On 2016-05-17 POET Technologies held a „Town Hall Meeting“ in Toronto, Canada. After having acquired DenseLight Semiconductors and BB Photonics, the company wanted to explain how the acquisitions fitted into the company’s strategy and into the POET roadmap.
This is the transcript of the Town Hall Meeting. It has been established by a community initiative of passionate POET Technologies shareholders based on the video recording of the event. There’s some more material available, including the presentation slides.
Zusammenfassung auf Deutsch: Am 2016-05-17 führte POET Technologies in Toronto, Kanada, ein „Town Hall Meeting“ durch. Nach der Übernahme von DenseLight Semiconductors und BB Photonics wollte das Unternehmen erläutern, wie diese Akquisitionen in Strategie und Roadmap passen.
Dies ist die Abschrift des Town Hall Meetings. Es wurde durch eine Gemeinschaftsinitiative begeisterter POET-Technologies-Aktionäre erstellt und beruht auf der Videoaufzeichnung der Veranstaltung. Weiteres Material ist verfügbar, auch die Präsentationsfolien.
The numbers at the start of each paragraph denote the position in the video, i.e. minutes:seconds.
Integrated Photonics – The Next Wave in Photonics Growth
00:00:06 – Kevin Barnes: Good morning everyone. Thank you for coming out. Like to say thank you to all the shareholders. We have about 140 people here so that’s a good turnout, plus another 160 people online, so it is a great turnout we thank all of you. Just want to introduce myself, my name is Kevin Barnes, I’m the CFO of the company and want to take this time to introduce you to members of the company board here with us today. We have some board members, we have John O’Donnell who is the chairman of our governance committee and our secretary. We have also Chris Tsiofas with us who is the chairman of our audit committee. And of course we have Ajit Manocha, our Executive Co-Chair, who’s present with us today, and of course our famous Dr. Suresh Venkatesan, our CEO.
00:01:00 – So, before we start, as always, one thing we want to do is just go through our Safe Harbour, just to make sure everyone is aware that we’re making comments here that legally we have to make a statement that this material will provide … [goes on to read disclaimer slide #2 „Safe Harbour“ of the presentation verbatim, which can be found here].
00:02:18 – So now that we’ve gotten that out of the way, we’re going to invite up Ajit Manocha to make a statement.
00:02:26 – Ajit Manocha: Thank you, Kevin. Good morning.
00:02:38 – Ajit Manocha: Thank you for coming here today and thank you for all of those who are on the phone lines. We are really delighted to have you here. First of all thanks to you for your continued support and thanks for your patience and belief in this company. So! We know that this has been a long journey and we will make the journey worthwhile. We know that. We will do it. Today we will talk about 12 and 12: the last 12 months and the next 12 months. Today we are gathered together to also share our excitement of the recently acquired not one company, but two companies and a … [applause] … and that’s what we’re telling, the next 12 months, how this will all add up for all of us, for our shareholders.
00:03:33 – But going back the last 12 months, so we brought a rock star, our CEO [applause]. We brought a lot of strong people on our team, and also we brought several new members of the board from Silicon Valley. And the most important thing for all these people, they all have a proven track record, a proven track record of running small companies, large companies from startup to IPOs. You look at the background, exciting background!
00:04:13 – And the other important thing is that these people, all the board members, are actively involved with the CEO, with the management team to steer in the right way. So that’s really a luxury that we have and we are going to enjoy that luxury to make sure that this company is on the right path.
00:04:33 – So in the last 12 months we brought the CEO, we brought the team, we brought new board members. And we’ve been keeping regular updates on webcast. We will continue to do these periodic updates. And this is of course the first live presentation that we are doing here today, and we will have another live presentation coming up during the AGM at least in person in San Jose. We have provided all the information as it has appeared.
00:05:08 – Also the most important thing is that now we have a strategy, a strategy of how to shape this company from pure licensing into a hybrid model of licensing and parts. And we talked about our plan for lab to fab to monetisation, and we are accelerating that plan by acquiring DenseLight. We have made ourselves enriched with IP [Intellectual Property] by acquiring DenseLight and BB Photonics as of this morning.
00:05:40 – So we have a plan, we have a strategy, we know which way we need to go. Now that has happened. And the next 12 months I told you about, how we will take these companies and integrate them. So the most important challenge for us for the next 90 days or 100 days plan, is to integrate these three companies together. And that’s really the most important task, because you have probably read in many business books that 90 percent of the M&As are not very effective or very successful. We don’t want to be part of those 90 percent. We want to be part of the 10 percent. And I normally don’t want to brag about myself, but I would say that I have done more than 20 M&As myself in my previous lives, and I’m really totally focused to support Suresh and the team. But not only me! There are half a dozen board members involved in some form of steering the ten worst themes of integration. So we want to make sure that integration is done in a perfect way so that we can benefit and leverage all the IP of the products that we are putting into the market.
00:06:47 – So, integration plan, that’s one thing. Secondly, what we hear all the time, people talk about business plan: „What’s the business plan?“ In my opinion people make a business plan and then say „let’s go and work on that.“ I think with our background where Suresh and I worked together in a previous life also, we started with a customer plan. Suresh is visiting customer by customer in the next 90 days or 100 days, getting input from customers and pull the business plan based on the customer’s plans, customers‘ input. It’s not something that you can pull from the sky and say „this is what I’m going to do, guys.“ I tell you, in the next 90 days, say „Oops, sorry, I missed.“ So I won’t give you the financial guidance until we have the customers plan integrated with our business plan. Right?
00:07:31 – Now, before I give the floor to Suresh, I want to introduce one more person here. Another important person of the family: Jerry Rodrigues, please stand up. Jerry was the CEO of DenseLight. [Applause]
00:07:51 – Jerry Rodrigues: Thank you, Ajit! Good to see you, great introductions. Good morning everyone! I must say it’s really a pleasure to be here. Delighted to be here, well, for many reasons. One, for the great city that you have in Toronto. It’s the first time in twenty years and, boy, there’s been a lot of changes, all for the better. Secondly, for this overwhelming presence today. 150 people here, and those online. That’s tremendous! I was told there was only going to be 10 people.
00:08:30 – Alright, so let me get on with this. In the first place I’m also delighted to be part of what I shall call the new, enlarged, POET. And I think with it comes a lot of exciting times. DenseLight as a company designs, makes, and sells photonic light sources. In a simple manner it’s a light source. But there are many complexities to it. What photonics does, basically, is to complement 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.
00:09:15 – Now what the company brings is what I call best in class technologies, a huge talent pool from the far east in Singapore, well protected, of course, because government regulations are very similar to those in North America. So our technologies will be pretty well kept. But I think more so than all of this it is the combined resources of the two companies that I think will give us a quantum leap in where we want to be to support Ajit and his vision.
00:09:51 – Now, rather than take this thing any further, I’m going to introduce you to a person that over time, because this has been a tremendous examination. They’ve gone through great ends to make sure that what they have purchased is there. That there are factories, systems that you have seen over here, and the samples at the back that you can look at. Those are samples where we have products, and that’s more important to everybody, and that with that, and we believe, I’ve come to respect and trust in the leadership of our CEO and superstar – rock star, right? I’ll hand you off to Suresh right now.
00:10:37 – Kevin Barnes: Just before Suresh starts his speech, everyone, we’re asking, please no photographs, because as Suresh is speaking it will be distracting, and in addition to that, your phones, please put them on silence so that we don’t have any disturbance. Just a brief reminder.
00:11:01 – Suresh Venkatesan: What a fantastic turnout! We started out with thinking we’d need a small venue, and then we changed it to a bigger one, and now I feel like we are going to need a bigger one still going forward, because, you know, from here it’s all up and to the right. So I think we’re really excited to be here. What I want to do today is kind of share the vision, the journey, what we’re going to do going forward and how some of these acquisitions kind of fit into our overall strategy of what we want to make with this company and what we want to do with shareholder valuations going forward.
00:11:38 – What do I want to talk about today? In the agenda, we’ll give a brief summary. Talk about POET Technologies and an update on where we are, what our outlook is, what the acquisitions are all about, what do they bring to the plate, why did we go into these acquisitions and how do we believe that it’s going to create shareholder value moving forward. Then we’ll conclude and there should be some time for questions and answers after that.
00:12:04 – Ajit, right at the beginning, he talked about integration, but he was talking about integration in the context of integrating the companies, which is really important, but you would note that the title of the topic was about integrated photonics.
00:12:20 – If you think about POET as a company, the vision we want to have for ourselves going forward is we’re an integrated photonics company. The POET technology enables integration of photonics and electronics. Every acquisition we’ve had – DenseLight, BB Photonics – they all bring IP that enables integration of photonics. This is not just spot purchases of companies or acquisitions of companies. It is towards integration and towards a strategy that enables integration of photonics. Go to the DenseLight web site, look at their technology, they talk about integrated photonic circuits. Same thing with BB Photonics: It talks about integration of a platform.
00:13:04 – And why is integration important? Ultimately, Photonics requires an integration play in order to drop the cost and enables a much broader adoption of that technology. And so that’s really what we’re about. If people ask you what is POET about, I think the answer is we’re an integrated photonics player. We want to be integrating photonics, integrating photonics and electronics and, of course, we’re going to be integrating the companies together so that we can execute towards our vision going forward.
