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Luxtera: The Long Road to Success

LightCounting looks at Cisco’s $660M deal to acquire silicon photonics vendor Luxtera

2018 was already a good year for silicon photonics, but managed to end on a high note with Cisco announcing its intent to buy privately held silicon photonics vendor Luxtera in a deal worth $660 million in cash and assumed equity rewards.

Luxtera is one of the optical industry’s oldest start-ups, founded in 2001 by a group of entrepreneurs out of Caltech in the U.S. Their ambition was to deliver the next generation of high-speed optical components at scale using manufacturing methods borrowed from the microelectronics industry. The company focused on automation, not just in the foundry, but also in test and packaging. And they have delivered: in late 2016, the company said it had shipped more than one million optical transceiver products in the 100G PSM4 format aimed at hyperscale data centers. In terms of shipments (Figure 1), Luxtera has become a significant player in the silicon photonics space.

Figure: Sales of optical transceivers based on silicon photonics

Source: LightCounting, Integrated Optical Devices, May 2018

The start-up’s founders and investors took a long-term view on yet-to-be-proven technology, but have been handsomely rewarded for their vision and persistence. Luxtera has raised about $130 million in venture capital since it was founded; investors must be very happy with the company’s $660 million exit.

“From government funded academic research to early commercial deployment to global scale, Luxtera is a case study in taking an already difficult path and proving naysayers wrong,” said Peter Hébert, managing partner of investor Lux Capital, in a blog post on medium.com.

That vision and persistence will find a good match at Cisco, which threw a spotlight on the potential of silicon photonics when it purchased Lightwire for $271 million in 2012. Assuming the purchase of Luxtera is consummated, Cisco will have invested more in silicon photonics technology than any other player – even the U.S. Government.

For comparison, the American Institute of Manufacturing Integrated Photonics (AIM Photonics), has attracted around $600 million of investment to develop a national photonics platform. The U.S. Department of Defense is investing $110 million over five years supported by a consortium of dozens of industry partners, universities and trade associations.

Although manufacturing initiatives like AIM Photonics in the U.S. are intended to lower barriers to commercializing integrated photonics technology, this kind of industrial transformation does not happen overnight. Including the Luxtera acquisition, Cisco will have invested close to one billion dollars while Luxtera acknowledged in a press release that they have invested more than $250 million to develop silicon photonics technology. This underscores the fact that companies still need a lot of cash to play in the silicon photonics space. Indeed, Mellanox – which had purchased Kotura – curtailed its 1550nm silicon photonics activities in 2017 as shareholders were not prepared to stay the course.

Nevertheless, progress in SiP technology is encouraging. Sales of optical transceivers based on SiP components doubled in 2015 and 2016 before settling down to a more moderate rate of growth: 22% in 2017, according to LightCounting’s report on Integrated Optical Devices, published in May 2018. Contrary to expectations for an abrupt market disruption, our analysis suggests that SiP technology will gain market share gradually, with sales reaching $2.4 billion by 2023.

LightCounting subscribers can download the full research note here: https://www.lightcounting.com/login.cfm
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More information about the impact of photonic integration on the optical communications market is available in LightCounting’s report: Integrated Optical Devices, May 2018.



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LightCounting is a leading optical communications market research company, offering semiannual market updates, forecasts, and state-of-the-industry reports based on its analysis of primary research with dozens of leading module, component, and system vendors as well as service providers and other users. LightCounting is the optical communications market’s first choice source for the accurate, detailed, and relevant information necessary for doing business in today’s highly competitive environment. For more information, visit: www.LightCounting.com or follow us on Twitter at @LightCounting.