Avago to acquire CyOptics
- Avago to become the second largest optical component player
- Company gains laser and photonic integration technologies
- The goal is to grow data centre and enterprise market share
- CyOptics achieved revenues of $210M in 2012
How the acquisition of CyOptics will expand Avago's market opportunities. SAM is the serviceable addressable market and TAM is the total addressable market. Source: Avago
Avago Technologies has announced its plan to acquire optical component player, CyOptics. The value of the acquisition, at US $400M, is double CyOptics' revenues in 2012.
CyOptics' sales were $210M last year, up 21 percent from the previous year. Avago's acquisition will make it the optical component industry's second largest company, behind Finisar, according to market research firm, Ovum. The deal is expected to be completed in the third quarter of the year.
The deal will add indium phosphide and planar lightwave circuit (PLC) technologies to Avago's vertical-cavity surface-emitting laser (VCSEL) and optical transceiver products. In particular, Avago will gain edge laser technology and photonic integration expertise. It will also inherit an advanced automated manufacturing site as well as entry into new markets such as passive optical networking (PON).
Avago stresses its interest in acquiring CyOptics is to bolster its data centre offerings - in particular 40 and 100 Gigabit data centre and enterprise applications - as well as benefit from the growing PON market.
The company has no plans to enter the longer distance optical transmission market beyond supplying optical components.
Significance
Ovum views the acquisition as a shift in strategy. Avago is known as a short distance interconnect supplier based on its VCSEL technology.
"Avago has seen that there are challenges being solely a short-distance supplier, and there are opportunities expanding its portfolio and strategy," says Daryl Inniss, Ovum's vice president and practice leader components.
Such opportunities include larger data centres now being built and their greater use of single-mode fibre that is becoming an attractive alternative to multi-mode as data rates and reach requirements increase.
"Avago's revenues can be lumpy partly because they have a few really large customers," says Inniss.
Another factor motivating the acquisition is that short-distance interconnect is being challenged by silicon photonics. "In the long run silicon photonics is going to win," he says.
What Avago will gain, says Inniss, is one of the best laser suppliers around. And its acquisition will impact adversely other optical module players. "CyOptics is a supplier to several transceiver vendors," says Inniss. "The outlook, two or three years' hence, is decreased business as a merchant supplier."
Inniss points out that CyOptics will represent the second laser manufacturer acquisition this year, following NeoPhotonics's acquisition of Lapis Semiconductor which has 40 Gigabit-per-second (Gbps) electro-absorption modulator lasers (EMLs).
These acquisitions will remove two merchant EML suppliers, given that CyOptics is a strong 10Gbps EML player, and lasers are a key technological asset.
See also:
For a 2011 interview with CyOptics' CEO, click here
CyOptics gets $50m worth of new investors and funding
“Volume production scale is very important to having a successful business”
Ed Coringrato, CyOptics
The $50m investment in CyOptics has two elements: the amount paid by new investors in CyOptics to replace existing ones and funding for the company.
“This is different from the years-ago, traditional funding round but not all that different from what is more and more taking place,” says Ed Coringrato, CEO of CyOptics. “Fifty million is a big number but it is a ‘primary/ secondary’: the secondary is tendering out current investors that are choosing to exit, while the primary is what people think of as a traditional investment.” CyOptics has not detailed how the $50m is split between the two.
The funding is needed to bolster the company’s working capital, says Coringrato, despite CyOptics achieving over $100m in revenues in 2010. The money is required because of growth, he says: inventories the company holds are growing, there is more cash outstanding and the company’s payments are also rising.
There is also a need to invest in the company. “For the first time in a long time we are starting to make significant capital investments in our business,” says Coringrato. “We are ramping the fab, the packaging capability, and the assembly and test.”
The company is investing in R&D. At the moment 11 percent of its revenue is invested in R&D and the company wants to approach 13 percent. “That is a challenge in our industry – the investment in R&D is pretty significant,” says Coringrato. “If we are to continue to be significant and have leading-edge products, we must continue to make that investment.”