00:13:42 – We are, from a POET perspective, continuing our path. We started in September when we announced what our strategy was relative to going from the lab, at the University of Connecticut, to migrating the technology to the foundry and then onward into monetization. With these acquisitions I would say we have accelerated the monetization aspect of the technology through the acquisitions, as we are now a revenue generating company and we have cash coming into the company, and that’s an acceleration in and by itself. We do have a diversified business plan that now supports this monetization strategy. It’s got a roadmap that’s around gallium arsenide technology, like what POET was originally construed to be, but we’ve now added and expanded our roadmap and portfolio to include indium phosphide based III-V materials and diversified, if you will, not only just our business plan relative to products and licensing, but also the breadth of the products and the markets that we can go after with these acquisitions.
00:14:47 – The DenseLight acquisition, which is now closed, the BB Photonics acquisition is ongoing – we just announced it today and we probably go to a closure over the next week – accelerated our product time to revenue by about 18 months. So we do expect NRE revenue in the company over the next year. The product revenue – we have it today. You can actually see products with the DenseLight brand at the back, and we have also a single six-inch wafer from Wavetek that is up there, which we’re in the lab testing and characterizing as we are moving forward.
00:15:29 – The acquisitions really broadened our IP base. We have a gallium arsenide technology-based portfolio of intellectual properties that fundamentally enables electronic and photonic integration. Gallium arsenide is a very pervasive material, but it is limited in terms of its wavelength capabilities to about 980 nanometers (nm), for those who talk wavelengths and photonics. Indium phosphide allows that expansion of wavelengths to very, very long wavelengths and hence very long distance communications. So it really helps broaden our portfolio in a very significant way.
00:16:10 – What is also more important, 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. When you get new people into the company, they look at the technology and say: „Ah! I can now do this and this with this.“ So we are looking at ways to even expand our portfolio on the POET side as a consequence of these acquisitions.
00:16:35 – The other important thing is, when you’re trying to sell products you need a distribution channel and you need a sales force. You need an infrastructure to test and characterize the liability, quality, DenseLight brings that to us. They have the infrastructure to be able to enable sales of real products. For those who are in the quality field, there is a certification called ISO9000, these are QMS certification models and standards. If you are ISO9000 certified you can actually sell into automotive, you can sell into industrial and other market segments that demand a greater degree of quality and a greater degree of rigour, as it relates to the products. So we’re really happy that when we acquired Denselight we also acquired with them the quality principals and quality management systems that go towards accessing the broader market for technologies. So that is what we’re really excited about. This is not an acquisition for the sake of acquisition. These are revenue growth opportunities for us and they’re extremely synergistic with the direction and strategy that we’ve set out for us.
00:17:56 – So, what’s our business? We will manufacture and sell integrated opto-electronic solutions. So that’s truly the play, whether it be integrated photonics solutions on indium phosphide or whether it be integrated opto-electronic solutions on gallium arsenide. You know, our play is that. And of course we will opportunistically license our technology in spaces that we don’t intend to go after, because they are not broad, big commercial consumer opportunities.
00:18:27 – What do we do? We outsource our manufacturing, we also inhouse manufacture a lot of our products and we will be doing in-house development as well as developing our technology with our foundry partners. We will be having a mix of both insourcing and outsourcing. We will sell components, all the way up to subassemblies. DenseLight today, for example, sells individual laser chips, but they also sell fully integrated light systems with all the control electronics and the thin print circuit boards and everything that goes with it. And we expect to do the same on the POET side. We will be selling components initially, like the detectors, for example, but then we’ll migrate to optical engines where we actually have the entire engine needed for sale.
00:19:12 – Our products will be short reach and long-reach transceiver products, basically components that go into short reach and long-reach communications.
00:19:21 – We also sell broadband super luminescent LEDs, which are basically one step below laser in that it puts out a lot of light like a laser does, but it has a broader bandwidth. It’s actually the quintessential device for anything sensing. So if you look at test and measurements, spectroscopy: various sensing markets, all require super luminescent LEDs, and that’s a big portion of our portfolio.
00:19:50 – The other thing we have is extremely narrow linewidth lasers, which is also very, very important for gas chromatography and other sensing equipment that require precision of your light sources.
00:20:03 – So our product applications like we talked about is data communications, whether it be short reach data communications for data center applications, or now with the acquisition of BB and DenseLight we can also talk about telecom, fiber to home, fiber to antenna. With upcoming 5G, right now we’re in this 4G, LTE space, the next standard in RF communication is 5G. With the transition to 5G, most of the backbone infrastructure has to convert for optics, which means from the antenna that receives the RF signals, signals have to propagate optically to the base station. And so that is driving a fair amount of growth right now in China, in Korea, and other places, is fiber to antenna. And now we have the ability to participate in these markets. As POET we couldn’t participate in those markets, because that is typically not what the gallium arsenide does. But with indium phosphide technology we are now able to access these new markets. So that’s in a nutshell what POET is about.
A Compelling Business Investment Proposition
00:21:07 – The company itself, we now have a global footprint. We have an R&D base in Singapore, we have distributors all over the world. If you go onto our new website, which we just released – and, yeah, we’re still working through some kinks in it –, but nevertheless you can go and take a look at the distributors there and you’ll see distributors all over the world, that are actually distributing products for DenseLight today, but it allows us to access that same distribution channel. I was in Singapore last week and we met our distributor from China and she was talking about all of these opportunities that she’s got in China to sell DenseLight products. Well, you know, you go to the same customer and say „I now have a bigger portfolio“. We can now talk to those customers, not just about the LED, we can talk about the lasers and the VCSELs and the detectors and some of the other things that we’re bringing to bear so that we become more of a „one stop shop“, if you will, for some of these customers. So you expand wallet share, if you will, with these customers with a broader product portfolio. I think that is really important when we talk about a global footprint, global manufacturing base.
00:22:15 – In terms of people, we’ve got people now on the team that, you know, with BB Photonics, fantastic gentleman, I wish he could be here today, but we only closed the deal at about 7 o’clock last night, so it was pretty hard for me to get him here this morning. But Bill Ring, 20 plus years of experience, with Hewlett-Packard and multiple other companies building laser products, he has designed and manufactured and built laser products all his life. With Yee-Loi and Yuen-Chuen in Singapore having 15-20 years of experience, extremely well recognized in their field.
00:22:51 – We’ve basically now amalgamated talent that we couldn’t even dream about two, three months ago before we got into the acquisitions. We now have the people with tremendous respect in the industry and tremendous expertise to be able to take new technologies out into the market.
00:23:09 – The technology like I said itself is integration. On the POET side we’ve got our first integrated opto-electronic platform that we are working to monetize. And on the indium phosphide side we now have access to quantum-well intermixing technology that DenseLight has invented several years ago, that allows us to create integrated photonic ICs. Then with BB Photonics now we’ve got a new integrated dielectric solution that allows us to differentiate our roadmap. There’s tremendous interest in that kind of technology for most customers that are dealing with what they call Dense WDM system, or Wavelength Division Multiplexing. That’s basically a scenario where you can have lasers with multiple wavelengths coexist on a chip. So that’s really what we’re going to be talking about going downstream with some of these acquisitions and IP. But the common theme in everything that we will build will be integration and we will strive towards integration in everything we do going forward, because that really is the next wave of photonics.
00:24:21 – Financially, thanks to Peter and his efforts, I do want to acknowledge all of the work that Peter put into the company over the many years. He left us and me in particular with a healthy balance sheet where I don’t have to immediately worry about money and cash and could really focus, for the past year, on strategy and vision and how do we accumulate and get the right team together and the right product strategy together to execute. We are still blessed with a good balance sheet. We do believe we have a path, as an overall company, to be EBITDA profitable in 2018, which will be fantastic. At that point we are generating free cash flow that sustains our operation going forward. We do have significant planned year over year growth especially with the DenseLight acquisition. I think we are well positioned. There is an upsurge in a demand for photonics worldwide and we are in a position to be able to leverage … [cough] … some past investments to be able to ride that tide.
POET Technologies – Update and Outlook
The Technology – POET puts the pieces together
00:25:32 – So we’ve talked about this and then it is the first time I’ve actually got a current transmission electron micrograph. So this is basically a cross sectional view of what the POET epitaxy actually looks like. We could see that on the right hand side. I don’t think we’ve ever shown this picture out before, but this is just to give you a sense that this is real. So this one shows you where the quantum wells are and what really the epitaxial stack looks like as we build it up, and that’s what makes it unique in its ability to co-integrate electronics and optics. And the picture here is actually the picture of our detector and VCSEL. So we’re actually making those as an image of what that looks like on the wafer that is sitting out at the back. The intent is that light eventually shines out of the circular dot in terms of the VCSEL and light shines into that dot in terms of the detector. This gives you a sense of what it is that we’re actually building.
00:26:32 – It is the first time you can actually put together a VCSEL and a detector sitting right next to each other on the same piece of wafer. That’s kind of what we’ve done. The technology is enabling a functional integration, if you will. Like Moore’s Law in the silicon world talks about functional integration of various functions on the chip, similarly, what POET is, is Moore’s Law but in the photonics world, where we’re bringing multiple functions together on the same chip.
00:27:04 – We are talking about initially data communications and consumer applications, that is really our big thrust. Actually, with the acquisition of DenseLight we also have some insights into new requirements in automotive, for example, where some of our low-cost integrative solutions can come into play and so it does open up some opportunities as we get our technology mature and through manufacturing over the next few months.
