Aiming to become the global leader in chip-scale photonic solutions by deploying Optical Interposer technology to enable the seamless integration of electronics and photonics for a broad range of vertical market applications
Message: Audio Transcript from Sidoti Microcap Investor Conference
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00:02are right, if you can hear me you're joining the poet technologies presentation and the first afternoon session of the city micro CAP investor conference we're awaiting zoom to finish merging the waiting room with the presentation room.
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00:21i'm your host MAC link on the tech analyst cody, thank you for for joining us again here joining poet technologies, I have CFO.
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00:33Tom micah.
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00:35With poet technologies i'll hand it off.
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00:38Great thanks matt and welcome everyone, thank you for the opportunity to talk about poet, which occupies a large portion of my life at this point so i'm glad that you're interested in glad to see people participating just want to point out the safe harbor.
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00:56we're going to cover a number of topics today in the short 30 Minutes that we have hopefully there'll be some time for Q amp a.
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01:03But i've got a lot to cover.
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01:05For those of you who have seen this presentation before either from me or from Suresh run contests in our CEO or.
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01:14vivek Raj Korea our President.
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01:18you'll know that we're a technology company, and so, by definition, we have to spend some time on on the technology and so we'll go over that.
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01:28And strategy markets and products, we have some new information there and we have some new information on operations and a revenue plan and.
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01:37We haven't until now are produced much on investment highlights, but I would like to go over those as well and spend more time on that hopefully then on the technology.
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01:48So, you know that we're all about photonics and photonics is just about light and and the hardest light and to use it effectively.
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01:57What we have to do is integrate lots of different kinds of devices lasers and detectors on the photonic side controllers and amplifiers in the electronics and even free space mirrors and lenses and prisons that that help to guide the light, we won't be talking a lot about guiding light.
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02:20Not the guiding light, but guiding light and in what we call wave guides, which is a really fundamental fundamentally important aspect of our of our technology.
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02:34photonics covers a broad range of and market applications were have happened to be focusing on data and telecommunications today and and communications is certainly one of the biggest applications of photonics but we're also in the area of sensing.
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02:54which involves things like lidar and medical technology point of views and consumer products and we're also in an emerging area of of using optics in computing so it's a very large market.
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03:07This the statistic here covers like everything in the photonic space we're not in in that, but it shows what kind of market growth even with a huge market of a half a trillion dollars is still growing it at almost 7% compounded.
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03:27So.
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03:29You say in the in the broadly in the in the data communication space seems to be working we've got zone, you know we've got.
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03:38bluejeans we've got all these platform technologies that seemed to be operating better than they did about 14 months ago when Calvin started, so people are adding capacity and.
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03:50We read about companies upgrading their systems from hundred g to 280 to 100 G so everything seems to be working just fine.
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04:00So what's the problem I mean why don't you just why are you focused in on on this well we're focused on on this because.
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04:09Those devices that are used to convert electronic signals into photonic signals are very expensive they represent a very large part of the cost of building a data.
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04:22So the data Center operators naturally want to drive their costs down so that they can deliver at the kind of subscription fees that we as consumers pay.
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04:33And so we looked at this problem holistically and so what's what's the problem here, well, the problem is it's too expensive and it's too expensive in.
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04:43Both capital and Labor and that's because these devices traditionally have been built one, at a time.
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04:51And every time you know one piece, at a time into assemblies and sub assemblies and so on, and that's a very expensive process, and what that means is you can't deliver much value have no economies of scale.
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05:06Right, if you want to produce 100,000 units, a month, you have to spend so much on capital and Labor if you want us a want to produce 200,000 units, a month, you have to spend twice as much.
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05:20Which is not the case in in semiconductors everybody knows about moore's law about how you get more processing power for less cost over time.
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05:29It hasn't happened here hasn't happened because until very recently with poet, and with some others people haven't been able to use semiconductor techniques to build these devices and and get scale until we came along.
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05:46Really, until we came along and we're the only ones who are knowledge that can do this at way for scale for the entire process.
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05:53For the entire assembly test process and and packaging process, so we can actually deliver large economies of scale, because we can do these hundreds of times, and not just one one, at a time.
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06:06So what do we deliver we deliver a simplified packaging lower cost highly automated ability to build these things and some other games is no talk about later.
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06:17One of the startling things that we discovered is once we put all this together and put all of these devices that are in optical engines on this very tiny device that is six millimeters by nine millimeters or we can fit for into the space that others can barely fit one.
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06:38Right, where we we start to think about what are the advantages of miniaturization and all through history of electronics, has always been about miniaturization to enable more applications at the point of views.
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06:55More applications and wider areas of taking a lot of computing power and putting it in a very small form factor.
