Everything connects

Xloom Photonics adapts design techniques from the electronics industry to optical components.

The next technology crisis will be in the field of interconnectivity, says Xloom Photonics CEO Avner Badihi. We coined name Xloom from loom, since we wanted to weave fiber optics, and X, which always sounds high-tech. Processors currently work at speeds of 10 Gbps, but transmissions speeds between processors by copper wire are much slower, and even certain fiber-optics solutions are slow. The result is a bottleneck.

Badihi was one of the founders of AVX Corporation (Nasdaq:AVX). After leaving AVX in1992, he founded ShellCase (TSX:SSD), a designer and developer of packages of electronic and optic components. There he met a former analyst Shai Gilboa who left finance for a variety of jobsin industry, first at Kulicke & Soffa Industries (Nasdaq; XETRA:KLIC) (electronics), Delta Galil Industries (Nasdaq: DELT) (textiles), Oramir (testing equipment), Cerel (ceramics), Oncologistics (biotechnology), before arriving for a job interview at ShellCase.

The position at ShellCase was not suitable, but Gilboa and Badihi soon became friends. Gilboa hired Badihi as an advisor for some of his ventures, before they decided to jointly and officially found a start-up. They were later joined by Eli Lotan, a veteran of a secret IDF unit, and graduate of Orbotech (Nasdaq: ORBK), ECI Telecom (Nasdaq: ECIL) and RadioTel .

Gilboa says, We realized after a year that two people were not enough for semiconductors, so we brought Eli in, because of his communications background.

The two men originally intended to work in optical switches field, but decided the interconnectivity field was less crowded, and needed a short range solution.

Interconnectivity is measured along two axes: the distance between the components; and the speed of components themselves. Short-reach connectivity is defined as the connection between components up to 10 km apart. This range is further subdivided into: short reach of 300 meters to 10 km; very short reach of 2-3 meters to 300 meters; and ultra short reach of less than 2-3 meters.

Xloom was officially registered in April 2001, and received initial financing of $1.25 million from Hyperion Israel Advisors in December. After developing its technology, Xloom began working on a product: a miniature optic transceiver for the access and metro markets.

Xloomsits in the middleof the food chain. It buys components from raw material and electronics suppliers, builds its transceivers and sells them to subcontractors. Badihi says, We only use technology that can be found in the market. If we cant find it, we dont use it.

Except for a kind of testing lab (miniaturized, of course), the company has no development activities, only design. Xloom designs component development and manufacturing processes, which is carried out by subcontractors.

Gilboa says, I think were one of the few companies in the world, maybe the only one, that develops transceivers using a fabless model. We have a joke about it: Even we our lunches are fabless. But the result is such a low cash burn rate, that the amount we raised will suffice for a very long time.

Globes: But in todays reality, even subcontractors want to see financial robustness.

Gilboa: The interface between a customers order and our order from a subcontractor is very fast. The chain does not allow for delayed payments to subcontractors, so as far as theyre concerned, as long as the customer pays, everything is fine.

The materials are known and production is by subcontractors. Wheres the intellectual property?

Badihi: The intellectual property is the design process. Companies that tried to build entirely new models, using proprietary technology, failed. I take off-the-shelf technologies and link them together through process we've developed. In optical binding for example (the connection between the source of information and the fiber optic) we now use a kind of transparent ball 1-2 mm in diameter that is attached to the fiber optic entry. The entire structure is 10 mm across.

We are building an element to do this task that is only 1 mm in size. The remaining space gives us room for the transceiver that will ultimately be 6-8 mm in size, and connected to eight optic fibers. Everything is based on off-the-shelf technology. The difference is not only in size, but especially in price.

Gilboa: I think we have strong intellectual property in the miniaturization of optics and optical binding. I wont say any more, just that we have a method of connecting independent components into a single chip. We have solved the problem posed by Moores Law, (which deals with the number of transistors on a chip), in another way by interconnecting microchips.

When they grow up, the entrepreneurs might work with companies like Tower Semiconductor (Nasdaq: TSEM), but for now two subcontractors are adequate, one Israeli, the other overseas. Gilboa says, I am actually democratizing the market. Manufacturing is carried out using tools already in use, and I dont have to warn manufacturers a year in advance about some complicated new manufacturing process. We cantherefore enter a price war, andthe customer will benefit.

Xloom hopes to have a prototype ready with 2-3 months, and begin marketing its transceiver itself. The company will also market the concept of miniaturized components.

In addition to its work on interconnectivity between separate components, Xloom is designing interconnectivity between printed circuits components. Xloom is replacing the wiring between the printed circuit components with fiber optic placed between two transceivers. This will unquestionably increase the speed of data transmission, and Xloom believes it will also become economical in the future.

Badihi says, The electronics industry has built the most sophisticated, efficient and fastest manufacturing infrastructure in history. No one in the industry says, Well find buyers for expensive products. The competition has always led to lower production costs. Were improving proven technology; someone else already paid for the industrys developments.

Who are your potential customers?

Gilboa: Cooperation agreements or OEMs with transceiver manufacturers, such as Honeywell International (NYSE:HON), and optical systems manufacturers integrate these components in their systems. We want to sell fast, so we will enter beta testing agreements based on the prototype in the coming year. We didnt want to be seen solely as a technology company, because it was very hard to market ourselves in the basis of an abstract idea. We therefore developed the product.

Xloom, like many others, is waiting for the relevant committee at the Office of the Chief Scientist to sort things out, which will make the company eligible for a grant and postpone the need for another financing round. Xloom also intends to use BIRD-F to arrange cooperation with global companies.

What about an exit?

Gilboa: Therewon't be anexit at this time. When the market recovers and companies start looking for components that will generate high profit margins, I think theyll come looking for us. Investors might see an exit in the form of dividends, a stock exchange, or maybe through acquisition. We intend to be dominant andwin a 15% share of the relevant market.

Name: Xloom Photonics

Founded: April 2001

Founders: Avner Badihi, Shai Gilboa and Eli Lotan

Product: Ultra-fast interconnecting solutions by chip scale opto-electrical integrated circuits (OEIC)

Financing rounds: $1.25 million seed stage investment

Ownership: Hyperion Israel Advisors

Employees: Six at its Tel Aviv office

Published by Globes [online] - www.globes.co.il - on July 31, 2002

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