Talk about a few chips off the old block.
NewPort Communications Inc., a 3-year-old Irvine startup founded by a pair of former Conexant engineers, has snagged $23 million in venture capital to launch a line of semiconductor products that could dramatically lower the cost of optics-based data networking.
Integral Capital Partners led the second-round funding, with participation from several tech heavy hitters, including Lucent Technologies’ venture fund, Cisco Systems and Sumitomo.
The funding solidifies Orange County’s growing reputation as a nexus for the broadband networking business, while helping NewPort hire more engineers and find a chief executive. Currently, the top job is being handled by Chairman Diosdado Banatao, a well-known Silicon Valley entrepreneur who founded graphics chips maker S3 Inc. and Chips+Technologies Inc.
While optical networks have been used for several years now, the transceiver equipment currently used to connect optical data lines to standard network routers has required expensive gallium arsenide and silicon germanium technology.
NewPort has created chips that do the same thing using the common CMOS (complementary metal oxide semiconductor) materials already used for a variety of other microprocessor products.
“We’re bringing silicon economics to optical networks,” says Joseph Vithayathil, the company’s vice president for sales and marketing. “Our goal is to bring to networking the same economies of scale the PC brought to mainframe computing.”
So far, the more-expensive technology hasn’t significantly affected the overall costs of high-speed Internet connections, since they’re used primarily for a few high-capacity network backbones. But with users’ insatiable appetite for bandwidth making super-fast optical connections more commonplace, 34-year-old company founder Armond Hairapetain is confident the demand for less-expensive equipment will explode.
He said he and fellow NewPort co-founder Lorenzo Longo left Conexant,then still a division of Rockwell International,because he thought he could get his ideas to market faster on his own.
“We knew there was a need for bandwidth; we just didn’t know where we could make a difference,” Hairapetain says. “This has turned out bigger than we thought.”
Ironically, Conexant moved in the same direction last week with the purchase of Microcosm Communications, a similarly sized company in England.
The company, which began as NewPort Microsystems, started out doing custom chip design work for manufacturers to generate the money for its own line of semiconductor technology.
It introduced its first product, a CMOS-based single-chip transceiver, last summer. The device is designed to integrate into fiber optic-based routers, edge connectors and “cross-connects,” hardware that helps direct the mounds of data that travel over the Internet and wide-area networks.
Shannon Pleasant, senior analyst for market research firm Cahner’s In-Stat Group, says broader use of the Internet and new applications such as voice-over-Internet and full-motion video will drive the demand for faster connections, making optical networking more prevalent.
“Fiber-optic technology is improving in terms of both expense and reach,” she says. “Those backbone providers anticipated that fiber optics will be a core technology. Companies now rely on their corporate intranets and on the Internet to do business, so it’s becoming mission-critical for them.”
And according to Dataquest and Yankee Research Group, the number of broadband Internet access providers will quadruple over the next few years, a trend that could augment demand for optical networks on both the business and consumer side.
Hairapetain expects U.S. networking equipment makers such as Lucent, 3Com, Nortel and Cisco to become his biggest customers, though the company also will target the emerging European market and eventually Asia, whose meager existing telecommunications infrastructure could, make it easier to adopt fiber networking from the start.
He says he expects his former employer to be one of his biggest competitors, though Conexant and other hardware makers could almost as easily become partners.
Like most area tech execs, Hairapetain says his biggest immediate challenge will be finding qualified workers. He hopes to double or triple NewPort’s 40-person staff this year, adding mostly to the engineering and marketing departments.
And the company probably will have to raise additional funding, possibly through an initial public offering. But an IPO, he adds, isn’t his ultimate goal.
“It’s a means to an end,” he says. n
