Tech’s Fast Lane: No Easy Trip
Denny Miu, founder of Integrated Micromachines in Pasadena, has a challenging year ahead. If his fledgling company can gain customer acceptance of its optical switch for Internet traffic, the 43-year-old former UCLA professor’s dream will be fulfilled and Southern California will have one more example of its eminence in today’s hottest tech field.
But life in technology’s fast lane is no picnic. A San Diego firm, Optical Micro-Machines, already has a head start in shipping similar optical switches to customers. Optical Micro, which also has a connection to UCLA, has collected massive venture capital and is preparing to issue public shares nine months from now.
Yet the field of components for Internet transmissions over fiber-optic cables is growing so fast--at least 100% a year--that Miu’s firm has an excellent chance of succeeding and hitting it big. Optical components, after all, are the subject of today’s most eye-popping merger offers--JDS Uniphase’s $41-billion bid for SDL Inc. and Nortel Networks’ proposed $100-billion arrangement with Corning Inc.
More than a story of money and technology, Integrated Micro and its San Diego rival, Optical Micro, reflect the adventure--and pressure--of business today as well as the deep foundations of research, experience and talent in Southern California.
The fact that Internet traffic moves most commonly as light pulses through fiber-optic cables is one factor driving the telecommunications business today.
The growth of the Internet into what experts describe as “a thousand-lane coast-to-coast highway” is the other factor. “Demand is outpacing capacity for optical components and will continue to do so for several years,” predicts James Jungjohann, an investment banker at CIBC World Markets who advised on the JDS-SDL offer.
Giant suppliers of telecommunications equipment, Nortel, Lucent Technologies, Cisco Systems, Siemens and smaller firms such as Sycamore Systems are looking for ways to switch message traffic on fiber superhighways. Many use lasers, conventional electronic semiconductors and amplifiers to make up for the 30% loss of signal strength that occurs with most switching.
But the switch that Miu invented in collaboration with colleagues at UCLA and at Caltech, where he served as research scientist from 1991 to ‘95, doesn’t suffer such losses. Optical Micro’s optical switch likewise cuts signal loss.
In both devices, mirrors controlled by microelectronic silicon machines bounce message-carrying light pulses from one fiber strand to another.
The effect is to increase the capacity of any fiber network. “We eliminate the need for a $1,000 amplifier,” says Miu, who founded Integrated in 1995.
But Integrated still isn’t able to ship its optical switch. It will send samples to customers this fall and hopes to ship switches in volume, at $700 apiece, early next year. What held it up?
Timing and prudence. When Miu left UCLA and Caltech in 1995 to set up his firm with $100,000 of his own savings, the Internet was undeveloped and there was no market for optical switches. (Those universities today share 50% of his optical switch patent.)
Miu attracted capital from Singapore investors who liked the switch idea but wanted him to manufacture something to earn cash. Miu agreed and his firm started making sensors of the kind that govern fuel injection and heart monitors.
“The idea was that cash flow from sensors would support optoelectronic research,” explains Miu, who came to the United States from Macao at age 15 and earned mechanical engineering degrees and a doctorate from UC Berkeley.
But business today is not kind to such a rational pace. Other companies were working on optical devices as Internet traffic grew. In 1997, Anis Husain founded Optical Micro in San Diego with an assist from Ming Wu, a scientist at UCLA.
Husain, who was born in India and educated in London, had worked in photonics for Honeywell and as assistant director of the U.S. Defense Advanced Research Projects Agency, or DARPA. His new firm plunged into developing an optical switch. It attracted investment from venture capital groups and telecommunications companies--$22 million last year, $75 million this June.
Optical Micro shipped product in March and has gone from 90 employees to 180.
Integrated Micro saw last year that its moderate pace wouldn’t work. So it is selling the sensor business to concentrate on the optical switch. It has attracted $15 million in venture capital from Adams Capital Management of Pittsburgh and Edward Tuck of Kinship Partners of West Covina, a specialist in telecommunications investment.
The venture firms helped Miu recruit personnel and the firm has gone from 10 engineers to 32--and total employment of 55. It will double its staff by year’s end.
Both Integrated and Optical Micro count the availability of skilled people as a big reason to be in Southern California. “Skilled people are here from the defense industry and from the universities,” says Conrad Burke, a vice president of Optical Micro.
In fact, experts say, five universities lead the world in optical science and the Internet and three are in Southern California: UC Santa Barbara, UCLA and Caltech. The other leaders are Massachusetts Institute of Technology and Britain’s Southampton University.
What really is the outlook for Integrated, which is coming slightly late to a fast-moving market? “Success depends on execution,” says investor Tuck.
If Integrated wins customer acceptance of its product, revenue will start rolling in early next year--the firm expects $50 million--and fresh financing will be easy.
Miu now owns 5% of the firm he founded, after giving up equity to Integrated’s backers. That stake, worth a hypothetical $1.2 million on present valuations, could grow dramatically or disappear depending on whether his invention succeeds. “It’s a message for all entrepreneurs,” Miu says. “It’s better to risk and have a chance at something substantial, with real value. It’s the American dream.”
Alive as ever in Pasadena--and San Diego.
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James Flanigan can be reached at [email protected].
