Moska: I think what Rainer was doing was a kind of "back of the napkin" representation of how he sees POET undercutting the competition. He is taking it for a given (based on the many discussions here of monolithic packaging and how it reduces costs for the POET process) that POET's general statements regarding their price advantage of not needing to assemble their end product are true, and that this production expense is expected to be significantly lower than that of their competition. Hence the greater profit in spite of the lower selling price. He was simply trying to visualize that likely pricing/profit outcome by means of a rough graph.

"Back of the napkin" drawing – exactly! You hit the bull's eye, Moska. We don't have any numbers on the costs, let alone exact numbers.That's why my drawing cannot be on scale.

However, my assumptions do have some background. They are based on what POET said in the conference call on 2015-09-30.

06:56 – Ajit Manocha: … optical module-on-a-chip process with integrated digital, high-speed analog and optical devices on the same a chip, trying to be the next industry standard for their fabrications. Specifically applied to short and very short range, short reach optical transceivers for example, we believe our process could enable up to a 10X reduction in power consumption, component cost, and form factor.

07:59 – Put another way, we could make what’s on a wafer up to ten times cheaper, smaller, and more energy efficient. And we believe we are the only company that can achieve this level of disruption across all three axes of cost, power, and form factor.

When Ajit speaks of a component cost advantage of up to 10X, it is clear that at that point in time this was just an estimation of the order or magnitude. That's why the "POET's costs" column in my drawing is larger than a tenth of the "Their costs" column. So in fact my drawing is much more conservative than what Ajit said. (No objections to being proven to be too conservative, of course!)

However, it is clear that at cost advantage of "up to 10X" would be more than 5, 10, or even 20 percent.

The assumption that POET's costs are very significantly lower than the competion's, is fundamental to our investment decision in favor of POET. Whoever does not agree on that should better sell and walk away!

What we also do know is that the competition's margins are razor-thin. This is somewhat common knowledge and is reflected in the article that triggered my original post, i. e. "OFC: Pluggable Module Makers Claim They Can't Make Money". Even if the author Martin Rowe is right and their margins are not that thin, their maneuvering room can't be very large, i.e. their costs are quite close to their price. Shouldn't be too hard for POET to beat that.