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07:05So, in the area of data communications, what are we able to deliver well we're able to deliver substantially lower cost that can make a module manufacturer profitable we're not profit today, most of the ones that are building hundred g modules are not profitable.
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07:23More importantly.
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07:25You know, in a way for us, we can do it at 10% of the capital expense that the others are do are building their sheets and so.
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07:34cost us much less to get the same level of output, that it does, those who are doing it either conventionally or what's known today as silicon photonics.
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07:45And we're compatible with silicon photonics we are a silicon photonics company we're just a different flavor of it were more efficient smaller.
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07:54version of silicon photonics we can do these hundreds, at a time one, at a time in our architecture, rather than being a kluge of devices is very planner and allows great flexibility and versatility the ability to dress different applications.
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08:13So I won't go through all of this you'll see it in the deck that will be on our website, but we really do compete favorably against the the traditional micro optics assembly companies like in a light and to six and the silicon photonics companies like Intel and what's terror.
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08:35One key.
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08:38thing that we did over the last several months is you know when you go to a customer and you have great technology and they say yeah that's great.
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08:46seems to work that's fine now can you really deliver hundreds of thousands of units of these to us every month.
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08:54And we had to address that that question, and we were fortunate enough to meet up with a son on optimal electronics, which is.
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09:03A public company on the Shanghai stock exchange, that is, the world's largest compound semiconductor manufacturer they produce 25,000,006 inch wafers a year and four locations.
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09:16They produce half the world's LEDs and they do that under under contract with all of the names that you would recognize.
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09:25They have a subsidiary sign on I see, which is the company that we actually formed a joint venture with.
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09:31And they're great because they also offer lasers, for us, and of course lasers, is a fundamental component in our optical engine.
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09:39And there are qualified manufacturer of those lasers and we're going to be using them as source.
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09:45So we put in our Assembly and test IP it was valued by duffing phelps at 22 and a half million they're putting in cash and we're building out an independent company in China, which has some other advantages for us.
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10:00A little bit about our strategy.
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10:03So it's important for us to support the super photonics joint venture as an independent company and and to drive growth in transceivers.
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10:13We want to continue to engage with industry leaders in in in this area and in other areas to design and develop and sell devices that are based on our invention, the optical interface.
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10:28We want to be able to exploit localization in China and that's real, especially with with covered 19 they want to be an independent, they want to be able to.
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10:39To source locally, this is an independent company in China we're an investor in it, where the majority owner it at the present time, but we see already that that's that's a point of interest for a lot of capital it's coming into that into the into the photonic space in China.
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11:00We want to form additional partners and target sectors we've mentioned them wider in and in healthcare.
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11:09And we're open to strategic alliances and acquisition opportunities for organic growth and we will eventually explore technology licensing opportunities for areas that are not targeted for us.
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11:26that's the overall business strategy what's the see how it's working in terms of the markets, so the initial market that we're approaching is pretty large in its own right.
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11:38In in terms of the market that we serve as opposed to the total market in optical transceivers it's about $2 billion this year.
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11:47So certainly offers us enough room to grow substantially sized company and it's growing at a relatively rapidly rate should be about our Sam should be about half of the total tam in 2026.
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12:05Where are we on our roadmap.
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12:08there's no denying that we have been affected in the same way as every other company has been even the automotive companies by the slow down in in in semi conductor availability and what the way that that translates to us.
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12:22Is that our where we get our wafers and where we get our lasers are are really busy as opposed to a year ago and they weren't.
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12:31and things are stretching out and for us they've stretched out a few months, almost a quarter, we did a tape out of our of our products back in December we expected to have wafers in February.
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12:46We just got those wafers from our suppliers so we've got them now and we're building the prototypes that.
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12:54Where we will be showing data at the industry conference ofc in early June and we're you know we're weeks away from having the Alpha samples for these first three and you know, maybe two months away from having beta samples that can actually turn over customers.
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13:13I won't spend too much time on this this just gives you an idea of what the designs are and how well the devices are performing.
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13:22We do have actual data getting ready for doing live demos at ofc and that's what what these wave guides are these wave patterns represent the the I being open in the Center represents the fidelity of the data that's that's coming out of the other end.
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13:42Of this device, and here you see the design of our wave guides and and we can redesign these wave guides for lots of different applications this happens to be the hundred g and 200 G design.
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13:56we're also working on 400 G designs and we're in the process, I think, as Suresh like that doesn't our CEO said i'm looking for to fill this hole here in this design, which is a modulator which is needed for 400 G applications and we're talking to several companies about that.
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14:17This is also relevant for this area of co packaged optics that we've talked about this is something new.
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14:25This is.
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14:27Our look at the use of our technology in.
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14:33optical tomography systems, so this is taking essentially what today is a rack and putting it on a single chip.
