Tsunami was set up with a very specific aim - to exploit a gap in the optical communications market for a simpler, lower capacity, cheaper alternative to DWDM. To address this perceived niche, the company set out to develop CWDM components, a technology that had received very little attention since the launch of DWDM into the market. The company's first product was demonstrated in August 2000 at NFOEC, and was launched commercially at the end of 2000. This product has successfully completed qualification by Telcordia. A range of products is now marketed by the company.

Tsunami employs 29 staff, the majority of whom work in engineering roles. Subcomponent production - the more involved, 'handmatic', processes - are contracted out to Asian manufacturers. The company does have 10 staff engaged in the final assembly and testing of products, as well as a small sales and marketing team. Tsunami has two adjacent facilities covering a total of 15,000 square feet, including a lithographics micro-optics fab. The focus for activities here are design engineering and manufacturing prototyping.

Tsunami is, at this stage, majority-owned by its founders and its investors - The Photonics Fund, VantagePoint Venture Partners and Williams, Jones and Associates.

There are currently no plans for a dramatic expansion of either staff or facilities. Existing resources are judged sufficient to support present and near-term demand for the company's devices. It is expected that staff numbers will climb to between 70 and 100 by the end of 2002 - necessary to support a projected substantial growth in demand during 2002.

Jim Campbell explained that funding was also sought from Angel investors as this was seen as a quicker route to raising money and getting the company started. Mr Campbell said that he viewed Angel investors as being more suited to his situation due to the type of company that he envisaged and the relatively low level of funding that was required. An Angel investor will usually be investing money of their own, and will generally have a history of successful business launches.

Regarding future funding, Jim Campbell commented that Tsunami is currently adequately financed, and is operating extremely leanly. Present cash-burn rate is around $500,000 per month - remarkably low for a company of this type, at this stage of its development. In addition, the company is already realising sales revenue. It is planned to raise a 'small amount' of additional funding at the end of 2001, which will suffice to take the company to a 'cash-flow positive' position. A point that Jim Cambell confidently predicts will be reached in the near future.

Jim Campbell explained, "I had looked at this technology in the mid 1990's, but with the emergence of DWDM on the market, CWDM development had been largely dropped. At that time, there was neither the interest nor the expertise available to develop the technology. One barrier to developing devices was a lack of suitable components, such as lasers, which were simply not being produced."

Despite the relatively simple nature of lasers required for CWDM devices, there were none being produced up to a few years ago. Therefore, one of the first hurdles for Tsunami was persuading laser manufacturers that there was a significant market for CWDM systems.

CWDM vs DWDM

Regarding complexity, and corresponding purchase and operating costs, there are a number of features favouring CWDM over DWDM in the access network. CWDM systems use un-tuned lasers with 'coarse' (wide) wavelength spacing, transmitting channels spread over a wide bandwidth of several hundred nanometres on the fibre - from 1310 to 1610 nm based on the current Standards committee recommendations. These lasers do not need cooling in order to maintain stability - essential with the tuned lasers for DWDM systems. A DWDM system requires an expensive cooled laser for each channel whereas CWDM utilizes inexpensive uncooled lasers. Filter costs for CWDM offer additional cost savings over DWDM filters.

Additional simplification is achieved in a CWDM system by the absence of amplifiers - EDFAs in DWDM systems concentrate channels into a narrow bandwidth on the fibre for amplification. These features are brought together with CWDM to give a simplified, compact, low cost, system with low power consumption and reduced maintenance costs.

Tsunami allies the design and development of low cost CWDM components to the automation of production processes. The company anticipates very high demand for CWDM systems in the metro access market, a scenario necessitating volume production, whilst promising to further reduce component costs.

Lithographic micro-optics

Tsunami has recently added a further product line, lithographic micro-optics, for use in a number of applications. The micro optics are manufactured via semiconductor processing of quartz wafers. The quartz substrate provides a significant advantage in temperature stability relative to plastic micro optics for communication applications. The company has an in-house CAD/CAM design capability allowing it to design multiple optical functions into one device. Tsunami also has its own lithographic micro optics fab, allowing the company to produce cost-effective, high volume custom optics within customers' tight schedules.