POET adds to its portfolio through DenseLight and BB Photonics acquisitions
00:27:31 – So we are, again, adding to our portfolio with indium phosphide, which will be the topic of my next slide. Indium phosphide is also a III-V material. So there are three III-V materials that are getting important in this world and you see in a day in day out basis. Some of them are more visible than others.
00:27:52 – Gallium nitride is one III-V material which is more visible than others, because it is used to make LEDs. LED lighting in a big way is using gallium nitride, which is one III-V material.
00:28:05 – Gallium arsenide is typically used today, for most part, in the cell phones as RF power amplifiers. So every cell phone is powered with a gallium arsenide chip. It is also used to make red VCSELs that are used in optical mice. If you have an optical mouse that you are using, that usually has a VCSEL at the bottom of it, so in fact you are using it on a day in day out basis.
00:28:28 – Indium phosphide is different, it actually is hidden in the background, it is what drives the network. Every optical communication link that is transoceanic uses indium phosphide lasers. Anything that requires any communication 10 km or more is typically indium phosphide lasers. So they’re less visible or less, kind of, impacting you on a day in day out basis but they are essentially the backbone of anything that we do from a communication standpoint.
00:28:58 – It was an important acquisition for us to make, because if you’re going to be a broadband integrative photonics player, you’d better have the ability to go across multiple wavelengths. So it was really part of the strategic thought process that says, okay, we’re going to acquire DenseLight. With DenseLight, we’ve acquired this IP, but we also acquired a factory. And then we’ve acquired BB Photonics that has IP but needs a place to do R&D, needs a place to do development: Bingo, you put those two together and now you have an ability to actually bring new intellectual property and new ideas to the market on a quick basis with a low-cost footprint in Asia. It was part of the plan.
00:29:42 – The other thing we’re working at, we talked about it in the press release, is a new technology with BB Photonics called athermal. We call it wavelength-stabilized. Basically, most lasers require cooling at the system level, because if you don’t cool it the wavelength drifts as a function of temperature. But if you have IP or technology that allows you to stabilize the wavelength as a function of temperature then you can really lower the system costs, because now you don’t need to provide the cooling solution and now you can space your wavelengths really close to each other, which is what BB Photonics brings into play and there is a lot of interest in that technology from big OEMs in the US as well as in Asia. And indium phosphide photonics integration which we talked about.
00:30:30 – The other important piece of the IP acquisition is our growth in sensing. I have a slide later that talks about sensing in general. I’m sure everyone has heard about the Internet of Things (IoT). The IoT is all about sensors communicating with processors. Sensors come in the form of electronic sensors, gas sensors, photonic sensors. So photonic sensing cost points are moving down and they are starting to become a little bit more pervasive now. In fact, I think one of our customers in Canada, in the Alberta region, in Calgary, is actually using our photonic sensing elements to detect shear or structural health of their oil and gas pipelines and they measure steamed water with these light sensors. Photonic sensing is another sensor node, just like a bunch of other sensors. So there’s growing sphere of the IoT. Sensing is starting to become really important. And so whether it be electronic or gas or photonic sensing, then there is a fair degree of growth associated with that market segment. Actually I was in India, a couple of weeks ago, and there is a Smart City initiative, in India and in several other places in the world where everything is sensed optically and the idea is to have a smart city whether it’s in homes, in the car, and out on the street. Actually, Singapore is a big proponent of these Smart Cities and Denselight is actually at the one of their forefronts in terms of providing early sensing products to enable that kind of motive.
00:32:14 – We’ve never talked about sensing with you before and I think it was always there, if you will, as one of our market verticals in the context of infrared sensing, mostly for military or defense applications, but we’ve now grown that portfolio to include consumer sensing applications. We’ve talked about non-invasive blood glucose monitoring systems, for example, that use photonic light source as the main engine. That is a really exciting part of our growth.
Key Recent Accomplishments
00:32:46 – In terms of our recent accomplishments – we talked about the process transfer, we are still in the process of completing that, so our goal is to complete and continue and complete that over the next quarter. We did have our results, six-inch wafers, you can see them at the back, we’ve got them testing now. We’ve built integrated VCSELs and detectors that sit right next to each other on the same piece of wafer on the same run. We’re still working through the last pieces of optimization on the VCSEL. But at least on the detector we’ve been able to characterize it and it behaves the way we expected it to behave. There are curves: I don’t expect you to understand them, but at least I wanted to show you that, yes, we are getting detection at 840 nm, which is what we wanted for the 850 nm wavelength. We’re getting good thryristic characteristics that respond well to light. We announced this and we are talking about sensitivities that haven’t been seen in traditional detectors. We’re talking about detectors that are substantially smaller than those out there. We actually measure small signal performance and we’re starting to look at small signal performance metrics that are over 20 gigahertz (GHz), which is really good for what it is that we are trying to measure.
00:34:01 – All in all I think that part is going well. We still have a little bit of work to do on the VCSEL, which is a little more complex in terms of the process and working through the final kinks with our foundry on resolving that, but, we have fundamentally built these devices sitting right next to each other, which has never been done before. And that’s what the power of the POET technology is, its epitaxy, its uniqueness as conjectured by Dr. Geoff Taylor, that’s what we are trying to do here.
Work in Progress – Key Current Activities
00:34:32 – So work in progress – the lab to 6″ volume manufacturing transition, we continue that. We are intending to optimize the resonant cavity detector and then over time measure its large signal performance and then position it, if you will, for the first component product sale. Before we go ahead and do a full-fledged integration it is important to vet some of our individual components in the market, so that it eases adoption2 and then generates revenue a little bit sooner.
00:35:04 – We are establishing full test automation database and data analytics. The goal is, of course, to demonstrate these co-integrated VCSELs and detectors. When we first announced the detector, people were like „what is a detector and why is it important?“ Well, in any system that we build optically you have got to have something that shines light and something that receives light, without that the link is not closed. So you need to detect the light in order to know what it is that you’re communicating. So when you’re talking about an integrated transceiver, typically it has a VCSEL and a detector, and they’re both really important and they’re both hard to make. We were happy to have made the detector and it functions the way we need it to. They are both really critical and important. So I think we’re taking it one step at a time: We’ve got to build the detector, we’ve got to build the VCSEL, and then we’ve got to build the transistors. Once they’re all built then you can put any system together in terms of the design, so it’s kind of a stepwise process ensuring everything is manufacturable.
00:36:03 – Of course, we’re not talking about a single device on a small piece of gallium arsenide chip that the lab was producing. We’re now doing this on 6″ wafers where it takes five hours to actually test one of these wafers, because we’ve got thousands and thousands of them on a wafer that we’re testing. When I talk about something functional now, we’re not talking about a single device tested in the lab, when we say something is functional and have a press release on it, it’s actually been tested in some significant statistical numbers and volumes and across multiple wafers. It is really important to keep that in context.
00:36:41 – We continue to move forward. I think we are in the process of completing the manufacturing process where we just released a new design for the next set of masks that are currently being manufactured at Wavetek, and of course we’ll keep you apprised as we make progress on that.
„SMAC“ Rapid Growth In Driving Global Network Hyper Traffic Is Helping Network
00:37:06 – A little bit on outlook. I think, there’s a new acronym out there – there’s always acronyms in the electronics world – it’s SMAC and that stands for Social networking, Mobility, Analytics and Cloud. That’s what SMAC is, right? It’s important, because, you know, social networking, they all come together, they’ve all come together in a way that we never have dreamed would be possible four or five years ago. It has resulted in this dramatic increase in data. And that dramatic increase in data has effectively created what I call Photonics 2.0, or what have you. It’s the next wave.
00:37:44 – If you think about optics or optical networking and photonics, back in the early 2000’s the Internet was just starting out. This was 1998 or 1999, it was this dotcom bubble, everyone called it the dotcom bubble. A bunch of Internet companies started going in there and there was this huge growth in optics at that time and was mostly for global networks, undersea communications, mostly indium phosphide lasers actually at that time and very, very complex optical circuits. So that drove the first wave, if you will, of optical growth. Then there was the big bust and now we’re in the second wave.
00:38:26 – The second wave is now not driven by backhaul or underwater communications where the volumes were low and the costs were high. This second wave is driven by consumers, you and me. Every time you run an app on a phone, you download pictures on Facebook or Whatsapp or what have you, you’re driving more data. This is a consumer-driven growth cycle. And it’s showing up in data centers and the need for more data centers and showing up in photonic sensors and showing up in new ways of using sensors, in a miniaturized way that people never thought possible. We’re talking about sensors in phones, VCSELs in phones, for TV gesture and cameras. So, I think, this wave of photonics growth is really exciting, because it’s driven by the consumer and so it’s bigger and is likely to last longer..
00:39:16 – So we believe we are at the right inflection point in sense of displayable growth, and hence our strategy to really have POET positioned as a photonics company with integrated elements in it that adds to differentiation and value creation, as opposed to an electronics company or something else. I think it’s strategically positioned to kind of leverage this, and our acquisitions are strategically positioned to be able to leverage this.
The need for integration in data centers
00:39:48 – The need for integration in data centers is pretty clear. You talk to data center providers, they don’t really care what you use, all they really care about is dollars: „Please move my data from point A to point B for as few cents as you possibly can. I don’t care how you do it.“ So it’s up to us to figure it out – how are we going to be able to provide that capability to these data center users that gives them the lowest dollars per gigabit that they can get.