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14:43And a single chip that's not much bigger than than the one that I showed you earlier, this is in the concepts stage but we actually believe that that we can do some of this and we would do this we're going to do this we're going to do it with an industry leader in in in this field.
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15:03have to say something about the team, those of you who have listened to Suresh fantastic and know that he's in a differently than than I am in explaining this technology which he's really the inventor of.
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15:18And and and that's true because he spent the last kind of last 20 years dealing with this problem.
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15:26Until in in about 2017 2018 there was this Aha moment about how to make all this work and, and that was the invention of the optical inner poser but he spent.
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15:38A long time as the chief technology Officer of global founders and prior to that freescale semiconductors so about a year ago, maybe a year and a half ago we realized that we had the technology there, but we had a bunch of semiconductor guys like myself.
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15:56I was I ran a.
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15:59spin out a motorola that was T Gal corporation your capital equipment company in the semiconductor business but.
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16:05We were semiconductor guys So what we need really needed was somebody who really knew the photonic space, people who have done this before, who had brought products to market in photogs and.
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16:17We were lucky enough to get that garage Korea who's our President and general manager he he ran the the photonics.
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16:24division of may come for time and, of course, we're we've been able to attract some of his former team over over the years and cornejo Dan mirvish and recently.
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16:36Dr model from who's a senior Vice President in Asia, for us, who oversees both our Shenzhen operation and our operation in Singapore and James Lee who was an IMAC and is working closely with with our foundry in Malaysia so Tara and I didn't mention.
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16:58Kevin bonds, many of you know Kevin bonds Kevin is now our VP of finance and administration.
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17:05So we're headquartered in Canada, we have a product development operation in allentown.
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17:11We have our own operation in Shenzhen we have the joint venture and ramen we have our foundering in Malaysia and our own operation and so.
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17:29We wanted to give you a sense for where are Where are our backs is going and where headcount is going as we're preparing for bringing products to market and you need some additional talent and.
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17:42You know if we're able to attract the additional people additional 19 people over the course of this year we will have this you know roughly $15 million operating annualized operating expense by then right now we're in about $11 million, a little bit less annual okay not quarterly.
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18:04And we're obviously we're we're we're looking for top notch people in in a number of engineering areas, both in Asia and in North America.
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18:19The way this works to to give you some comfort about our technology is that.
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18:26All of the fundamental IP for poet is really around the production of the inner poser wafer and we've kept that isolated at sotero Malaysia since early.
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18:40When we put our own equipment into that foundry so that we could own and control the recipes and it's a very small team works with us and and so Tara those machines aren't used for any other purpose and we've kept that.
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18:54That fundamental technology very isolated from from everyone else in the company, in fact, and certainly from others.
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19:04The way the model works is that we're going to be selling our optical engine or excuse me, our inner poser wafers to the joint venture those will be designed for for like hundred g or 200 jake.
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19:18We will be.
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19:20Getting a supply of lasers and detectors and photonics devices from from sun on.
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19:29saic as well as from a company that we announced long time ago that we have a relationship with alchemy, and of course our former subsidy or a dense like where.
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19:40Where we did much of the design of the lasers that are compatible with the optical inner poser and the electronic devices that are inside of a module are really murchie they're available in the market.
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19:55Some have their own designs, but those electronic devices, we can get pretty much from any of these companies and and and produce a.
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20:06Final optical engine the, the purpose of of super photonics is to do all the Assembly and test all of it's done that way for scale and they will also be selling in the engines.
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20:20hundred and 200 G engines globally and the 400 G they'll sell in China and we'll saw outside of China.
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20:28This is an important new slide that we've added to this deck so you know we have a lot of discussion is going on with companies, we have a couple of customers that.
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20:39are contracted with us, long before we even had samples available because of the disruptive nature of this technology and the ability to do things that they just haven't been done before.
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20:51we're finalizing some project plans with with three other customers we've got a number of customers that are awaiting samples, and this is a typical.
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20:59Typical funnel and you know our Our job is to continue to drive this down into contracts which which we really expect to to have happen as we as that as we get to the point where we can hand over samples to the customers, because that makes a huge difference.
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21:21We Some people wanted some some clarity on what the what we think the ramp looks like so we did a very expensive model on.
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21:33What sort of market share, we believed we could capture in each of the segments of of data contract sievers and, and this is kind of a roll up of that with some some wristbands around it.
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21:48We have disclose previously that we fully expect that this joint venture can achieve about a 250 million dollar revenue rate annually by your five.
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22:01we're in year one now.
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22:07So, as we look at these.
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22:10markets that we're already participating in.
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22:14We see that we can get to over the course of time.