The main product line is diffractive micro lens arrays for use in parallel links. Tsunami is currently marketing custom unpackaged quartz optical elements and working towards integrating these components for increased functionality. The company has a number of new products in development.

Carriers will not always want, or need, to install a DWDM system and may be content to install a system providing eight channels over a fibre, using CWDM technology. Future CWDM products will support up to sixteen channels, offering yet another cost-competitive architecture to DWDM sixteen-channel systems. Such CWDM solutions will offer lower infrastructure and operating costs, lower power consumption, and the equipment will occupy less rack space.

Pricing

The relative simplicity of CWDM devices makes them inherently cheaper to manufacture. The individual components making up Tsunami's devices tend to be cheaper than equivalent components in a DWDM device. As an example, DFB lasers used in DWDM devices are inherently expensive, as the laser must be stabilised by a 'cooler' to keep it 'in tune'. There is currently a floor for these devices at around $800-1500. In contrast, lasers for a CWDM system are currently priced at between $200 and $350. There are now a number of companies including Sumitomo and Mitsubishi producing lasers designed for use in CWDM systems, which has helped to reduce prices. In addition, companies such as Optical Communication Products and Finisar are now beginning to manufacture CWDM transceivers.

Tsunami's devices are priced at approximately half that of a comparable DWDM system, even taking into account current depressed prices. Jim Campbell pointed out that a side effect of the market downturn has been a marked fall in the prices of components used in Tsunami's devices - a decrease in excess of that expected by the company.

Intellectual property

Tsunami follows a strategy of selectively patenting certain key knowledge and expertise, whilst retaining other expertise as trade secrets. The company has submitted patent applications for specific aspects of device architecture, also filing 'a couple' of patents relating to CWDM technology, plus 'a number' of patents covering its work in the fields of diffractive optics and lithographic micro-optics. However, these patents do not encompass the majority of the company's intellectual property. Much of the technology behind Tsunami's devices, including certain pertaining to CWDM, is retained as trade secrets - an alternative considered to be lower-risk in this highly competitive business.

"CWDM is largely about engineering, rather than invention; the fields of diffractive optics and lithographic micro-optics are far more to do with invention and innovation."

Tsunami imports some technology used in its devices from outside companies. The diffractive optics product line, for example, was acquired from an outside company and is licensed exclusively to Tsunami.

Discussing the market, Jim Campbell stated, "The one area of the network, from the systems vendors perspective, that is seeing strong growth is the metro access segment - the edge of the network as distinct from the metro core network. Reading through financial statements from even the most severely affected players in the optical equipment sector, you generally see that the one segment of the optical market showing consistently strong revenue growth is metro access."

Customers

Tsunami has not, for legal reasons, announced any of its system vendor customers, though Mr. Campbell did state that Tsunami has signed 35 customers to date. The company has successfully sold devices to a number of vendors outside the U.S., to the extent that overseas sales account for approximately half of the business. The main overseas markets are Japan and Europe.

It was noted that, due to the geography and fibre plant of the Japanese market, the country is likely to utilise CWDM technology almost exclusively. This situation results from NTT's widespread installation of dispersion-shifted fibre, which is not generally suitable for the operation of DWDM systems. In Europe, Tsunami currently has six system vendor customers, two of which have already deployed systems incorporating Tsunami's devices. An additional market that promises to become important for the company is Korea.

Route to market

Tsunami reaches its market by a mix of direct sales and distributors. The company has a minimal sales and marketing force in the U.S., with representatives on the east and west coasts. In Europe and Japan as well as other key international markets, a number of distributors are used. Due to successes in Europe, the company is considering developing a direct sales presence in the region.