Manufacturing
CyOptics acquired Triquint Semiconductor’s optoelectronics operations in 2005, and before that Triquint had bought the optoelectronics operations of Agere Systems. This resulted in CyOptics inheriting automated manufacturing facilities and as a result it never felt the need to move manufacturing to the Far East to achieve cost benefits. CyOptics does use some contract manufacturing but its high-end products are made in-house.
“We have been focussed on automated production, cycle-time reduction and yield improvement,” says Coringrato. “The capital investment is to replicate what we have, adding more machines to get more output.”
Markets
CyOptics supplies fibre-to-the-x (FTTx) components to transmit optical subassembly (TOSA) and receive optical subassembly (ROSA) makers, optical transceiver players and board manufacturers. FTTx is an important market for CyOptics as it is a volume driver. “Volume production scale is very important to having a successful business,” says Coringrato.
The company also supplies 2.5 and 10 Gigabit-per-second (Gbps) TOSAs and ROSAs for XFP and SFP pluggable modules for the metro. “We want to play at the higher end as well as that is the where the growth opportunities are and the healthier margins,” says Coringrato.
CyOptics is also active in what it calls high-end product areas.
One area is as a supplier of components for the US defence industry. CyOptics entered the defence market in 2005. “These are custom products designed for specific applications,” says Stefan Rochus, vice president of marketing and business development. These include custom chip fabrication and packaging undertaking for defence contractors that supply the US Department of Defense. “When you look around there are not many companies that can do that,” says Rochus. One example CyOptics cites is a 1480nm pump-laser, part of a fibre-optic gyroscope for use in a satellite.
“We are shipping 40Gbps and 100Gbps coherent receivers into the PM-QPSK market”
Stefan Rochus, CyOptics
The defence market may require long development cycles but CyOptics believes that in the next few years several of its products could lead to reasonable volumes and a better average selling price than telecom components.
Another high-end product segment CyOptics is pursuing is photonic integrated circuits (PICs) using the company's indium-phosphide and planar lightwave circuit expertise.
Rochus says the company has several PIC developments including 10x10Gbps TOSAs and ROSAs as well as emerging 40GBASE-LR4 and coherent detection designs. “We are shipping 40Gbps and 100Gbps coherent receivers into the PM-QPSK market,” says Rochus.
CyOptics’ product portfolio is a good balance between high-volume and high average selling price components, says Rochus.
10x10 MSA
CyOptics is part of the recent 10X10 MSA, the 100Gbps multi-source agreement that includes Google and Brocade. “There is a follow-up high density 10x10Gbps MSA and we will be a member of this as well,” says Rochus. “This [10x10G design] is for short reach, up to 2km, but we are also shipping product for DWDM for an Nx10Gbps TOSA/ROSA solution.”
Why is CyOptics supporting the Google-backed 10x10Gbps MSA?
“The IEEE has only standardised the 100GBASE-SR10 which is 100m and the 100GBASE-LR4 which is 10km, there is a gap in the middle for [a] 2km [interface] which the MSA tries to solve,” says Rochus. “This is particularly important for the larger data centres.”
Rochus claims the 10x10Gbps design is the cheapest solution and that the volumes that will result from growth in the 10 Gigabit PON market will further reduce the component costs used for the interface. Furthermore the interface will be lower power.
That said, CyOptics is backing both interface styles, selling TOSAs and ROSAs for the 10x10Gbps interface and lasers for the 4x25Gbps-styled 100 Gigabit interfaces.
What next?
“The bigger we can get in terms of volume and revenue, the better our financials,” says Coringrato. “Potentially CyOptics is not only attractive for our preferred path, which is an IPO offering at the right time, but also I think it won't discourage others from being interested in us.”
Further reading
UNIC silicon modulator
This is the silicon photonic start-up’s first announced modulator. The design has been developed in conjunction with Sun Microsystems as part of the DAPRA Ultraperformance Nanophotonic Intrachip Communications (UNIC) programme.
An image of the modulator and a cross-section diagram of the ring waveguide. Source: Kotura
Why is it important?
