ROADMs

The concluding part of the interview with Finisar's executive chairman and company co-founder, Jerry Rawls, to mark the company's 25th anniversary.

Second and final part

Guys that are in the silicon photonics industry have a religion. It does not make any difference what the real economics are, what the real performance is, they talk with a religious fervour about what might be possible with silicon 

Q: Over 25 years, what has been one of your better decisions?

Jerry Rawls: After the crash of 2001, we asked what are we going to do in the optics business? Are we going to stay in it? Is there a bright future? And if so, how are we going to respond to it?

We still believed that this was an attractive market and we had built an important brand. And, we knew we could make it more successful in the future, but we were going to have to change the way we did business.

Deciding to become vertically integrated was the key change. At that time, every other company was trying to sell their assets and remove their fixed costs. They were outsourcing manufacturing instead of bringing it in-house. Everyone wanted a variable cost business model, not a fixed cost model. We clearly went against the mainstream.

That is one of the better decisions we ever made.

Equally, with the benefit of hindsight, what do you regret?

A couple of acquisitions that we made in our early years turned out less than desirable. We were sold some technology for which we believed the probability of success was high. We bought the companies based on their technology, not necessarily on their business, and it did not pan out. One thing we learned from those experiences is that when we buy a company, we try to be much more careful about our due diligence.

Another one I regret, although I don't think it was a bad decision: We had created a division in the company called Network Tools that was the leading company in the SAN (storage area network) industry for protocol analysis.

Every company in the world that was creating SAN equipment bought our protocol analysers for Fibre Channel. That was about a $40 million-a-year business and nicely profitable. We sold it [to JDSU] in 2009 and I regret that because we started that business from scratch. It really helped create the SAN industry; it helped our customers prove their equipment interoperability. 

We sold it because we had that $250 million in debt we had to pay off. We had borrowed the money and it was now due. It [2009] was still not a great time, we were trying to raise cash and one asset that had value was this division. 

How would you describe the current state of the optical component industry and the main challenges it faces?

The optical component industry is in a pretty healthy place. For the most part, the larger companies are doing quite well. Our business is doing nicely. We have had four quarters in a row where revenues have grown, our profitability metrics are improving and our outlook is good. A lot of that has to do with our focus on the data centre market.

We anticipate increasing dollars spent worldwide by phone companies over the next five years

The speeds and feeds in data centres are increasing dramatically: data centres are becoming larger, the connections are faster - connections that used to be copper back in the days of Gigabit Ethernet are now at 10 Gigabits and mostly optical. That transformation of copper to optics that took place in the telephone world 35 years ago is now in full bloom in the data centres. So it is a great time to be in optics because the trends are rolling our way.

We are anticipating spending growth in the telecommunications world with an upgrade in global networks to deal with growing Internet traffic. These networks are changing to very sophisticated ROADM [reconfigurable optical add/drop multiplexer] architectures and 100 Gigabit transmission rates.

We anticipate increasing dollars spent worldwide by phone companies over the next five years. So that sector is going to become healthier and hopefully a larger percentage of our business.

I believe the optical component industry has a number of market opportunities that are going to keep it pretty healthy for some time.

It does not mean that we don't have challenges. The industry, and in particular telecommunications, is fragmented. There are a number of competitors that have very small market share. Many of these competitors are focussing their R&D efforts on the same products - the next generation of telecom equipment - and that is very inefficient. That is the main challenge that the optical industry has, that this fragmentation leads to inefficiency.

That limits the margins of the companies and the industry. It also means that pricing in the industry is at a lower level than component suppliers would like to see.

How that works out is not clear. You could say that in a fragmented industry, you would like to see more consolidation. There will be a little of that. But there are some parts of the industry where consolidation will be very slow.

For example, all of the Japanese optical suppliers are likely to stay in business for some time. Almost every big Japanese electronics company has an optical division, and they always have. None went out of business in the crash of '01 and none went out in the crash of '08 – ’09. That is because these optics divisions are small parts of giant conglomerates. This fragmentation problem is difficult to solve.      

Datacom and the data centre appear to be a more interesting segment in terms of driving change than telecom. How do you view the two segments going forward?

I think both are interesting.

The data centre is interesting because of the increased density of Gigabits-per-square-inch on the faceplates of equipment, whether it is switches, storage or servers. Then there is the faster connection speeds between devices and the demand for low latency. The physical size of some of these data centres is demanding that certain connections become single mode - more like wiring a campus as opposed to multi-mode historically used in single buildings.

The datacom market is also very interesting because of a number of connections changing from copper to optical as speeds get faster. Copper transmission demands too much power through big cables at these higher speeds.

In telecom, today what is really exciting is the advent of coherent transmission systems, in particular at 100 Gigabits moving to 400 Gigabit and 1 Terabit-per-second in the next decade.

Coherent transmission is revolutionary in that by using electronics rather than optics to do signal correction for long distance fibre transmission, these signals can be much more efficient, run faster and be much less costly than they have ever been in the past.

Coupled with that is the automation of these optical networks through the extensive use of sophisticated ROADMs. With the next generation of networks, truck rolls to do provisioning and reconfigurations will be almost eliminated.

So there is a lot of excitement for us just because of what is coming to telecom networks. We have been through a lull for the last couple of years but it is a cyclical industry that tends to follow technology waves. We are entering the 100 Gigabit transmission wave and the sophisticated use of many, many ROADMs in these networks for automation.

