added to your portfolio: „Oh, by the way, we’ve got two new products: an infrared detector with an almost unbelievable responsivity and an active optical cable for short distances at an unbeatable price.“ Chances are that the customer or distributor who is acquainted with the manufacturer will examine the product and use it or sell it to their customers.
A newcomer on the market, however, as POET would be without DenseLight, would face difficult times: no existing customers, no distribution network, no awareness. It would not be easy to find customers, even if you had a revolutionary product with incredibly good properties. Or a fortiori: „This is too good to be true, so it’s probably not true.“ Of course, a company could build up its sales structures. But even if money was not an issue, it would cost a lot of time. Suresh Venkatesan estimates that the DenseLight takeover has saved 18 months in this regard.
Product development is getting cheaper
Since POET – thanks to DenseLight – has a foundry of their own now, product development will become cheaper. Now it is no longer necessary to outsource all the development work to external partners, a lot of steps can be done in-house instead. Paths are shorter, coordination is faster, and equipment and staff in the foundry are utilized better.
However, the foundry not only provides production capacity in a low-cost region of the world, it also provides equipment and personnel for product development, characterization, test and so on. Everything is within short reach and – very import – research results and trade secrets remain in-house.
Different products are complementary
The POET technology based on gallium arsenide and DenseLight focusing on indium phosphide don’t really fit at first glance. But Venkatesan sees a potential for mutual supplement. He explained that gallium arsenide is limited to wavelengths of up to about 980 nanometers (nm) and it is suitable for data communication over short distances. In wide area networks, however, indium phosphide lasers with their longer wavelengths are used.
Together with its acquisitions POET Technologies can offer GaAs-based products for distances of 0 – 100 m as well as InP-based products for distances of 100 m and above. With articles for all ranges the company can serve the full spectrum and wants to become a supplier for the entire communications market.
BB Photonics provides frequency stability
But Venkatesan not only wants to place GaAs and InP products side by side in the shop window. As mentioned above, he expects the merger of POET and DenseLight to develop novel integrated photonics solutions.
Here BB Photonics has something to bring in. The startup company with just five employees has developed a method to ensure frequency stability of indium phosphide lasers. Typically the wavelength of the light generated by a semiconductor laser fluctuates with the temperature. This is an undesirable behavior, and the reason that most lasers need cooling. In order to deliver a stable wavelength, a stable temperature has to be maintained. However, BB Photonics‘ method compensates for changes in the laser light’s wavelength and keeps the frequency stable – independent of temperature. This makes cooling the laser unnecessary and allows a cheaper product without sacrificing quality.
BB Photonics lacked an InP production facility and so far did not have the opportunity to bring their method into a product. DenseLight on the other hand, has an InP manufacturing as well as InP lasers that would benefit immediately from the BB Photonics method. Fits!
Gratitudes to Peter Copetti
After the presentation, Suresh Venkatesan and Ajit Manocha answered a number of questions from the audience. After that, Ajit Manocha asked Peter Copetti to come forward. He thanked the former CEO sincerely for the „wonderful job“ he had done. Copetti had a great vision, Manocha said, and had him inspired in their very first phone call. Without Copetti, nobody would be here, he said.
Review and outlook
During the years that I have observed POET Technologies as a shareholder and as a blogger, the company has gone through a series of metamorphoses.
- In 2012 the solar business of the former OPEL Technologies goes down the dump. Peter Copetti comes on board and steers a restructuring with the aim to get rid of the ailing solar business, to freshly recapitalize the company, and to focus exclusively on the POET technology, as a pure research and development company.
- In 2013 the company makes a new start under the name POET Technologies. At that time the idea of the business model is still to complete developing the POET technology and then sell everything at a good price to a prospective buyer.
- In 2014 Peter Copetti becomes interim CEO. Now he sees POET Technologies as an independent, stand-alone company that is not for sale, but is earning money by licensing its IP. The focus is on developing high-performance, low-cost electronic components, with the integration of optical components to follow later. Copetti brings Ajit Manocha on board, the former CEO of semiconductor manufacturer GlobalFoundries.