00:40:16 – Typically they don’t even want to talk to you unless you have a new solution that can provide them with this cost differentiation which, thankfully, we have. So it is very easy for me to have this conversation with them. I’m not talking to them about business as usual. We’re talking to them about a very different and differentiated way to do business, where we can lower the total cost of adoption and the total cost of solution.
00:40:38 – It is true when we had the conversation with the BB Photonics IP where we talked to them about it and they’re like „Oh, I can see how this is going to lower my costs“. So they don’t want to talk to you unless you’re there telling them how you are going to lower their costs.
00:40:50 – And that’s why integration is important. Because you go back 30 years in semiconductors: if you can integrate and lower your costs, if you can integrate and lower your power, it’s all about integration. And so I think that’s the biggest reason why we want to position our company as an integrative photonics company, because the moment you say integrative photonics, that also means lower costs, lower power, and size, weight, and all of the things that come with it. But I think it usually has that connotation with customers that says we’re here providing a differentiated solution on cost that heretofore didn’t exist and no one else can provide it at the levels that we can.
POET offers a superior solution relative to copper
00:41:37 – We talked about active optical cables (AOC); I spent some time talking about it before. Our strategy is to create AOCs at virtually the price point of copper cables. That is really what our initial strategy is. And why is that important? If you look at a copper cable that’s 10 gigabits capable today; first of all there is no copper cable that can do 25, but even at 10, these things are fairly thick and inflexible. I don’t know if you’ve actually lifted one of these cables. They’re about a quarter of an inch in diameter, they’re extremely heavy, can’t move, they’re not very flexible. They cost, I don’t know, $15 or $20 a pop. Whereas an optical solution today costs $60 or $70 dollars at 10 gigabits per second. So people are still stuck using copper, they just can’t, for the volume that they need, for all of these server to server connections and server to top of the rack connections for the data centers, optics is just not cost competitive today.
00:42:41 – So what we thought about initially was, strategically saying, why don’t we take advantage of the fact that we actually have a fully integrated solution and attack really this pain point, get it on a cost curve that makes sense, and now you can take advantages of optical communications in terms of lower power and dissipation of heat. Copper cable typically would consume about two watts per link, call it, and we can do it at about a factor of 10 lower than that. So when you multiply it over a number of links, it adds up to a lot of watts and that’s a fair amount of money for operating the data center.
00:43:24 – At least in talking to most of our potential customers or partners that seems to be an application that’s resonating, you talk to them and like „ah, yeah, I get it“ and „if you can do it there’s a market for it“. In fact, some of the people that we’ve talked to, analysts, potential investors, it’s pretty black and white: „What you have to sell is what the market needs.“ So we don’t have to sit and worry about creating a market. A lot of people have to worry about „oh I have a technology, which market do I go after?“ This is a market that absolutely needs what is is that we want to sell, so we just need to make the breakthroughs necessary in the factory and get to these products that we have a vision to be able to demonstrate.
00:44:13 – Just a sense of what is a conventional … Just to give you the context, because there’s a lot of questions „what is this active optical cable?“ I know I received a lot of questions so I thought I would just maybe put in a little bit of time answering it.
00:44:29 – A direct attached copper cable (DAC) is typically what is used. These are not the Ethernet cables, like we have here [points to them], these are not RJ45s, these are actual communication links, they sit in a QSFP package or a SFP package. These are links that go behind the server. These are not RJ45 links. They typically burn about 3 watts of power per link, the cost is X, the form factor doesn’t matter, because it’s just copper. Weight and flexibility is a big issue with them, they’re extremely heavy. If you see these data centers, they are about 20 foot tall buildings, and if you’ve got servers up on top, you’ve got to carry these cables up, you’ve got to have elevators and lifts, it is not easy. So people want to get rid of these copper cables, they just want to get rid of them at the right price point.
00:45:24 – So conventional AOCs that exist today is a very good product: a half a watt of power. The problem is it costs about three times more than copper, which is too large. You need to be within the gravitational pull of the price point of copper, so then your solution gets attracted in. If you’re too far out, then it’s good, but it’s not interesting. So what POET does, is it brings that price point in, so it gives all that advantages that a typical AOC has, but brings that price point in. Of course, we do that by integrating. Typically an AOC could have four chips, separate, we can do it all together in a single chip. When you take four chips in about 25 square millimeters we can do it in less than five. That’s where the price comes in, the features are similar, the power is similar, but the cost is what we make a big advantage of and in so doing get a lot more interest from the market in terms of cost. That’s really our value proposition, if you will, in AOCs.
00:46:30 – For those of you who might or might not be experienced in photonics: The cost of photonics is driven up by packaging. So, yes, the lasers are expensive and the detectors are expensive and all that. But really the packaging is what blows you away. Because when you put these pieces together, they have to be individually assembled and then somebody has to go in there and align the fibers to them, and so that’s what drives up the cost. When you have this integrated onto a single chip the testing and assembly costs go down dramatically. Silicon has done that for us, thankfully, we don’t have to reinvent the wheel then. Silicon has really driven down the cost of wafer-scale testing and wafer-scale manufacturing.
00:47:12 – So the moment you take an integrated solution in photonics and apply it into a wafer-scale testing or manufacturing, the costs come down dramatically. That’s the advantage. So if people talk about integration, it’s not just about the number of chips, it’s the fact that now that I have these chips integrated there are other benefits that come with riding the cost curves that the silicon world has given us over the number of years.
POET – component cost against competition
00:47:37 – This is to give you some perspective of cost. We’ve run some cost models, we know what foundries cost us, we know what our epitaxial cost is, we’ve kind of factored in what our yields would be. If we just take a typical cost against a competitive solution out there, if we were to sell a single detector, the cost to manufacture that for us is about 33 times lower (33x) than what a competing solution costs. So this is just to give you a sense when I say „hey, why is this a value proposition, why is it important?“ In the worst case we are 2x lower and in the best case we could be up to 33x lower. So we are not talking about small changes of 10 percent or 20 percent, we are talking about 100 percent or 1000 percent.
00:48:23 – So that is what to me, integration does, and that’s what integration, whether it be indium phosphide with DenseLight or indium phosphide with BB Photonics or POET gallium arsenide, integration helps drive costs, and driving costs down drives adoption up. And so that’s really the wave we want to go down and that’s the wave …
00:48:44 – I mean, others are doing it, too, it’s not like we’re the only one out there thinking that this is the wave of the future. There are a lot of people trying to work with silicon photonics, for example, it’s a fairly popular technology out there, a lot of people working on it and with the same thought processes: Find a way to integrate photonics together. There are a lot of companies, Acacia just went IPO with silicon photonics solutions. 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.
POET can enable „on-chip“ optics
00:49:41 – So what we think on long term, I think we can of course enable on-chip optics, which is really our holy grail. We want to be able to directly attach optics to the silicon ASICs, so that the silicon ASIC can communicate optically. That is really the holy grail. And so I think we’ll work our way towards that, over time, so initially we’ll start outside the box, because the reliability requirements are much less. People will want to see a new technology in action without making a huge commitment. Because once you start putting it inside the box and inside the chip, if there is a failure the blast radius of that failure is very high. But if it is outside the box and it is a simple cable and there’s a failure, then you just replace the cable. So it is important to get in, in an application where replacement is easier and as people feel more comfortable then you migrate into the box and then onto the chip. That’s really our kind of thought process.
Short reach communications
00:50:41 – On short reach communications, our roadmap in short reach communications – we are currently there [points to the screen], we’re in this technology transfer phase and we want to start getting in with the detector first and then build into an optical engine, which then eventually gets into a full transceiver solution at 10 Gbps and then 25 Gbps. There is a method to the madness and we do have a roadmap that we’re going to execute towards as it relates to the short reach communications products that we want.
Pursuing new opportunities
00:51:13 – We are also outside of data communications pursuing new opportunities. We did announce a JDA with the Institute of Materials Research and Engineering (IMRE) in Singapore, and we’re exploring the ability to use our VCSELs to create smart pixels. Basically a smart pixel is a pixel that can be interrogated electronically, monolithically on the same chip. And so you have the ability to turn these pixels on and off without having to go to a separate chip to be able to do that and that’s what a smart pixel is. So we are exploring the ability to adapt our technology, if you will, towards a display application using smart pixels. Because smart displays are, miniature displays are becoming really important for this augmented reality, virtual reality world. And if you guys look at Iron Man, it’s like the perfect example of augmented reality where he is looking through it, but in the background there is all these things happening. But you still have to be able to see through, your contrast ratio for your display has to be really, really high in order to be able to beam those applications where you’re in bright sunlight, you have to see through your glass, but at the same time you want something displaying in the background. That’s kind of where these applications are starting to really come in and there’s a big market for them. So we’re evaluating the possibility of getting into that segment. So that is a research and development program, at this point, but we’re looking at that.
00:52:50 – We’re also actually in advanced stages of discussions with other entities that could potentially license our technology for applications that we’re currently not, from a consumer or commercial perspective, driving towards. And that’s particularly with medium wave and current sensing, which are more satellite based and communications, not conducive for a company like ours to go after those kinds of applications, but there are people very interested in using our technology for those kind of applications and we’re in discussions with them.