We have designed silicon photonic chips here at Finisar and have evaluations that are ongoing

Silicon photonics is spoken of as a disruptive technology for datacom and telecom. It also promises to disrupt the component supply chain. What is Finisar's take on the technology?

As a company, we are very product focussed and we want to deliver transmission products and switching products, etc. that fulfill our customers' needs. We don't really care what the technology is. We are going to invest in technology that enables us to build the highest performing and most efficient devices that we can.

Silicon photonics is an interesting technology. We haven't used it in any of our products so far with the exception of a silicon waveguide in an integrated receiver. The most interesting thing about silicon photonics is not just to be able to make waveguides for multiplexers or demultiplexers, but to make modulators.

People have been speculating for years that we will have to use external modulators to achieve higher transmission speeds as we won’t be able to directly drive a laser fast enough.

We make VCSELs by the tens of millions. When we were making them at one Gigabit-per-second [Gbps], there were those in the industry that predicted that we would never be able to run at 2 Gbps as it would be impossible to modulate the lasers that fast. Then we did 2 Gbps, and then there were those that said it would be impossible to do 4, 8 or 10 Gigabits. Well, we are shipping devices today that are 25Gbps VCSELs that are directly modulated.  

At every one of those steps there were people investing in silicon photonics companies because they could build modulators they thought would run that fast. I believe every one of those silicon photonics companies went broke.

We now have a new wave of silicon photonics companies. And because Cisco Systems happened to buy one [LightWire], there has been a lot of excitement about silicon photonics.

Well, the physics are such that it is always more efficient to directly modulate a laser - that is, to drive it with an injection of current - than it is to have a continuous wave laser where you externally modulate the light. The external modulation takes more power, more components and more cost.

Guys that are in the silicon photonics industry have a religion. It does not make any difference what the real economics are, what the real performance is, they talk with a religious fervor about what might be possible with silicon. 

To date, no one has been able to make light out of silicon. That means one can make a silicon modulator and a silicon waveguide but still have to buy an indium phosphide laser to create light. Then they would have to bond that laser to the silicon substrate in a way that it efficiently launches light, is mechanically stable, and hermetic and that it will stand the rigours of all these networks. That means it can be deployed for 10 or 20 years over temperatures of 0 to 85 degrees C, and survive the qualification torture tests of high humidity, high heat and temperature cycling.

One of the things in the silicon photonics industry to date has been that the packaging - and therefore the yields - have been so difficult, such that the costs have been very high.

I promise you today that for almost every application, silicon photonics costs are higher than using traditional indium phosphide and gallium arsenide lasers and direct modulation.

We don't ignore silicon photonics as a potential technology.

We have designed silicon photonic chips here at Finisar and have evaluations that are ongoing. There are many companies that now offer silicon photonics foundry services. You can lay out a chip and they will build it for you.

We can go to a foundry; we can use their design rules and libraries and design silicon modulators and waveguides and put together a chip with as many splits and Mach-Zehnders that we want. The problem is we haven't found a place where it can be as efficient or offer the performance as using traditional lasers and free-space optics. 

Our packaging has been more efficient and our output has been at a higher performance level. Remember that silicon is optically quite lossy. That means you have to launch a lot of light into it to get a little light out.

So far we just haven't found a product where we thought silicon photonics modulation was as efficient as we could build using some other technology. That is true today.

We may use silicon photonics one of these days. In fact, if we look back five or 10 years ago, when we predicted what we would need to build a 100 Gig transponder, silicon photonics was one of our alternatives, and one of the paths we went down in parallel in completing the design.

As it turns out, traditional optics and micro-optical components exceeded our own expectations.

I compare it to the disc drive industry. Twenty years ago people were predicting the demise of the disc drive industry because of solid state memory. It was thought impossible that disc drives would be around five years hence. Well, the guys in the disc industry learned how to increase the bit density and the resolution of the heads and look at the industry today. You can buy a Terabyte drive for less than a hundred dollars. The amazing technology advances they have made have kept them in the game.

What are the biggest challenges facing Finisar?

The biggest challenge we face is meeting the changes in the industry. The use of information is becoming so pervasive - video everywhere and 4G networks - that means all the kids are going to be streaming HD video to some device in their hand. And there is going to be billions of them.

Also, another challenge is managing the expectations of our customers - the equipment companies - in terms of delivering the speeds, densities and the low power performance needed to provide all this information.

It is a daunting task.

We have customers today trying to design systems that will have Terabit-per-second optical links. We don't know how we are going to get there yet but I promise you we will.

The industry in 25 years' time: Still datacom & telecom or something else by then?

In 25 years' time, datacom and telecom will be much more converged.

The data center today is becoming more like wiring a campus network than it is wiring a building as the distances become larger and the speeds faster. Today in data centers we only use point-to-point connections; we use no multiple wavelengths on fibres.

In the telephone world, everything is WDM. Today we are using mostly 96 wavelengths on a single fibre. Those 96 channels can all run at 100 Gbps – a total of nearly 10 Terabit on a single fiber. In the data center world most connections are single wavelengths, point-to-point.  But in 25 years, the data centers are going to be using many of the techniques that are used in the telecom networks today in terms of making efficient use of fibres, using multiple colors of light, and being able to switch those individual colours.

For the first part, click here