- In 2015 Suresh Venkatesan, former head of research and development at GlobalFoundries, becomes CEO. He recognizes the fast-growing photonics market and sets new priorities. Now the focus is on optical components, while electronics is in second place. Venkatesan does not only want to grant licenses, first of all he wants the company to make money by selling its proprietary products.
In 2016 it is becoming apparent that POET Technologies is going to be a „real“ company, last but not least through the acquisitions. From development to supply chain, from service providers and production to sales, everything is now in place. With its photodetector and VCSEL transceiver the first two POET products are in development. There are no substancial problems. What is still ongoing now are optimizations and diligent but routine work. Something that also remains to be completed is the integration of the companies under the hood of POET Technologies. And there is the preparation of the market which will likely take place initially by addressing DenseLight customers. Renowned scientists, expertise in different semiconductor materials and an existing infrastructure are building the foundation for future innovation and growth.
In my opinion everything is looking very, very consistent and solid. However, due to the lack of guidance and „real“ revenue I am expecting analysts to remain reluctant or absent for the time being. As far as I can tell, there have been almost none at the THM.
Share price, Nasdaq and Co.
Already during the Town Hall Meeting the share price went southward significantly and was unable recover on the following days. Possible reasons have been discussed in the forums. Many individuals pointed out that in the conference call in February the company talked about first NRE revenue this year. Now, however, they say „in the next twelve months“, so people saw a delay. Many also criticized the statement regarding a positive EBITDA in 2018.
However, I suspect that people had set exaggerated expectations in the Town Hall Meeting, speculated on a partnership announcement with Apple, Facebook, Google, or the like, and had driven the share price up into the air. Now that those expectations had not come true, they sold the stock, and the share price went back to its previous levels. It will probably remain there until POET Technologies generates first revenue – from its own, proprietary products, not from DenseLight sales. But I could also imagine a moderate and gradual rise within the near future, provided the market begins to better understand POET Technologies and the company’s strategy. On the other hand, Geoff Taylor and Peter Copetti, who left the company by then end of April, now have got a period of one year to exercise their options. All in all there are about 3.7 million options, and this overhang will depress the share price while these two ex-employees will likely have to sell POET shares to get cash on hand to exercise their options.
The POET management, however, does not care much, if at all, about things like share price, listing on the Nasdaq or on other exchanges, at least for now. „There is a time for everything“, Ajit Manocha cited the Bible as he answered a shareholder’s question. Management is busy with building the company, implementing its strategy, accelerating product development and thereby creating shareholder value. For the next 100 days it is „execute, execute, execute“, Manocha says. So there’s really no time remaining to even think about moving to the Nasdaq and such.
I like this stance, because it shows that nobody at POET Technologies is set to pump a worthless stock and make a quick bargain. No, this is real substance. Shareholder value is created here. The share price will reflect this sooner or later without any artificial support. The sellers of DenseLight and BB Photonics will apparently agree, since they accepted the purchase price for their companies in the currency of POET shares instead of cash. Obviously they are seeing a potential in this company the market does not yet recognize. And as far as they are POET Technologies employees now, they are undoubtedly committed to the success of the company, since they are literally participating with their own „share(s)“ in it.
Shareholders will appreciate that the subject of a reverse split is not on the agenda of the annual general meeting (AGM) on 2016-07-07. Unlike in the previous two years, the company will no longer ask shareholders to authorize the board to execute a reverse stock split, if they see fit. In 2014 the announcement of this agenda item alone, caused hefty psychologically turbulence and pressure on the share price – without any reverse split actually being executed at all. But will abandoning this topic really help the price to bounce back? I have my doubts.
At the AGM, POET Technologies wants to hold another event similar to the Toronto one to inform shareholders about current developments, .
The technology
In his presentation at the Town Hall Meeting Suresh Venkatesan also gave an overview of the current state of product development of POET Technologies. I will discuss this and other technical issues in another article.
Cover: Six-inch POET wafer manufactured by Wavetek (detail). All photos: Rainer Klute, CC-BY 3.0
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