Back on the way up
SPI Lasers has emerged from the telecoms crash leaner and fitter, discovers John Murphy
David Parker, CEO: 'It became fairly obvious that the best market for us was in fibre lasers'.
There are so many photonics dreams lying in the soot and ashes of the Great Telecom Bubble that you could almost write a song about it. It might not top the charts, but it would attract a cult following among investors and entrepreneurs sitting washed-up and friendless in the corners of seedy bars in San Jose. Some companies did come through, usually because they had a solid business outside telecoms, or they had raised so much capital that they did not have time to spend it all.
In those ashes were some great technologies and certainly some very valuable intellectual property. Smoke is rising from some of those ashes as the usefulness of that intellectual property is re-appraised. Light does not just carry phone calls, it can do all sort of useful jobs like welding, machining, ablating, measurement and so on. It is a long time since the laser was regarded as an invention looking for a use.
SPI Lasers is one such phoenix. Having attracted huge venture capital finance and built a sparkling new facility to become a major volume manufacturer of components, it seemed like a waste just to walk away - especially as it has some really important intellectual property, not just in the production and control of laser light, but also in the processes of manufacturing highly specialised components.
SPI has staged a comeback. With a new CEO at the helm, it has persuaded its original investors to put in more cash and this year raised more capital on the open markets to get the band back together and put the show on the road.
SPI Lasers was founded in 2000 as Southampton Photonics. It was a commercial spin-off from the University of Southampton's Optoelectronics Research Centre, and began life brimming with optimism. Its first chairman was Professor David Payne, who led the team credited with the invention of the erbium-doped fibre amplifier.
Telecoms fever was rife at the time and the company intended to create products for Dense Wave Division Multiplexing (DWDM) used in the long haul telecoms markets. The high power, reliability and coupling efficiency of fibre lasers offer great hope in fields like undersea cables. SPI attracted first-round venture capital funding of $55m from some of the biggest names in the venture capital field - at the time, the largest ever first-round investment in photonics.
Expectations were high and the investment was used to create a 40,000 sq ft, highly automated, fibre and Bragg grating manufacturing facility in Southampton. It was always intended that the company would be a full-scale manufacturer rather than a design house. By the time the facilities were completed in 2002, the telecoms market was flat on its face. It was clear that a major change of direction was needed if the company was to continue, let alone recover any value from the massive capital investment.
David Parker was appointed CEO. His background was at Agilent, where he had been VP and general manager of its Ipswich components division, and latterly CEO of Marconi Optical Components, where he arranged the sale of the company to Bookham.
Parker says: 'What we had was a light source that could be applied to many areas outside telecommunications. We decided to take a look at what our core competencies were and to survey the whole market to see if there were other opportunities to leverage our technology. It became fairly obvious that the best market for us was in fibre lasers.
'It is still a relatively new technology, but it is starting to become accepted. There are many players at the low-power end of the market, but really only one competitor in the high-power end. The market for lasers is estimated to rise to $2.8bn by 2008 and fibre lasers are estimated to be $500m of that. So there is plenty of scope for us.'
Parker was able to secure fresh investment of $15-20m to finance the move into this new market, largely from the same original investors. In October 2005 it floated on the London Stock Exchange's Alternative Investment Market (AIM), raising a further £12m to finance the push for even higher power levels as well as expansion in its geographic reach and in application engineering.
Parker says that the SPI technology lends itself naturally to producing higher power outputs. It had already developed the Bragg grating technology needed to generate the fibre laser effect through its work in long haul telecoms, so the challenge was to increase the output power so that the light could be used in material processing. It calls its technique, for using multiple diode sources to pump the active fibre, GTWave. The two key features of its technology are 'ring doping' and 'fibre cladding'. Ring doping puts a ring of ytterbium around the central core rather than in it, making the absorption efficiency much greater. The fibre cladding is a secondary core that guides the light to the dopant more effectively. It overcomes many of the technical problems of producing high powers in fibres with the pumping power available from diodes. The pump fibre and the active fibre are drawn in a single stage, which can be as long or as short as the application requires, greatly increasing the coupling efficiency. Parker says: 'One of my colleagues always says that we can make lasers by the metre or the mile.'
Once the strategic decision was made, SPI was rapidly demonstrating extremely high power outputs; it is currently offering a standard product with a 200W output. In 2003 it broke the kW barrier in the lab, working closely with ORC at Southampton University in a project partly sponsored by the US defence research agency DARPA, and this research is what will be commercialised using its latest cash injection from the IPO. There was immediately a market in replacing gas and solid state lasers, as the fibre laser is more compact and economical over the life of the laser. The beam quality is also much better, leading to a greater control over spot size. SPI says its lasers are diffraction-limited only. It also means that the laser can be mounted further away from the object it is working on, making it easier to design into high throughput manufacturing lines.
The markets that Parker has identified are marking, micro-processing, welding and medical, and they are being marketed under the brand of redENERGY in marking power ranges and redPOWER in heavier industrial power ranges. All of these markets value its features, such as control, beam quality and particularly ease of set-up. They also have the advantage of being extremely reliable with no sensitive optical components and no consumable or moving parts. Parker says: 'Many other laser technologies can take a long time to set up and align. Our lasers work out of the box and there is a very simple PC interface to control all of the beam parameters.'
In the marking application there is always demand for more information to be put into smaller areas so the spot control will be of importance. In materials processing, fibre lasers are being introduced in the cutting of thin materials and in the micromachining of small components. SPI has a customer that is using its lasers to make stents (implants used in heart surgery) and other medical devices, pcb stencils, plate making in reprographics, prototyping and even plastic surgery. The power levels are only just reaching the point where they can be used for the large-scale welding operation of the automotive industry, but customers are currently using its lasers for plastic welding. Parker realises that it will be some time before fibre comes into widespread use, particularly because it would involve the redesign of large automated manufacturing facilities to take full advantage. It can be seen as an advantage that its direct rival IPG is already pursuing that market with its 6kW offering, seeding the market for SPI. Parker is not worried by competition and sees it as a way of validating the technology in the market. SPI has a well-equipped captive manufacturing facility that any rival would be envious of, and that was effectively financed by an earlier venture.
SPI still wants to be a large-scale manufacturer to leverage the investment it made in its speciality fibre facilities, which means its focus is on OEM sales rather than building exotic one-offs for scientists. Having said that, it does not mean it is only looking for applications where hundreds of units are going to be made, but its competitive edge is likely to be where it can bring its facilities to bear.
Being a pioneer of a new technology means that SPI has to be prepared to invest in working with customers on developing the applications that will use its products. To that end it has established application engineering centres in Southampton, UK, and Los Gatos, California, where potential customers can work with SPI's engineers to create OEM products. Part of the funding from the floatation is likely to be spent on opening further application centres to support a global sales drive. Parker says the Far East is the logical place to expand. 'You have to be where people are actually making things,' he says.
Having sorted out the finance and the technology, the next step is to expand sales and marketing. SPI is represented in many countries through a network of distributors, mostly BFI Optilas in Europe. Parker believes distributors are extremely important in gaining coverage rapidly and in providing support and service to customers locally, but he also plans to expand the direct sales operation because only a direct sales force can really evangelise.
So, hopefully for SPI, the song will have a happy ending. Investors are more hard-nosed than they have ever been about the prospects for high technology companies; the challenge now is to get the even more hard-nosed OEM companies to start seeing fibre as the new alternative to traditional lasers in markets that have been traditionally hungry for power.