DECEMBER 22, 2008 By Meghan Fuller Hanna -- Agile optical module supplier Nistica (search for Nistica) today announced an additional $4 million in debt and equity financing. The company also offered its thoughts on the state of the edge ROADM market and its strategy for ensuring that the next 12 months are as successful as its last 12 months.
Nistica has added Fujikura Ltd., an existing sales and manufacturing partner, as a new investor, as well as the New Jersey Economic Development Authority (EDA), and RBC Bank's Knowledge Based Industries.
Ashish Vengsarkar, CEO of Nistica, confirms that the funding will be used for two purposes. The first is to scale production of the FULL FLEDGE 1x2 wavelength-selective switch (WSS) the company unveiled at OFC. Nistica is also working with Fujikura to transfer volume production of the FULL FLEDGE product to Vietnam.
According to Vengsarkar, "fantastic customer traction" for the FULL FLEDGE product line requires the company to scale production as well as enter into a capital lease line and secure an A/R facility with RBC Bank's Boston office. "As our customer orders are coming in and we are shipping those orders in quantity, we need an accounts receivable line, which the bank has allowed us to put in place," he explains. "So those are the two major things we'll be doing with this money coming in."
In the near term, he predicts solid sales for the 1x2 WSS, which he claims is "hitting the sweet spot very effectively right now for existing products, for customers who are releasing systems into the market in the first and second quarters of 2009. Those programs are already in place," he confirms, "and we feel good about them."
Nistica positions its FULL FLEDGE 1x2 WSS as a low-cost edge ROADM, but the company is quick to note that it also provides the requisite features and functionality to operate in the core network--assuming the customer needs only a 1x2 configuration. "We have put a restriction on the number of ports, in terms of what we are selling," Vengsarkar explains, "but the performance is good enough to be in the core as well as at the edge."
While sales into existing systems are solid, Vengsarkar admits visibility into what he calls the "extreme edge ROADM" market is limited at best. "Will [customers] be building newer systems, newer architectures where they would effectively remove all fixed filter, fixed WDM solutions and replace them with the extreme edge ROADMs?" he muses. "We don't know the answer to that, and it may be delayed further with the focus on cost reductions and cash conservation."
The knock against edge ROADMs has been the expense of such devices, which prohibits their ubiquitous deployment (see "ROADMs now mainstream, but innovation continues"). While Vengsarkar is well aware that the current economic climate may force customers to delay the deployment of "extreme edge ROADMs," he says Nistica plans to adopt a pragmatic business strategy going forward.
First, he says, Nistica is "trying to get as much transparency as [it] can all the way up the food chain." The company is talking to both its customers and its customers' customers to better forecast future orders.
Second, the company will not build up capacity based on estimates for potential, non-binding forecasts, Vengsarkar contends. He remembers the lean days of the telecom bubble, during which companies "at the lower end of the food chain" anticipated a lot of business coming in--but so did their competitors. "Effectively, the actual business was a fraction of what you anticipated," he recalled. "You built up huge fab lines, and you never got to the capacity you wanted."
Instead, Nistica plans to manage its capacity build out, waiting until it has binding or "very concrete orders" before it begins to acquire material and build product, says Vengsarkar.
He also points to some of the company's existing initiatives--particularly leveraging partnerships--as good examples of what component companies can do to help ward against the economic downturn. "For example, we work with Fujikura to build our product in Vietnam so we don't have to scale the capacity ourselves," he notes. "We work with Texas Instruments to put their DLP technology in our chips. Effectively, we are relying on Texas Instruments' fab to build the DLP chips for us, and they, in turn, leverage the high-volume industry for HDTVs and display applications."
For his part, Vengsarkar believes today's funding announcement is "a confirmation of the fact that there are pockets of the industry that are doing well. And while we remain watchful of what may happen next year, we feel good about where things stand right now," he maintains.