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22:18That they have all have a revenue potential exceeding 250 million a year, so our interest is to build a company that's a billion dollar company, we believe we can do that that's our goal and and we believe that we can do that, over the course of the next four to to six to eight years.
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22:36And that's what we're about we're not trying to sell ourselves to some other company, we want to want to build build this as as a real company.
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22:48We have our show prices come off, since we did a.
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22:52did a private placement back in in February and as come off someone it's come back recently that's what we you know that's our stock tends to operate and we've had.
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23:06A fair for late last large amount of volume in that period of February, March, which allowed us to get some of our outstanding warrants converted and get our cash position up so in US dollars, as of.
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23:22As of the end of March, we have 23.7 million now even with that that increase in the annualized our backs that I showed, we still have about two years of cash.
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23:36Even though we're planning, you know to be to be bigger by the end of the year, we have 440 million fully diluted shares, we have total of about 45 knowing of wines and options outstanding of which about 26 million are in the money.
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23:56There are some options, excuse me, warrants that are held by those investors that participated in an offering that we did through.
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24:07rodman back in the day that I joined on November 2 2016 which are about to expire will expire on November 2 in there, strongly in the money, those are at 52 cents Canadian, which is what about.
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24:2645 cents us.
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24:29So we're we've we've got plenty of cash, we would like to be on the NASDAQ and we think we should be on the NASDAQ at the right time and for us the right time, is the time in which we have more design wins.
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24:46And the time at which the share price and the amount of shares outstanding allow us to do.
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24:55A reverse, which we have the authority to do that our shoulders gave us gave the board back a few months ago.
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25:05And you know we will we will do that at the right time we've filed a.
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25:11A shelf it's a $300 million shelf that covers a 25 month period, we want to be prepared for anything that that might might happen we're expecting.
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25:25Relatively explosive growth in this company and we just have to be ready with our inability to to either raise capital effects if that turns out to be necessary, were to think about.
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25:39You know acquisitions, that would really help us.
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25:43penetrate the market.
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25:46So the investment thesis is.
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25:50poet optical excuse me for optical inner poser Cape bullies are there they've been demonstrated we're now in product development with several customers.
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25:59alpha prototypes of weeks away beta prototypes only a few months away the design funnel is filling and we're gearing up, particularly in.
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26:09In so Tara and in the joint venture for high volume manufacturing in this one segment of data communications.
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26:20But I just have to keep emphasizing that we're not just about data communications we're about a lot of other different market applications, some of which we can't even really today imagine very well so with that, I think we may have a couple minutes for q&a and if you're going to do.
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26:42Q amp a you have to use the Q amp a box for zoom and.
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26:50let's see we have an anonymous attendee asking.
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26:54What revenue, do we need to break even and what is the timeframe for that um it's a good question.
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27:02You know, we think that we showed you the.
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27:07we've structured the cash up, but where we showed you a revenue ramp for the joint venture.
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27:15We also know that our our gross margins are in in going to be in the range of 40% possibly 50%, so I think you can probably figure that out.
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27:26On your own i'd rather you know not answer that directly and another one asks do you outsource manufacturing and do the manufacturing and else well I think i've covered that.
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27:40We actually are a combination right now we're doing a lot of it in house, but we expect with the formation of the joint venture.
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27:52And the consolidation of our supply chain to move a lot of that Assembly and tested of technology, in fact, move at all to to the joint venture.
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28:08Some other questions here, as long as we have time.
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28:17yeah please clarify okay some confusion about when we say we're going to be a billion dollar company I think we're already bad we already should be valued at a billion dollars, I was really talking about billion dollars in annual revenue.
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28:32Have you been impacted by supply chain issues, yes, we have.
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28:37Fortunately for the near term where we've got the wafers that we need to get to our and Emma lasers, that we need to get our Alpha and beta samples done.
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28:51I think that by the time we reach the point of remember these beta samples go into testing and qualification by customers so that's a.
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29:00About a three months to nine month process, depending on what on the geography if you're in China, it could be three months if you're in the US it's more like nine months of qualification to check on the reliability of the devices so um so we, we believe that the semiconductor.
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29:21Space will do what it always does, which is that goes through these cycles of of you know overcapacity and under capacity and we said that by the time we're going to be into production will be out of this on of these delays.
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29:39So, thank you very much, I don't see any other questions, and I think we're right about at the end so matt.
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29:49I think we can end this Thank you very much for this opportunity again I really appreciate it from the people at adobe and I especially appreciate, you are attending I did want to ask you one thing there's a very nicely in the audience, who is suffering from cancer and.
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30:10I think it would be very nice if we all took a minute and wished her.
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30:17good health and having fast recovery she's very nicely and is well known to the security folks so thank you very much, thanks for your time.
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30:29Thanks Tom and this concludes the presentation.
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