Cost advantages

As described earlier, the big advantages of CWDM equipment for service providers are the lower costs of purchase, installation and maintenance than DWDM equipment. There are a number of reasons for this arising from the technology involved. An operator wanting to install equipment in a co-location space that it does not own has to pay for rack space and power consumption - both expensive resources. The compact dimensions and relatively low power consumption of a CWDM system are therefore obviously big pluses.

Jim Campbell cited a theoretical example, "A typical scenario where CWDM fits would be an operator installing an eight channel point-to-point system for a SAN. A CWDM system would cost approximately 50% of the price of a comparable DWDM system, and would be perfectly capable of delivering the required performance." Mr Campbell went on to emphasise the particular applications for Tsunami's technology, adding, "DWDM systems come into play for transmitting very high bandwidths, but for bandwidth requirements below 100 Gbit/s per fibre, CWDM will generally be the most efficient option."

Prior to 2000 there was no alternative to DWDM systems for this type of application. DWDM was pretty much all there was.

Jim Campbell said that Tsunami is happy with its present position in the market, and would be very satisfied to maintain its current market share. He stated that strong competition is anticipated in the near future, in particular from JDS Uniphase, who has already announced devices in this market sector. Oplink Communications and DiCon Fiberoptics are likely competitors as well.

Regarding Tsunami's lack of image and market recognition, arising from its youth and highly specialised nature, Mr Campbell noted that, in its early stages, the company suffered in this respect, but that detrimental affects associated with these issues have now largely been overcome.

Key differentiators

Commenting on how Tsunami defines itself in the market, Mr. Campbell noted that the company's key differentiators lie in the application of technology and the automation of production processes, and the technology behind its lithographic micro optic devices. A core innovation is in the design of CWDM filters. The company's CWDM products are based on micro-optics technology, originating from the world of DWDM.

"Filter design is key to our devices. The wavelength that a laser emits is seriously affected by temperature, and our filters are designed to accommodate for this. Ultimately, what is required is a flat-topped channel. We use what are basically DWDM filters, but with 20 nm channel spacing. These filters are very difficult to manufacture. A SONET ring system with a large number of add-drop modules will require a number of individually designed filters. The precision necessary, plus the tailored nature of the filter design, means that this is a difficult problem to solve. Devices produced then have to successfully complete Telcordia qualification before they will be deployed in networks."

Tsunami's products have continued to evolve over the past year - to the point where current devices are far superior to those of one year ago. Commenting further on what gives the company an edge in the market, Jim Campbell said, "We manufacture an eight channel mux /demux in a package roughly 8 cm by 10 cm by 1 cm with less than 1.9 / 2.3 dB insertion loss."

Tsunami's devices are very low-loss, a crucial feature in this sector as there is no amplification in the network, which may run for up to 80 kilometers. High isolation is another feature critical to many of the service providers in the metro access sector - of particular importance where cable companies are transmitting analogue signals over their networks.

Mr Campbell emphasised that Tsunami's devices have been designed following extensive work with potential customers to define their requirements.

Excluding the market environment, the sole remaining threat is seen as an innovative technology breaking onto the scene. This is an ever-present possibility and an unknown in the market. Jim Campbell said, "I would hope that it will be us who disrupts the market."

Discussing Tsunami's prospects further, Mr Campbell commented on the system vendor's activities relating to CWDM. Currently, not all system vendors in the optical sector have CWDM products in their portfolios. He said, "Some of those companies without a CWDM offering are a mystery to us, we do not know what, if anything, they are doing to address this market. Recently, some of these companies have begun to recognise a demand for such products."

"Generally, the small and medium-sized system vendors have accepted that there is a place for CWDM technology, and most have addressed this need. Companies making a serious push to CWDM products are ONI, Riverstone and ADVA. Amongst the large system vendors, the majority have been slow to recognise a need for CWDM products. Main players such as Ciena, Lucent, Alcatel, Ericsson and Siemens do not presently offer this capability, although they may be in the early stages of developing products."

Regarding Tsunami's position in the market, and the networks, Jim Campbell noted, "The systems that our devices are designed into will be running in networks for a long time."