Chorum develops and manufactures primarily multiplexing and de-multiplexing optical components and sub-systems that are designed to reduce costs for both system vendors and service providers. The company seeks to produce superior devices through the innovative use of technology. Twin themes underpin this strategy - component integration and tunability of optical wavelengths. The product range presently spans fifty devices, having grown from four at the beginning of 2001. Chorum is building a position in the optical equipment sector as a broad-scope supplier rather than as a highly specialised 'one-product' company.

Most recently, in September 2001, Chorum raised $63 million, bringing total funding to more than $200 million. Investors include CenterPoint Ventures, InterWest Partners, Sevin Rosen Funds, Austin Ventures and Sycamore Ventures. Current cash reserves amount to $75 million, projected to be sufficient to take the company into 2005.

A further core component of the company's strategy is avoidance of product designs that would necessitate the carriers altering their bandwidth management operations.

Chorum seeks to reduce development and production costs through following a platform-based design process, whereby common configurations for packaging, intelligence and control are utilised across the product range. Five technology platforms are presently employed, namely, liquid crystal, etalon, diffraction grating, polarisation-based interferometry and polymer dispersed liquid crystal.

Chorum's product lines encompass a range of devices including variable optical attenuators (VOA), dynamic gain equalisers (DGE), re-configurable optical add-drop multiplexers (OADM), dispersion compensation, switches and closed-loop dynamic gain equalisers (DGE). Scott Grout noted that these product lines represent commercially available products that have gained Telcordia GR 1221 qualification for field deployment and that are currently generating revenue for the company.

Scott Grout stated that no one component constitutes the primary source of income for Chorum, "We are seeing successes across the product range."

Summing up Chorum Technologies' approach, Scott Grout said, "Chorum Technologies is following a strategy of developing and supplying innovative products applicable to the market of today, not devices that may be in demand at some point in the future - we are not trying to read six chapters ahead! Having said that, we do endeavour to gain first-mover advantage with innovative devices for which there is a genuine need. As an example, we launched our successful DGE products in 2000, well before any other vendor."

Second sourcing of components is not considered to be a major issue for Chorum and of no more concern than for any other vendor in the market. The issue is alleviated by the fact that the company does not develop products for niche applications - any device that Chorum launches is intended to become an established product in its own right.

Intellectual property

Chorum owns all intellectual property utilised in its products with no IPR licensed in from outside. The company has filed a vast number of patent applications both in the U.S. and internationally of which forty have been awarded to date (see table). An example of the IP owned by Chorum relates to its development of liquid crystal technology, where a low-cost and widely available material was made suitable for deployment in '99.999% reliability' network architectures, primarily through addressing issues relating to speed, performance and temperature sensitivity.

PolarTune micro Variable Optical Attenuator (mVOA)

Chorum Technologies has been marketing its VOA product since late 2000. These devices are now routinely deployed in optical networks, where the units allow optimisation and control of the network throughout its operational life. Scott Grout noted that less than two years ago, such devices were not generally deployed in networks. Chorum's VOA product has proved very successful, due, in part, to the fact that it contains no moving parts - being completely solid-state - and aided by its compact size. Scott Grout commented that devices competing most closely with Chorum, from vendors such as JDS Uniphase and DiCon Fiberoptics, employ MEMS technology.

"Chorum has achieved recent design wins with its VOA device in competition with MEMS-based components. The MEMS products have proved susceptible to vibration, due to the mechanical nature of the technology - those 'wiggly mirrors'!"

Chorum's solid-state VOA devices are based upon liquid crystal (LC) technology - one of the core technologies underlying the company's products. LC technology has been available for a considerable time and as a result is 'tried and tested' and available at relatively low-cost. For application in optical systems, the technology holds a number of advantages, including an absence of moving parts, stability across a wide temperature range, and a wide dynamic range (crucial when controlling dB in a system). LC technology also allows production of extremely compact devices - Chorum claims its components are the smallest of their type currently available.

Chorum leverages these technical advantages to supply a high performance, low-cost, device on a per-channel basis. Scott Grout commented that the VOA device facilitates cost reduction at the network level through improving the operational efficiency of the network - either by reducing the number of amplifiers required or increasing the reach.

PolarTune Dynamic Gain Equaliser (DGE)

Chorum's DGE dynamic gain equaliser device is also based on LC technology. The product was introduced at the end of 2000. DGE devices are designed to be an enhanced alternative to fixed gain-flattening filters, which serve to correct or flatten the optical signal generated by an amplifier.

Scott Grout explained the disadvantage inherent with fixed filters. As channels are loaded and unloaded, and as the system ages, the signal will degrade and become 'bumpy' - what was originally a flat signal, perhaps to within two-tenths of a dB, over time becomes 'bumpy', perhaps to the extent of plus or minus two dB. A result of this degradation is that the network becomes less efficient and has to be 'de-tuned'; in addition, more amplifiers must be added to compensate.

The Chorum DGE device is capable of performing any filter function across a 40 nm range - the full range of amplifier operation. The device is able to dynamically alter the shape, slope and configuration of the signal gain profile. As with the VOA device, this functionality is offered in a compact, low-cost package, using no moving parts and requiring no temperature control. Competing products similarly generally employ MEMS technology.

Commenting on rival products, Scott Grout added that Chorum's device has the further advantage of being channel-independent, whereas competing offerings tend to require that individual wavelengths be separated out before adjustment.