DenseLight and BB Photonics acquisitions
00:53:28 – A little bit about our acquisitions. So I think with Denselight and BB Photonics, we immediately get access to revenue. We’re not going to be providing guidance immediately. I think we believe we will start providing revenue guidance after the next fiscal quarter, starting early Q4. And the reason for that is what Ajit mentioned. I mean we’ve got to go through the integration of the company, truly understand our combined roadmap, and then be in position to better articulate our projections. But needless to say, we have immediate revenue, a fairly long list of customers that we’re not going to put on our website because of competitive knowledge and information. So we’re not going to go out there and say… We can generically talk about customers, but we’re not going to advertise who our customers are so our competition can go after them.
00:54:23 – And then we have access to a fab. I think Kevin had pictures of the fab that Jerry and his team have put together in Singapore. We have a full pilot line, test and characterization, assembly, reliability. It’s a very impressive fab. If anybody is in Singapore or intends to go there, we’ll be happy to show you what that looks like.
00:54:45 – Technologists: Like I said, we’re now starting to acquire in incredibly capable, incredibly smart people, and I’m literally tickled pink to be able working with folks like Jerry and Yee-Loy and Yuen-Chuen in Singapore and now Bill in New Jersey and Mirek in Canada, perfect people who’ve been in the industry for a very long time, very successful at what they’ve done. We also have got an infrastructure for growth in a low-cost region of the world, especially for manufacturing.
00:55:22 – And we also acquired technologies, IP and know-how in the acquisitions, so it’s kind of you know, why did we acquire revenue and fab technologists, technologies, and IP. Without technology and IP, we’re not going to be able to go much further in this world, so that’s going to be the cornerstone of everything and having a fab to enable translating this technology and IP into really sellable products is really important.
Expansion of operations and product portfolio
00:55:53 – Expansion of operations and product portfolio. I think, the two-inch indium phosphide and gallium arsenide line today, we have the ability to grow it to three inch or four inch capability as the business expands. And the cost to expand from two inch to four inch, which would effectively double 2.5 times the capacity, is not very high, about 1.6 million dollars to do a full upgrade. So that’s why we felt very, very good about this acquisition, because it sets us up with a footprint today that is very easily scalable as we go forward. The past investments that DenseLight has made in this factory is over 37 million dollars, so we’re getting a deal – for those of you who were wondering if we’re getting a deal. I think the total investment in the company and establishing the customer base and establishing the infrastructure, the products you see out there is over 50 million dollars. And so we’re fortunate to be able to partner with a company like DenseLight that has this history and infrastructure to be able to do it.
00:57:00 – We do expect to double the wafer capacity. I think the plan is over the next 12 months to double the capacity of the factory as it is today. We’ve got a staff of 35, but the intent is to be able to grow that over the next six months.
00:57:15 – Business, as we talked about, we acquired the superluminescent LED family, so we’re now prominent. Actually, if you just go to Google search and type „superluminescent LED“, or you do it in Wikipedia, Denselight will show up. They are a known worldwide provider of SLED chips, and SLED chips are gaining popularity, because they are the engine of sensing. And sensing is gaining popularity because of the Internet of Things. So it’s just to put things in context. DFB lasers, a fairly high growth opportunity – fiber to home, fiber to antenna market space which is where we think these two companies are really going to help us.
00:58:00 – We talked about facilities. I’ll probably not spend a whole lot of time on this one. Probably the more important fact is, because we are a Singapore entity with DenseLight, there is also the opportunity to get some government support for our technology. We are bringing new technology into that country and you can see from the press release, we actually had a very, very good write-up in the local press in Singapore, The Straits Times, The Business Times, there was a quote from the Director of the Economic Development Board of Singapore that talked about the importance of what we were doing in Singapore and how bringing our technology IP to Singapore really helps bolster them as well in terms of presence, so there is a good opportunity there for partnerships as well.
Applications of photonics sensing
00:58:53 – Photonic sensing, we talked a bit about it. I have a sense of what the TAM is, I mean again, a multi billion dollar TAM in terms of the total market and growing. DenseLight today has a presence in Test & Measurements and Guidance and Navigation, especially with driverless cars, autonomous vehicles, these gyroscopes that are used for driving and navigation are becoming more important and that is another area of presence for sensing.
00:59:23 – Medical and healthcare is actually really exciting. It’s just starting in terms of growth where we can see a lot of customers pulling for some of our solutions as they look at non-invasive ways to test you for blood glucose. Every time you go to an eye doctor and they scan your retina they’re using SLEDs actually, gallium arsenide based SLED’s that’s what’s being used for all the optical OCD applications.
00:59:53 – Structural health monitoring has become really important as people start monitoring structural health of … actually the biggest growth opportunity we’ve seen actually has been in wind farms. I didn’t know this, but I’m learning new things all the time, so apparently with wind farms you have to measure the structural health and stress of all of your turbine arms, and that is done with photonic sensors today, so every turbine arm and wind farm, actually in Germany, there is a big company in Germany that we’re talking to and they are interested in photonic sensing and those kinds of applications for structural health. We’re really excited, this is a space that was new to me, after talking with Jerry and the team I got super excited about the opportunities and potential in that area, so I really thank Jerry for having the vision to set this company on this trajectory so it gives us both the communications segment as well as the sensing segment.
01:00:56 – Like I said, at the end of it, anything sensing is now being driven by the IoT. You hear the buzzwords all the time, but at the end of the day, IoT is sensing going to a processor. So you need a processor which will be your mobile phone or your tablet and then you need a sensor and so you can just kind of run the math. There are different kinds of sensors but at the end of the day, presence in sensing is really important for these applications.
Expanded available markets in data communications
01:01:28 – We spend maybe a little bit of time talking about it but this kind of gives you a sense of what POET was before with our applications, it was mostly short reach, 0 – 100 m, just gallium arsenide based technology in data centers. We talked about consumer applications like Thunderbolt and HDMI, on-board and on-chip optics with mostly VCSEL-based technology. And then with the acquisitions, we now have access to basically the end-to-end spectrum of data communications with indium phosphide technology. So that’s really what our group was about in terms of the acquisitions.
Acquisitions enhance the total POET SAM
01:02:07 – If you just look at our solutions market, or the SAM [Serviceable Available Market], in terms of short reach the SAM is about a billion dollars and this does not include the DACs, and the SAM at least triples when you start including some of the long reach applications as well. So the total SAM in data communications triples and we’re happy with regards to that end-to-end capability. This does not include the copper links in terms of TAM [Total Available Market], because nobody has actually got them. There has been no reason for somebody to go figure that out, because I think we’re the first ones trying to replace a copper cable with an optical cable, but that is a very, very large market and has a TAM of its own which is not included in typical market surveys.
Long reach communications
01:02:59 – So what’s our roadmap, so we talked about the roadmap in the short reach, we’ve talked about the road map on sensing, and for long reach we’re talking about telecom access networks and then datacomm access networks. Datacomm is mostly data centers, shorter requirements in terms of reach, telecom is the optical network units and then the line transceivers that go into fiber to home and fiber to antenna. We’re currently in the process of qualifying with multiple vendors our 2.5G lasers and then we have a roadmap to extend that to 10G and eventually 25G down in the datacomm space. And we intend to add differentiation into our product roadmap with integration, so we talked about CWDM or DWDM lasers with integrated PIC solutions, potentially uncooled as we develop the BB Photonics IP into real products.
01:03:56 – So I think for the first time I would say we are communicating to you a very explicit and a diverse set of products that we intend to go to market with, that over time we’ll build up our revenue stream in terms of growth. We’ve talked about products on the long reach side, we’ve talked about products on the short reach and we’ve talked about the products that we already have as part of our sensing portfolio, so you are going to see a relatively diverse product mix that makes up our revenue going forward in time.
Highlights of the acquisitions
01:04:31 – Highlights of the acquisition: It’s immediately revenue accretive to our financial results. When we start consolidating financials over the next quarter, which we have to do, we can start seeing that. Our intent is to start providing guidance once we get all of that done over the next quarter.
01:04:52 – It establishes immediately a product and market presence for us, a customer base that we can actually go visit and talk to and talk about cross-selling our products into that space. Path to EBITDA positive for the combined company in the latter half of 2018. Enhances factory utilisation, reduces total cost of development and leverages shared services so we don’t have to duplicate test and characterisation in multiple locations. We can just have an optical test and an optical test, they all require an OSA, they all require an integrating sphere, they all require probes. You don’t have to duplicate it in multiple locations, can have it all in one place, saves cost and reduces our future CAPEX [capital expenditures] requirements.
01:05:41 – It does expand and further differentiate our core product portfolio and addressable markets, very important, and provides additional growth opportunities for us.
Enhancing shareholder value
01:05:55 – We are, continue to be, and will continue to expand and become even more highly disruptive as an opto-electronic semiconductor technology provider. We are entrenching ourselves, we’re starting to get recognised as an integrated photonics player, we talk to people, our overall vision, our mantra is about integration. It’s a broad product portfolio and application space and we’re expanding our reach in the data communications segment that we talked about, expanding our reach in sensing.
01:06:27 – We have also expanded our III-V material base, we’re no longer just talking about gallium arsenide, we’re talking about indium phosphide, we’re doing some R&D in Singapore to extend to gallium nitride. The idea is to cover the spectrum of III-V materials which is the foundational base of anything photonics or optical in the world today.
