|Acacia CEO Aiming For Intel, Broadcom-Class Tech Advances |
It's fair game to compare hot optical IPO Acacia Communications ( ACIA) with chip industry powerhouses Intel ( INTC) and Broadcom ( AVGO), says Acacia CEO Raj Shanmugaraj.
And, the startup says it's not running scared of Intel in the data center market.
In a wide-ranging interview with IBD, Shanmugaraj spoke about growing demand for optical devices in internet data centers, in 100-gigabit networks in metropolitan areas, and from China -- a confluence of growth markets that one analyst calls a "super cycle" for fiber optic gear suppliers.
Shanmugaraj says that whether it's video whisked over metro telecom networks or internet cloud-based services, demand for bandwidth is exploding.
"We're seeing some segments growing simultaneously, a cycle where there's a need for bandwidth, video and cloud services that are eating up bandwidth, and things are happening in parallel," Shanmugaraj said. "Whether it's a super cycle may be debatable, but we see it continuing for the long term. We don't see the need for bandwidth subsiding."
Shares of Acacia, a maker of optical modules that plug into high-speed communications networks, have more than quadrupled since its initial public offering in May priced at 23 a share. Acacia stock jumped 12.8% in the stock market today to 115.29, hitting a record high. But Acacia continue to rise after the market close, trading above 120.
Acacia competes with other optical device suppliers, such as Oclaro ( OCLR), Finisar ( FNSR), Lumentum Holdings ( LITE) and Broadcom. Its push into "silicon photonics" technology may also put Acacia on a collision path with Intel, as well as Mellanox ( MLNX), STMicroelectronics ( STM) and other chipmakers.
Both Acacia and Intel are members of the Open Compute Project, started by Facebook ( FB), to develop standards for next-generation data centers. A big part of Acacia's growth, analysts say, could come from providing optical devices that speed up communications within data centers and interconnecting data centers.
Silicon Photonics A Real Market? Well, Acacia Already Shipping
Silicon photonics -- integrating light signals and electronics using semiconductor technology -- is expected to lower power consumption in data centers. While some pundits say the silicon photonics market will take off by 2020, Shanmugaraj laughs and says Acacia is already shipping product.
"This is as real as it can get," he said.
Maynard, Mass.-based Acacia makes digital signal processors and photonic integrated circuits (PICs). The two products are combined in modules that plug into 100-gigabit-per-second or 400 GB network equipment.
Analysts say Intel, privately held Luxtera and others also are pushing hard into silicon photonics.
"There's been a lot of competition on the talking side, not on the product side," Shanmugaraj said. "Most of the names you mentioned -- they are (players) inside the data center.
"They're short-reach applications. Nobody is doing DCI (data center interconnect) over a hundred kilometers or thousands of kilometers like we do. No one can go the distance we can, not to say there won't be competition."
On the other hand, Shanmugaraj says it's fair to compare Acacia with Intel and Broadcom in some respects. He credits Broadcom with being a leader in DSP (digital signal processing) technology, though for different markets. And Intel's advances integrating functions into ever-more-powerful microprocessors helped build the computer industry, Shanmugaraj says.
Acacia's goals in advancing optical technology are similar to those of Intel and Broadcom, he says. "From a technology standpoint, the analogies are not so far off," Shanmugaraj said.
Acacia's Q2 revenue rose 101% to $11 million. It posted earnings per share minus items of 77 cents, up from 19 cents in the year-earlier period.
Acacia CEO's Roots Go Back to Alcatel-LucentPost-IPO, venture capital firms Matrix partners, Commonwealth Capital and Summit Partners own nearly 60% of Acacia.
Acacia's co-founders -- CTO Benny Mikkelsen, Christian Rasmussen and Mehrdad Givehchi -- are veterans of the fiber optics industry. Mikkelsen worked at Bell Labs before the merger of Alcatel and Lucent Technologies. Mikkelsen co-founded Mintera in 2000, where Rasmussen and Givehchi held engineering positions.
Mikkelsen, Rasmussen, and Givehchi started Acacia in 2009, after which Oclaro acquired Mintera in 2010 for $12 million. Shanmugaraj, a former vice president in the optical networking division of Alcatel-Lucent USA, became Acacia's CEO in April 2010.
Analysts say one strategic decision of Acacia has been to sell its DSPs to companies as stand-alone products rather than packaged in its modules. Shanmugaraj says it's doing so only for "select customers" that also buy its modules.
"We are not a merchant silicon provider," he said.
While price-cutting is often a problem in the cyclical fiber optic industry, Acacia expects to produce above-average profit margins. "We are not a component supplier," Shanmugaraj said. "We're selling modules, optical subsystems. ... And we're selling products in silicon, which reduces the cost model."