Optical components use a range of specialist, expensive materials. Silicon is one material that could transform the economics for optics. But for this to happen, the main optical functions – light generation, transmission and detection – need to be supported in silicon. To date, all the required functions except the laser itself - waveguides, modulators and photo-detectors - have been mastered and implemented in silicon.
However, the use of silicon photonics in commercial products has till now been limited. For example, Luxtera makes active optical cable that uses silicon photonics-based transceivers while Kotura has been producing silicon photonics-based VOAs for several years. Its VOA is used within reconfigurable optical add/drop multiplexers (ROADMs) and as a dimmer switch to protect optical receivers from network transients.
Kotura is also supplying its silicon-based Echelle gratings product for 40 and 100 Gigabit Ethernet (GbE) transceiver designs that require the multiplexing and demultiplexing of 4 and 10 wavelengths. The company’s gratings are also being used in Santur’s 100Gbit/s (10x10Gbit/s) transceiver design.
Kotura is in volume production of its VOAs and sampling its Ethernet gratings products, says Arlon Martin, vice-president of marketing and sales at Kotura: “The biggest interest is in 40 Gigabit Ethernet.” Given the small size of the gratings, Kotura is also seeing interest from vendors developing 40GbE transceivers in smaller form factors than the CFP module, such as the QSFP.
This will enable 1Tbit/s data rates over a single fibre to connect high-speed multi-core processor computing elements.
Arlon Martin of Kotura.
But the true potential for silicon photonics, one that promises huge volumes, is very short reach optical interconnects for use in high performance computing and within data centres. Having a low power silicon modulator means it can be integrated with other circuitry in CMOS rather than as a discrete design. Such an integrated approach ensures interconnect reliability.
Method used
There are several ways to modulate a laser. Direct modulation uses electronics to switch the laser on and off at the required rate to imprint the data onto the light. An electro-absorption modulated laser, in contrast, adds an element in front of an always-on laser that either passes or absorbs the light. Kotura’s modulator uses a third approach based on a micro-ring resonator and an adjacent waveguide.
The dimension of the ring – its circumference – dictates when optical resonance occurs. And by carefully matching the power coupling of the micro-ring and waveguide to that of the ring loss, signal attenuation– the light-off condition – is improved. The wavelength at which resonance occurs can be changed by playing with the optical properties of the ring waveguide.
Kotura and Sun have demonstrated the silicon modulator working at up to 11GHz, requiring a peak-to-peak voltage of 2V only. The modulator’s insertion loss is also an attractive 2dB though its working spectrum width is only 0.1nm.
“Our power number – 0.5mW at 10GHz - does not include the driver. But if you want to integrate a number of these on one chip, the low power consumption would enable this,” says Martin. Kotura claims the power consumption achieved is the lowest yet reported.
What next?
The modulator is one of the milestones of the DARPA UNIC programme now into the second of its five-year duration. “This [modulator] is prototype work, not a product,” says Martin, adding that Kotura has not fixed a date as to when the modulator will be commercially used.
As for how the device will ultimately be used, Kotura talks of interfaces operating between 100Gbit/s and 1 Tbit/s. Kotura is already working on an independent programme with CyOptics - the NIST Advanced Technology Programme - developing up to 1Tbit/s links using wavelength division multiplexing (WDM). Such designs use separate laser arrays - each laser at a specific wavelength – as well as gratings and photo-detectors.
In the future inexpensive light sources could generate up to 80 separate modulated lightpaths, Martin says. This will enable 1Tbit/s data rates over a single fibre to connect high-speed multi-core processor computing elements.
Is the idea similar to a broadband light source as proposed for WDM-PON? The UNIC partners have yet to reveal the programme’s detail. “Potentially on the right path,” is all Martin would say.
References:
[1] “Low Vpp, ultralow-energy, compact, high-speed silicon electro-optic modulator.” To read Kotura’s technical paper, click here.
[2] "PHOTONICS APPLIED: INTEGRATED PHOTONICS: Can optical integration solve the computational bottleneck?" OptoIQ, March 1, 2009, click here.