01:06:47 – Customer focus: At the end of the day, we’re not going to be successful without happy customers, and I think our goal over the next 30, 60, 90 days is to go worldwide and blitz a bunch of customers, talk about POET, talk about DenseLight, talk about our combined company, the advantages that they will have continuing to work with us. Talk about our stable balance sheet, our ability to invest and grow with a customer focus and leverage our established supply chain. I think Jerry and team have got a really good supply chain with contract manufacturers in Taiwan, Korea and China. So when the POET technology is ready and available, our ability to go to these CM’s and get our job done, I mean we’ve already got negotiated contracts and tie-ins and infrastructure set up there.
01:07:42 – Product sales, anticipated NRE revenue in the next twelve months, we talked about that. And really what I am happy to say is for the first time, I want to announce to you guys: We do have a basic fundamental platform now for profitable revenue growth going forward, we’ve got products today that can grow, we’ve got applications that are growing, we’ve got new technology and new IP, that is going to continue to provide us differentiation in the future.
01:08:08 – So sustained differentiation, sustained revenue growth, and we can talk about free cash flow, EBITDA positive in the second half of 2018. Okay? That’s what I have today.
Questions and answers
01:08:36 – Ajit Manocha: So we have time for a few questions. We do have a hard stop at 11:30. We both have to catch flights. Because, you know, the task going forward is „execute, execute, execute“. We can’t stand in the meetings and just „we’re here“. We’re going to go do the work. So I think that the other thing I want to say is that we got a lot of questions and the presentation was prepared by addressing most of the questions in the presentation. I would like to believe that most of you got your answers, but if there are any burning questions, other than asking about the customers names, and what is the next step about acquisitions are – please don’t ask those questions. So here is Suresh at your disposal.
01:09:26 – Suresh Venkatesan: Or feel free to ask Jerry as well, don’t target just me, much as I would love to answer them all.
01:09:33 – Ajit Manocha: We do have Peter Copetti sitting in here also as well, and I want to talk about Peter in the last five minutes, so don’t leave without today hearing my message here.
01:09:44 – Q: I am particularly interested in the sensing application for the medical applications, because I’m an insulin dependent diabetic and I poke my fingers more times than there are people here in the the last week. So it’s very important to me. In that same slide you talk about military applications, and you don’t really talk about military that much. You, sort of, say there’s something going on there, but you don’t talk about sales or anything going to the military. Now I know that from days gone past that Opel was given SBIR grants and so I kind of worked off the thought that the military was involved and we were sort of passing technology along to them, but I didn’t think they would really become customers. Can you say whether …
01:10:38 – Suresh Venkatesan: I should say two things. We now have military applications that we have marketed through both DenseLight in their experience as well as POET. We don’t intend to manufacture a product that we will sell to the military people as it stands today. Now anything can change, especially with the acquisitions. We have to think about our new roadmap, we have to think about what’s important, if there is some new high-powered laser technology that we have that we didn’t have before. But, our strategy with anything that is non-consumer, or non-commercial would be to partner, or license, or co-develop. It is not a customer-related relationship, would be a potentially licensing relationship, or a potential co-development relationship, but we don’t intend to manufacture a product.
01:11:38 – If you have a question specifically on medical photonics then Jerry can answer it. We had a really, really interesting conversation with Chris last night about it.
01:11:48 – Chris: You will never prick yourself again, the technology will work.
01:11:54 – Q: Two questions, one is „what is the time frame for moving off the Venture“ and two, „the progress that you’ve made in the technology, possibility of a takeover“.
01:12:15 – Suresh Venkatesan: Ajit, do you want to take that? I would, too, but you know, he’s my boss. [Laughter]
01:12:15 – Ajit Manocha: There is a time for everything and this time we are not focused about moving to Nasdaq or anywhere else. We have got our hands full, we have been busy. I’m sure you can tell from the presentation. So, next 100 days plans is to execute, execute, execute. And as the company evolves into the next stage, we’re open to those kind of things. So at this stage we’re not entertaining discussions on moving to Nasdaq.
01:12:57 – And when it comes to takeover – we’re not seeking for those opportunities. If somebody comes, we’ll deal with it. So at this stage, I will say, I don’t want us to think about those things, only think about how do we create shareholders value. That’s his job [points to Suresh] and we’re all – nobody is his boss, he is our boss – we are all behind him, the whole board is behind him to support him to really create shareholders value, and that’s really the task right now. We got a lot of work, we are very, very busy. I think it is better the team only focused on how to take this company forward. Suresh has shown a clear roadmap, a clear strategy. We’re not just shooting darts here in different directions. And these have been also endorsed by a lot of potential customers; we have talked about our customers. There’s lot of traction, there’s a lot of buzz in the marketplace about POET. But I think that’s really the focus.
01:13:53 – Q: Does this mean we’ve removed the reverse split off of the table?
01:13:59 – Ajit Manocha: No, it is there, it has been approved, right?
01:14:02 – Q: Right, are we going to get rid of it?
01:14:06 – Ajit Manocha: At the next AGM we’ll talk about it. At this stage, we’re not planning to entertain that direction, at this stage.
01:14:15 – Q: Talking about the combined staff count. If I understand correctly you have 35 staff with DenseLight, I assume you’ve got 10 in POET, so you have 45. Could you give us a brief insight into BB Photonics as to whether Jerry and his crew is five or ten folks, if we can get an idea as to total staff count if it all comes together.
01:14:33 – Suresh Venkatesan: BB Photonics will come with less than five people, so it’s mostly an IP play and a talent play with the top management. So, yeah, you’ve got the count more or less right. So less than five in BB Photonics, 35ish in Denselight, and about ten in POET.
01:14:58 – Q: You outlined a very interesting product roadmap over the next one, two, three years and you also mentioned that you also are about to go out and starting talking to customers and really get a good sense, excellent understanding of what they’re looking for, stuff like that. From what you understand today, can you talk a little bit more about what it is exactly our customers are looking for, what is it going to take, those key success factors, to then start to adopt our technology.
01:15:24 – Suresh Venkatesan: I think the answer is … now that we’ve got a bigger product portfolio, I can’t give you one answer that fits all. In the integrated opto-electronics play the customers do like what it is that we’re talking about. It’s not complicated, it’s an integrated transceiver. Whether it be applied to 2.5G, 10G, 25G, short reach, long reach, it’s an integrated transceiver. And they like the fact that it is an integrated transceiver for its low power and cost. So that is very clear, I think that there’s no arguments there what it is that they are asking for versus what it is that we want to be able to deliver. So there’s no disconnect. If we have a solution; there’s going to be a lot of interest in the market to adopt it. You can see, just based on our cost points, we’re a margin accretive play to anybody who uses our solution. Especially in some of these businesses where margins are tight, we get to enjoy good margins, but then we give them some margin accretion. So that part is very clear.
01:16:37 – On the indium phosphide side, our technology on the sensing side, most customers like it, because, technically, we provide the best solution in the market today. So our goal is to continue to maintain that technical excellence and then infuse new IP with BB Photonics where we can take it one step further in terms of differentiation. If I can go out and say, we can provide a single-chip multi-wavelength laser solution, for example, that’s a differentiation that today doesn’t exist on the market. On the one hand it is shore up our existing customer base and grow, and then add differentiation to that, so that we go one step above the competition in an existing portfolio. Now on the POET side it is demonstrate what people want us to be able to demonstrate which is a fully integrated transceiver, if we can do that and I think we are in a very, very good state with lots of customers.
01:17:43 – Q: With the recent acquisition and hopefully with the closing of today’s news, the present acquisition. Revisiting the balance sheet and how we’re capitalized and burn rate, with expanding responsibilities with these acquisitions. Can you address our capital requirements, burn rate and, if you feel like where we’re at with that, and if there’s a future need, what, where the future need is?
01:18:17 – Suresh Venkatesan: Absolutely. I think, we would expect our burn rate to go up. He [points into the audience] asked a question about income, so yeah. But on the flip side, these products do sell and there’s revenue and there’s cash coming in, so it’s not a one to one that says, okay, just about 35 people, it’s that much more burn. But we would expect our burn rate to go up. Just like most companies, big and small, we continue to look at financing and when do we need it and when do we do it and what’s the right time to do it. We would be open to looking at financing at the right terms. We’re not going to do financing for the sake of doing it. We feel comfortable that we are generating cash in the business, it’s not that it is all burn. The point with all burn is that every dollar spent there was no revenue coming in, whereas with DenseLight there is an offsetting cash flow coming into the company.
01:19:11 – Ajit Manocha: I think, if I may add to this, there are a lot of synergies also. If we were stand alone POET we’d have to invest in the supply chain, the distribution centers, the sales team – we have it now. So that’s the synergistic sailing that will benefit from that. Plus, it accelerates our path. And, of course, for the next fiscal quarter we’ll have a complete overview of the financial plans which we’ll be sharing every quarter. We can have the business plan and put it on the table, but I think the business plan is to be validated by the customer plan which I talked about in the introduction. And that’s where the times that Suresh and Jerry are spending visiting all of our top customers,actually we’re going to visit every single customer, small or big, and understand the customer plan and what the plan is for this quarter and for the next quarter and the next year and the next five years. Then we’ll start putting some sense into that plan and roll out a complete business plan in Q4 this year.
01:20:15 – Q: One for Ajit and one for Suresh.
01:20:18 – Ajit, you are quoted at the IT Bombay Conference last year stating that you believe POET can extend Moore’s Law by 50 years. Can you just explain and expand on that a little bit?
