This article appears in the February 13, 2001, issue of Red Herring magazine.
Last year, optical component makers had a laserlike focus on innovation. But innovative designs don't go very far unless they can be manufactured en masse and accurately -- something the industry has had a hard time doing. So look for component makers to adopt a dual focus in 2001: innovation and production.
Today, only one out of five optical components passes final inspection, making optical component-manufacturing powerhouses like JDS Uniphase (Nasdaq: JDSU) and Corning (NYSE: GLW) understandably desperate. The solution that they are currently exploring is planar technology.
This new technique -- which uses machines to embed optical components in silicon wafers -- will drive down production costs, increase production yields, and boost margins, say proponents of the technology. Though the technique is still in its infancy, SDL was so convinced by the planar solution that it acquired privately held Photonic Integration Research for $1.8 billion in May 2000. As the technology catches on, expect several private, planar-based companies to issue IPOs this year, including Scotland's Kymata, Japan's NTT Electronics, and U.S.-based Lightwave Microsystems and Nanovation Technologies.
OUT OF FOCUS Spencer Punter, general partner at Bowman Capital, which participated in the financing rounds that raised $164 million for Kymata, says the current production method, using tweezers and microscopes to assemble optical components, is woefully inefficient and simply no longer viable -- especially given the imbalance of supply and demand.
Success just wasn't in the picture in December for Lexar Media (Nasdaq: LEXR), a manufacturer of high-performance digital film and connectivity products. It turned in the worst performance in the IPO 100 for the three weeks ended December 29. After closing flat on its first day of trading way back on August 15, the stock has been on a downward spiral that left it at just $0.94, a drop of 82 percent. The latest wave of selling occurred after the company issued an earnings warning due to declining sales to major customer Eastman Kodak (NYSE: EK) and increased competition for its retail stores in the United States and Japan.
The IPO 100 did have its overachievers, however. A French smart card company, Gemplus (Nasdaq: GEMP), led the way. The company gained 25 percent on its first day of trading, December 11, and ended the month at $17.75, up 62 percent. The strong return came thanks to Gemplus's continued market share inroads in European and Asian markets. Meanwhile, Pozen (Nasdaq: POZN), a maker of migraine drugs, captured the No. 2 spot as its shares popped 60 percent to close out the month at $18.25. Perhaps investors were stocking up on headache medication for 2001. Who could blame them?
Write to stephen.lucey@redherring.com.