The company has attained design wins with its DGE device, not only with system vendors in the U.S., but also with companies based in Europe and Asia, and the product is now being deployed in live networks.

As an example of the cost reduction opportunities offered by the product, Scott Grout cited a system vendor customer who was able to drop every third amplifier from its system through utilising the DGE device. Operational costs are reduced as the product will speed and simplify system optimisation when a network is lit.

Scott Grout noted in passing that DGE components, whether supplied by Chorum or any other company, represent the most sophisticated all-optical equipment yet deployed in networks.

PolarCast Optical Slicer Filter

The Optical Slicer, now generically termed 'interleaver', product was commercially introduced in late 1999, the architecture for this application having originally been developed in 1997. The product line has since been expanded, with three additional technology platforms addressing the requirements of differing network designs. Chorum Technologies now ships sub-50 GHz passive, very flat-top, sharp-filter devices.

Scott Grout noted that no other vendor is currently offering sub-50 GHz products, "By any key performance measure, including isolation, loss or chromatic dispersion, our device is extremely competitive."

The company now counts twelve design wins for its interleaver product, and holds a major share of this market sector. Primary competitors are JDS Uniphase and Avanex.

Scott Grout said that a majority of these deals have not been announced, due largely to the nature of the relationships. "The overriding factor for us is the relationship with our customer. Being understood by our competitors and by the industry at large are very much of secondary importance presently."

As an illustration of the technological strength of Chorum's products, Scott Grout stated that it is rare for the company to lose contracts to companies employing competing technologies.

Commenting on orders and shipments, Scott Grout noted that there is, at present, no such thing as a 'sustained volume' application, the market worldwide is simply too volatile.

Market size

With regard to the size of the optical equipment market as a whole, Scott Grout commented that currently this is "slightly more than zero", and in no way representative of what it will become once a recovery begins. Concerning Chorum specifically, he said that the company shipped healthy volumes of its products during 2000 and most of 2001.To date, for 2002, volumes are down "but remain respectable", if significantly below what would be considered a 'normal' run-rate.

Chorum realised revenues of approximately $10 million during 2000; 2001 saw this figure climb to approximately $30 million, despite a decline of around 50% in the market as a whole. For the first quarter of 2002, this run-rate has been sustained.

When the optical equipment sector does finally recover, a total market value for passive and active devices in the range $5 to $7 billion annually is projected by Chorum. Of this total, the company expects to address a value of between $2.5 and $3.5 billion. Chorum intends to be the market leader in the segments that it targets, implying a share of between thirty and fifty percent of this figure - equating to a minimum of $800 million.

Commenting further, Scott Grout outlined Chorum's founding principle of focusing on requirements at the network level before using knowledge acquired in the development of components and sub-systems for system vendors. "In this way Chorum Technologies aims to anticipate the needs of our customers, the system vendors - very simply, we try stay one or two steps ahead. Having said that, we do not see any value in trying to get ten steps ahead of our customers!"

Chorum takes the view that the technology behind products is irrelevant; the important factor is what the device does for the customer. "The power within a company such as Chorum lies in understanding what makes network operators successful."

On optical component manufacturers in general, Scott Grout noted that presently there are believed to be in the order of 300 small private companies active in the market. Regarding their prospects, he said, "Of these 300 companies, those that do not meet certain criteria are very likely to fail. Those lacking cash reserves, qualified commercial products and customers generating real revenues, will not be on the scene when the market turns around. I expect that almost all of these 300 companies will disappear. However, from our perspective, this will still leave at least a dozen major players active in the market - life will still be very tough and very competitive for the survivors."

Concerning the established companies, Scott Grout noted that Japan is seen as a growing source of competition in the components sector. Currently, activity from this quarter is focused predominantly on the development of active components, although development work relating to passive devices is beginning to take off. Hitachi was cited as a notable Japan-based player; Alcatel Optronics was mentioned as a significant European competitor.

Scott Grout believes that the fibre optics industry must undergo a fundamental and seismic shift, similar to that seen in the other high technology sectors - including semiconductors, processing and storage - to redress a present imbalance between equipment functionality and cost. Massive increases in capability must be delivered in tandem with huge price decreases.

"Basically, the fibre optics industry can be seen as one leg of a three-legged stool, comprising processing, storage and connectivity. Processing and storage have undergone the necessary changes, now it is the turn of connectivity to fall into line."

Summing up his concerns for the future of Chorum Technologies, Scott Grout commented, "First and foremost, a market recovery soon." He believes recovery is 1-2 years away.

More concrete concerns centre on the continued development of technologies and successful products - simply maintaining a leading position in the market. As mentioned previously, integration is a core theme for the company when developing new products. Scott Grout noted that the technologies utilised in the optical equipment industry are still very young, as a result, each design cycle brings substantial improvements in device capability and functionality.

As an indication of the importance of integration, Scott Grout cited Chorum's PolarModule Vmux device that offers a combined multiplexer-demultiplexer with variable optical attenuation on each channel.

"Presently a forty channel system requires forty filter (or interference filter) boxes plus forty VOA boxes, plus all of the connections between those units. Our Vmux device is an integrated monolithic structure, utilising diffraction grating and LC technology, in a single box, with one fibre in and forty fibres out. With this product, all wavelengths on those forty channels are fanned out and manipulated simultaneously, rather than each having to be separated out and handled individually, as with current devices. Two years from now, a solution composed of eighty boxes will simply not be competitive, a single box solution will be the norm."