01:20:28 – And for Suresh, when you left Global Foundries we just wondered if POET has met or exceeded your expectations for the company.
01:20:37 – Suresh Venkatesan: That one’s easy, he’s [points to Ajit] got the harder question. Absolutely! Absolutely, it’s been a terrific journey and working with Peter and Ajit has been great, the board members have been truly supportive. They hired me into the company to provide strategy, vision, a path to monetization. I feel like that’s the path we’ve been executing to and I have had nothing but support, so there is nothing to complain about, we’re having a great time. I think now we’re in a slightly different journey and trajectory. We’re talking about actually earnings and revenue and talking about net income and EBITDA. In the past, we were only talking about quarterly operating calls as to whether we made a functional device or not. I think, now we’re a real company which is a far cry from where we were just a quarter ago. I feel very, very happy with what we’ve done and I think the next year is going to be super exciting as we start really growing the way we expected to which is in a very long linear fashion.
01:21:43 – Ajit Manocha: So the question on Moore’s Law – I think, it’s been in many prints: Is Moore’s Law dead? How much longer is Moore’s Law is going to be there? Now, I’ve been a big believer of Moore’s Law from its inception, because I was at Bell Laboratories and that’s when the semiconductor technology was in infancy stages. Believe it or not, Geoff Taylor was also in Bell Labs same time, he was working in the gallium arsenide region and I was working in the silicon region. We used to say „Gallium arsenide? Come on guys!“ [Laughter] „We are the heroes, we are the kings, we are going to drive this technology.“ We thought silicon would maybe go until 1990, maybe 2000 at the most, but silicon technology, thanks to all the R&D by Bell Labs and IBM and Intel, these companies really did a great job and we kept on driving Moore’s Law beyond people’s expectations.
01:22:40 – In parallel, what Geoff Taylor did, in University of Connecticut lab, his invention on this technology, that absolutely inspired me, when Peter called me two years ago. And I was really not interested, but once he told me more about the technology, what the implications are, I got inspired. Met Geoff Taylor, we compared our notes, we know hundreds of people, common friends.
01:23:07 – So when I look at what Suresh talked about, integrated photonics, one chip has opticals and electrical, everything on the one chip. If that was silicon photonics, you’ve got a silicon chip and optics and then the module. But the silicon chip, the reason I feel that Moore’s Law is really near its end: We did 14 nm technology development two years, three years ago. Now it’s 10 nm, now 7 nm. I know the cost of 14 nm development, it was multibillion dollar investment. Cost of 10 nm is going to be a factor of two more and 7 nm a factor of four or five more. On top of that, the fab, to make those devices costs about 10 billion dollars. I think our technology will work on fourth generation, older fabs, fully depreciated fabs, and can do a lot more.
01:24:08 – So that’s why I believe that the future of silicon is going to be limited, especially for advanced technologies, and that gallium arsenide is going to take over. Things which should have happened 20 years ago are going to happen now. That’s what it was, a generic comment I made at the conference, marketing POET technology there, and people were very impressed. I got so many feedback after that, they want to know about our technology. Our job is to be a cheerleader, my job is to be a cheerleader, a cheerleader for the company, but based upon the facts, based upon things that I believe in and I think we’re getting a lot of traction.
01:24:48 – Q: At the last news release we were talking about a functional prototype VCSEL transceiver by the end of the second quarter. Is that timeline still in effect?
01:24:58 – Suresh Venkatesan: Oh, a full-fledge transceiver, I mean, the plan is for the end of the year. I think we talked about integrated VCSELs and detectors in the second quarter, and I think we are on plan to do that. You know, we did take, I think as you mentioned, at our last conference call, and also had it in our MD&A release. This whole Anadigics to Wavetek move, it has set us back – we had to transition foundry as Anadigics got acquired, and we got into that. We’ve been trying to catch up, and I think, sometimes we make faster progress than others. Our goal is to try to meet all the milestones that we’ve committed to. There are a little bit more headwinds than we would have expected because of this transition, with, you know, lose a few months in that, but I think we’re recovering more, the devices are starting to look like we wanted them to look.
01:25:55 – The epitaxy, to me, that’s the most important thing, has been solved. Because, look, the magic is in the epitaxy, if you don’t get that right, you don’t get anything right. The processing sequences are tuned for the factory. We spent a lot of time tooling it at Anadigics and now we have to redo all that work, because they have different tools, different equipment. But that is engineering, it is not innovation, it just takes time, and that’s what we’re working on. But I’m confident we’ll be able to get there, whether it’s going to be exactly in June or a few weeks here or there. I don’t see any challenges other than being focused 100 percent. Subhash was there last week working with Wavetek on this.
01:26:44 – Ajit Manocha: I just want to echo one comment Suresh has made, and I think this is for the future also. When we say that we will have this milestone by Q2, it is our intent always to make it happen with you. But this is all science and engineering. If we know how it works, we have the recipe, then we can deliver it. We are developing recipes. So with the detector announcement was made; the VCSEL is there, but it is just not fully optimized. That’s why it is in the presentation that we are trying to optimize the VCSEL.
01:27:14 – So now when you start the process from, again, starting with new wafers, by the time it finishes, it may not happen by June 30th, but it doesn’t mean we are going to miss the milestones. But I want you to just have the mindset here that when we say Q2, [it means] plus/minus few* weeks. It’s not plus/minus quarters.
01:27:33 – Also, just remember, we go from point A to point B. Sometimes we know there’s a straight path, and we say, okay, we’ve got some hurdles and we did a left turn and another left turn and we get there. So it takes a little longer but that’s sounds of science. I’ve been doing that in my life from the Bell Lab days. We think we’re going to make this happen in three months and sometimes it takes nine months, but the beauty of that is, sometimes it takes more time, while we’re making those turns you find some new things in science and that becomes additional applications. So there’s some gives and takes, but that’s what I’m just trying to say, if you say „Oh, my gosh, you promised Q2“, it is not going to be Q2 2017, it’ll be Q3 2016, but it will happen.
01:28:19 – Q: Regarding past discussions on NRE – you had those slides – obviously there’s sensitivity on details, but is there some confidence, over the next twelve months or so, that perhaps we could see something there that could help with the burn rate and cash flow, that alleviates the need for financing?
01:28:42 – Suresh Venkatesan: We would not have put it on a chart if I didn’t think it was possible. Yes, we are confident that we can close something. And yes, that’s the modeling we are doing financially and that’s what we want to spend the next three months and we are really putting a robust plan together. If the financing does come in, then yeah, we don’t need to go to the capital market for financing, because the NRE can do that for us.
01:29:10 – Q: I appreciate the phenomenal job that you and your team are doing. I think you’re doing an amazing job and it’s exciting to see sort of this vision and this strategy. But as a guy that’s been invested – and I’m sitting in a room of retail shareholders here – as a guy that’s been invested for five years, when I look at that slide I say „you’re going to need a lot more patience“. So I don’t know what the catalyst will be that the market recognizes what we have here in POET. But you haven’t mentioned that and maybe you don’t want to talk about the retail share price. I’m thrilled with job you’re doing, but I’m a financial advisor and I have 125 people I respond to, so I’m trying to take away, what should my message be for those individuals?
01:29:54 – Suresh Venkatesan: I think your message should be, „continue to invest“. [Laughter] It’s going to go nothing but up from here. Look, we’ve got tangible assets, we’ve got a factory, this is not vapourware and ideas and Powerpoints anymore. You go visit this factory, I mean, there are people actually building and shipping products with now our logos on it and customers are using it. These guys have built stuff that have gone up in space. I think we underestimate just how big a transition this is! I do believe this is the start of something, an inflection point or a catalyst going forward for us. Because it establishes us as a provider. It establishes us in the hearts and minds of customers as somebody who can deliver real products that work. These are not ideas on Powerpoint. I can now go and talk about our Powerpoint with these customers, on the backs of something that they are actually using. That is POET Technologies. I think it’s fantastic what we’ve done and I think it’s going to be a terrific catalyst for us going from here. It eases our ability to get into the market.
01:31:12 – Q: Why doesn’t the market understand that?
01:31:16 – Suresh Venkatesan: I think it does, no? Have you seen the stock price over the past two months? I guess you have. I believe once we start getting into our quarterly earnings and start making projections on numbers and start to beat numbers, I think that’s ultimately what we’ve got to be able to do.
01:31:40 – Ajit Manocha: I think your message has to be what we’ve shared just today: that this disruptive technology is really now getting ready for next wave of integrated photonics 2.0. We are demonstrating on many ends. We are the only one that can do these things. One chart said that the improvements from the conventional products versus our products was a factor of two minimum, in terms of savings, to thousands of times better products.
01:32:09 – Now, why the market not seeing? We have not been in the market yet. We have not been marketing ourselves. We wanted to have something tangible in our hands – like we have sitting over there – with our products that are actually working. But I can tell you that every time we talk to analysts or investors, when they talk of what we are doing, we cannot boast on what we do in nonselective disclosure. But when we say what we plan to do they say „wow“! We hear wow factor from people so many times. We did road shows. And I think the market will catch up with us once we start reporting our financials at the end of this year. So, and I think the reason for you to be here today is to tell us what we need to tell you, and you can tell us, tell the market and the wow factor will likely help with the share price.
