Gazettabyte spoke with Tim Jenks, CEO of NeoPhotonics about the Santur acquisition, the 10x10 MSA, vertical integration and why optical components is a technology industry trend-setter
NeoPhotonics has completed the acquisition of Santur, the tunable laser and photonic integration specialist, boosting the company's annual turnover to a quarter of a billion dollars.
Source: Gazettabyte
The acquisition helps NeoPhotonics become a stronger, vertically integrated transponder supplier. In particular, it broadens NeoPhotonics’ 40 and 100 Gigabit-per-second (Gbps) component portfolio, turns the company into a leading provider of tunable lasers and enhances its photonic integration expertise.
“Our business over a number of years has grown as the importance of photonic integrated circuits and the products deriving from them have grown,” says Tim Jenks, CEO of NeoPhotonics. “We believe it is a critical part of the network architecture today and going forward.”
Some US $39.2M in cash has been paid for Santur, and could be up to $7.5M more depending on Santur’s products' market performance over the next year.
NeoPhotonics has largely focussed on telecom but Jenks admits it is broadening its offerings. “Certainly a very significant portion of fibre-optic components are consumed in data and storage, and while historically that has not been a significant part of NeoPhotonics, it is a large and important market overall,” says Jenks.
"It [optical components] portends the future of the technology industry"
Tim Jenks, NeoPhotonics
The company will continue to address telecom but will add products to additional segments, including datacom. In July, the company announced its first CFP module supporting the 40 Gigabit Ethernet (GbE) 40GBASE-LR4 standard. Santur also supplies 40Gbps and 100Gbps 10km transceivers, in QSFP and CFP form factors, respectively.
Santur made its name as a tunable laser supplier and is estimated to have a 50% market share, according to Ovum. More recently it has developed arrays of 10Gbps transmitters. Such photonic integrated circuits (PICs) are used for the 10x10 multi-source agreement (MSA).
The acquisition complements NeoPhotonics’ 40Gbps and 100Gbps integrated indium-phosphide receiver components, enabling the company to provide the various optical components needed for 40 and 100Gbps modules. Santur also has narrow line-width tunable laser technology used at the coherent transmitter and receiver. But Jenks confirms that the company has not announced a transmitter at 28Gbps using this narrow line-width laser.
10x10 MSA
Santur has been a key player in the 10x10 MSA, developed as a low cost competitor to the IEEE 100 Gigabit Ethernet (GbE) 10km 100GBASE-LR4 and 40km -ER4 standards.
Large content service providers such as Google want cheaper 100GbE interfaces and the 10x10 MSA module, built using 10x10Gbps electrical and optical interfaces, is approximately half the cost of the IEEE interfaces.
"There is an opportunity with the 10x10 MSA," says Jenks. "The 10x10 does not require the gearbox IC, it is therefore lower cost and lower power, and fulfills a need that a 4x25Gig, with a rather immature technology and a requirement for a gearbox IC, does not."
In August the 10x10 MSA announced further specifications: a 10km version of the 10x10 MSA as well as two 40km-reach WDM interfaces: a 4x10x10Gbps and an 8x10x10Gbps. "There are end users that want to use these," says Jenks.
“The ability for a system vendor to lead is a challenging task. For a system vendor to lead and simultaneous lead in developing their componentry is a daunting task.”
Acquisitions
NeoPhotonics has made several acquisitions over the years, including four in 2006 (see chart). But Santur's revenues - some $50m - are larger than the aggregated revenues of all the previous acquisitions.
"I think of acquisitions as being inorganic for maybe two years and after that they are all organic," says Jenks. The acquisitions have helped NeoPhotonics broaden its technologies, strengthen the company's know-how and acquire customers and relationships.
“If someone says what did you do with this product from that company, they are asking the wrong question,” says Jenks. “By the law of averages, some [acquisitions] do better, some do worse but overall it has been quite successful.”
System vendors and vertical integration
Jenks says he is aware of system vendors taking steps to develop components and technology in-house but he does not believe this will change the primary role of the component vendors.
"Equipment vendors are building some things in-house for a near-term cost advantage, better insights into cost of production or better insights in how the technology can go,” says Jenks. “All reasons to have some form of vertical integration.”
But in technology leadership, no one company has a monopoly of talent. As such vertical integration is a double-edged sword, he says, a company can become quite expert but it can also isolate itself from what the rest of the world is doing.
“The ability for a system vendor to lead is a challenging task,” says Jenks. “For a system vendor to lead, and simultaneous lead in developing their componentry, is a daunting task.”
The world is flat
Jenks, whose background is in mechanical and nuclear engineering, highlights two aspects that strike him about the optical component industry.
One is that telecoms is ubiquitous and because optical components go into telecoms, optical components is a global industry. "The world is very flat in optical components,” he says.
Second, the hurdles to undertake experiments in optical components is lower than the significant capital investment needed for nuclear engineering, for example. "Colleges and universities turn out graduates in physics and electrical engineering that are well trained and need a lighter physical plant,” says Jenks. This aspect of the education promotes a globally diverse and a rather 'flat' industry.
“When I go to a trade show in China, Europe or the US, I'm running into colleagues from the industry that I know from each country we do business, and that is a lot of countries,” he says.
All this, for Jenks, makes optical components a fascinating industry, one that is on the leading edge of technology and also industrial trend.
"It [optical components] portends the future of the technology industry: flatter and flatter with more global players and more global competition," says Jenks. “At the moment it is novel in optical components but in a few years' time it won't be unique to optical components.”
NeoPhotonics at a glance
The company segments its revenues into the areas of speed and agility (10-100Gbps products, planar lightwave circuits - ROADMs, arrayed waveguide gratings), access (FTTh, cable TV, wireless backhaul) and SDH and slow-speed DWDM, products designed 3-5 years ago.
Historically these three segments' revenues have been equal but this year the access business has been larger, accounting for 40% of revenues due to China's huge FTTx rollout.
Huawei is NeoPhotonics' largest customer. “They have been as much as half our revenue," says Jenks. And depending on the quarter, Ciena and Alcatel-Lucent have been reported as 10% customers.