01:33:05 – Q: I’ve been a long-time shareholder, so I have two questions. I have a great respect for both of you guys. But from the retail point of view, we want to be on Toronto Exchange, likely when there’s the move to Nasdaq, so that’s our humble request. We’ve been in this stock for more than five, six years. So that’s one request. Number two is, having seen this presentation, you have so many things to do. I really don’t know – I feel like – whether you can do this, because you are very small management, but so many things to do. I feel like you are spreading thin. Can you address that?
01:33:49 – Suresh Venkatesan: Ya, well, I mean, you’ve got to do things to get places. So yes, absolutely, we have a lot of things to do, but I think we’ve now added more people to the team through the acquisitions. So I think our intent is to grow the team, as we grow the business.
01:34:10 – I don’t think I’m uncomfortable where we are today. I think Jerry has been running the organization for many years, and is capable of driving that, and Bill is coming on board, so I think we’ve basically tripled, if you will, management oversight over what it is that we want to be able to do. Plus our intent is to grow. So I think we will grow our engineering staff commensurate with the plans we intend to put into place over the next quarter, which is establish the revenue targets, establish the spend rate, and establish what our headcount needs to be and go through the standard process of hiring.
01:34:50 – Q: The 850nm VCSEL-based transceiver is not relying on any of the DenseLight technology integration?
01:35:01 – Suresh Venkatesan: No, no.
01:35:02 – Q: Good. I think the market needs to understand that, because retail shareholders will spin: „Oh, they bought DenseLight! They need DenseLight to make POET work“.
01:35:12 – Suresh Venkatesan: They’re accretive to each other. There are applications, outside of VCSELs, where cleave and code technology, for example, can come into play, and expand the POET technology out of VCSELs and to in-plane lasers, which is another huge application of gallium arsenide technology. So that’s where the accretion comes in which is, can we now take the POET epitaxial stack and only lasing vertically as a VCSEL, can I now use some of the capabilities that the DenseLight team has regards to cleave and code and facet creation and mirror creation and create new products using the POET epitaxy. That’s where Denselight comes in, expanding our range of potential products.
01:35:57 – Q: So the short range, very short range AOC will remain where it is on the roadmap, it’ll be our first device …
01:35:07 – Suresh Venkatesan: That’s correct, that’s right. There will be other things that we will leverage, there are testers and probers and characterization equipment and burning equipment and things that you need to make a product sell and then go to the market with them. But yeah, it’s the VCSEL based transceiver, it’s the POET technology.
01:36:25 – Q: Last year you went on a road show to Europe, is there any plans to follow up on that or what is your promotion plan going forward from here?
01:36:36 – Suresh Venkatesan: We will put together a promotion plan again. We’ve had some roadshows, non-deal roadshows, and now that we’ve got these acquisitions done – I was extremely busy over the past quarter, as you might imagine, trying to get these buttoned up – that we’ll now start putting together another plan. Our intent is to visit customers so we are going to be in various regions across the world over the next 30, 45 days, 60 days, in Asia and Europe, and I think it would be good for us to align calendars at that point in time and establish roadshows accordingly while we’re out there visiting customers anyway.
01:37:25 – Q: Thank you very much. That was an impressive technology roadmap, my gut tells me it’s overly ambitious and I’m wondering if you should take some of your core technology and spin it out for other partners to take over on some of those other applications, which to me are just too much to believe you can do all of that.
01:37:51 – Suresh Venkatesan: Oh, there are different market applications, so I think the roadmap might seem overwhelming to you but, I mean, you know, in my past we’ve dealt with roadmaps that are a heck of a lot more complicated than this [laughs]. You know, a lot more product applications. So when we talk about these different products, the base underlying technology is similar and then you tweak a few things to go into different applications and they create different products. So DenseLight has a suite, if you go on the website, 40, 50 products. It’s a management of demand and supply for those products, but the base engineering is small changes. I don’t think it is as overwhelming as it might appear on a Powerpoint slide. We have to create a compelling roadmap that is end to end, but if you’re creating a 10 gigabit per second laser that can do telecom, surely that product can also do datacom. There is some synergy across the various products and various markets and it’s not each being a very, very distinctive technology.
01:39:07 – Ajit Manocha: He’s busy, he still sleeps about 5 hours, I don’t know why. [Laughter] But to your point and your point, somebody quoted me about IoT Bombay and the speech I gave six months ago. I was saying, on the career, for successful executives you have to be a juggler also. This guy is one of the best jugglers I know, so he can juggle a lot of things and he can did a lot more than what he is doing now, in his previous life so I am fully confident. But only, more importantly, we’re all behind him, all the whole board, every member of the board is involved in some aspect to support Suresh and this is the most active board. I’ve been on many boards before, I think these board members think, gosh, I’m spending so much time with Suresh and Ajit and Peter and so on, we’re not leaving him alone, we’re supporting him and he will get results. And we also have the small company mindset. We don’t want to just go and hire hundreds of people and have the budget go out of the roof, you know, so we are managing it very carefully. We are fully confident that we can execute on the plan that we shared with you.
01:40:20 – Q: In terms of the POET proposition, or advantage, you emphasized cost, power and size, but the presentations used to also emphasize speed and I noticed that’s no longer mentioned, does this go without saying or?
01:40:46 – Suresh Venkatesan: The speed is the standard. You’ve got to be 10 gigabits per second (Gbps) or 25 Gpbs and that’s the base. The speed is the standard, so now it’s a question of can you deliver that with lower size, lower power, lower cost. The speeds are set standards that you’ve got to meet. Does that explain the question? When I talk about 10 Gbps, which is the product that we’re trying to sell, or 25 Gbps, that is the standard in the industry that you have to meet. Now can you deliver that at lower cost, lower size, lower power? That’s where the differentiation comes in, because everyone will have solutions at 10 Gbps.
01:41:33 – Q: It used to be that that was an emphasis, for the POET advantage was 10 times the speed and that seems to be not there.
01:41:43 – Suresh Venkatesan: For the applications that we’re focused on, the speed is set. It’s ticket to play, you have to have that speed. The question is can you deliver that speed with differentiation. It’s a different way of parlaying, if you will, what our advantages are.
01:42:05 – Ajit Manocha: I’d like to thank everyone for your participation [applause] in person and participation via the phone lines and you people asked great questions. I am sorry we could not address all the questions, but I think we’ll continue to have these periodic meetings. First of all, I want to thank you all, as shareholders, without you we would have nothing here.
Special thanks to Peter Copetti
01:42:34 – Ajit Manocha: But then, you know, they say, behind every success there is some person. In this case there is one person I want to highlight, Mr. Peter Copetti, please come here. [Applause]
01:43:00 – I did not know Peter Copetti until July of 2014, when I first met him and said „who the hell is this guy“, doesn’t know anything about technology, but is talking a lot about technology. Financial guy, he inspired me with his first phone call with me, and I believed in him. I think whoever we are here, if there’s one person that I want to single out, that’s Peter Copetti. He brought the company where it is today and now it’s the job of Suresh, with our support, to take it further. So Peter, I really thank you. I think you did a wonderful job, you got a great vision, you went after the people who would have never come if it was not you, as simple as that. So I really think we owe it to you for your leadership here and you are not only a friend also now, but you are the ringleader of this clan and you will remain connected with us forever.
01:43:55 – Peter Copetti: Absolutely. I won’t keep you long, I want to first of all thank the shareholders, obviously. There are people in the room that have been invested in the company even before I got here which is almost four years, and your continued support has allowed it to happen. I want to thank Geoff and the UConn team, want to thank Brant Securities, IBK, AlphaNorth and Pinetree, because those are the guys that in June in 2012 that really enabled me to start the turnaround. They all wrote cheques. There’s past board members, who are not here, like Sam, Leon Pierhal, Mark Benadiba, Stephane Gagnon, former CEO, who all had parts in this turnaround. So, I think that this is the future and yet I think it’s important that we don’t forget who allowed us to get here.
01:44:42 – Having said that, I’m the guy that takes meticulous notes every night, you all know that my e-mails are horrible, spelling mistakes are everywhere, they are very short and to the point. But each night I make notes about everything. I looked back, I spent a week in the Grand Canyon right after I left POET, sort of, just, you know, turning off, and I looked back, I brought some of my journals with me, back in June and July. If I look at the vision I had back then for this company and what’s happening right now, there’s a really good parallel. I needed to have a great team, I knew I had a great technology, I wanted to make sure that we derisked the technology, we had a great roadmap.
01:45:19 – I think one of the first inflection points with that company was bringing in Ajit. I used Ajit as sort of the cornerstone to bring in other talent, other board members and really sort of transcend the company. Having Suresh and Subhash and the rest of the team is phenomenal and we went over to see Jerry and the team. And of course, Suresh is always focused on the products and the technology. I was focused on whether I thought there would be a meeting of the minds, because you need that in M&As, and I think Jerry and the team are phenomenal. You guys haven’t really met the team, these guys are fantastic. If I look at my investment in the company and everything, I think it is in the right hands.
01:46:01 – I would not underestimate the power of grandfathering POET technology to existing customers of DenseLight. Okay? That’s extremely important! What we’re doing is basically vertically selling, right? If you had POET alone it would be much more difficult. You have a customer base now that‘s booked in. I think that’s extremely important for everyone to realize.
01:46:24 – Ajit Manocha: Thank you, Peter!
1 An earlier version read „two“ instead of „few“; fixed on 2016-07-20.
2 Read „an option“ instead of „adoption“ before; fixed on 2016-08-05.
3 Some minor fixes on 2016-10-27.
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