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Message: April 2 call transcript

Sorry for any mistakes.

rogue

[1:00] Thanks everyone for joining today. I'd really like to welcome any new shareholders or prospective shareholders to this call, as well as our current shareholders in Canada, Europe, and the United States. This presentation really represents a reopening of the US market for POET stock. You know historically, we’ve been focused on Canada through the TSX venture exchange.  We are pleased to be renewing our focus on the OTC markets in the United States, with this event a kind of kickoff to a more robust shareholder outreach. Given our partnerships in China and in Asia, sometime this year we hope to be doing more to reach Chinese expats in North America and to the extent possible, investors in China.

First, I want to acknowledge the pain and suffering this covid-19 has inflicted on every one of us and hope that you and your loved ones are safe and healthy and stay that way

[1:55] What I’ve observed and you probably have too is the acute lack of communications bandwidth to handle video, internet and even cell phone conversations as the demand for these services increased in the past few weeks. You know fortunately POET is in a position to continue working on a product that actually addresses this need directly as I will explain in this presentation. Please use caution in interpreting any forward looking statements that are made in this presentation and the accompanying remarks. All the risks associated with investing in our stock are outlined in detail in our filings on SEDAR in Canada and on sec.gov in the United States.

[2:42] POET is a photonics design and development company with a strong patent portfolio and a talented team of almost 100% engineers, and two distinctive technology platforms that make us unique in the photonics space. During the period that we owned and operated DenseLight, we spent much of those four years designing and developing lasers and detectors specifically for the OI. We continue to enjoy a close relationship with DenseLight and expect them to remain one of our major suppliers.

[3:13] The second technology platform is our OI which is the topic of today’s presentation. We are headquartered in Toronto with operations in Allentown PA and our own POET-owned subsidiary company in Singapore. Although we are a development stage company we are at a particularly interesting stage in our development. This year is very much about transitioning POET to a product sale space company. We are confident during this time of designing and qualifying our development into the offerings of major companies, that we would be looking at solid product revenue in 2021. This year we expect that our revenues will be primarily associated with paid engineering work.

[4:00] The first of our recent accomplishments is that we have validated the POET OI, a potentially disruptive invention that is the cost effective and scalable solution to integrating photonics and electronic devices. Among other things, integration is one of the key challenges facing data centers as they upgrade speeds at which servers talk to network switching devices. You know speed, latency, and bandwidth are what affect the quality of our communications. Now that the proof of concept is behind us we are in discussions with several companies to design the OI into their products. The OI can be used in many ways in different devices and applications. The sale of DL fab in Singapore has put both cash in our balance sheet and reduced our need to spend cash on items that were not directly connected to the OI.

[4:54] We are now pursuing what we refer to as the fab-light strategy which means that we work with contractors and partners to manufacture our devices rather that manufacturing them ourselves. This model is <unclear> in the semiconductor industry and allows us to focus our capital and human resources on developing and designing OI based solutions. We announced earlier this week that we received an additional installment on the sale of 8.25M, bringing the total received to date to 21M. The final payment of 5 million is due by the end of May.

[5:30] The additional cash and the confidence we have in our future of POET has allowed us to add substantial photonics talent to our team. You know I want to point out that to attract this talent we needed to not only demonstrate the viability of the interposer, but we had to demonstrate the ability of our resources and our ability to complete development and actually get to product. We have sufficient cash to take us well into 2021.

[6:03] And as of Monday of this week we opened a design and development lab in Allentown and our operation in Singapore has been fully functional now for several months. I’m always asked by bankers and investment advisors to simplify the presentation of our technology and to show why it is important. To meet this objective I’m going to focus the next few slides on the application of the POET OI in the datacom space. This is one application of the OI but I believe it will demonstrate our volume proposition. It also happens to be the one we have been focusing for the past year or more.

[6:41] You may not know this, but virtually all long distance communications whether analog or digital are carried on global fiber optic networks, deep on the ocean floor or underground. In addition, with a few exceptions, data transmission both within the cloud, that is within the data centers here on Earth, and between the data centers to whatever connection point is used for the last mile or two, are carried on fiber optic networks. One essential component that allows this to happen is the optical transceiver. Today, optical transceivers plug into the ports of network switches, storage units and servers that hold and transmit on-demand video and data to your home over the internet.

Cable or twisted pair <garble> for the last few miles from a connection point to your home or office, and wifi only covers the last 100 feet or so of that communication. Optical Engines covert digital electronic signals into light signals and back again at both ends of global fiber optic networks.

[7:52] Shown here is POETs very elegant version of an optical engine. later I will show you some less elegant versions from other suppliers. Optical engines include devices that convert electronic signals into light signals and back again. They include such elements as lasers, detectors, wave guides, modulators and multiplexers, all designed to pack and unpack as much data onto a beam of light as possible with the lowest amount of loss at each end.

[8:30] One thing that I’d like you to remember is that light behaves much differently than electricity. Electricity follows a path that is mapped out by copper or aluminum like the traces on a printed circuit board. Light on the other hand is both a particle and a wave. Getting light to move around in a device requires a totally different kind of map. In some devices it’s a combination of mirrors and lenses. In POETs OI it’s a waveguide. Our proprietary waveguides are very unique and are at the core of our distinctive competitive advantage. The optical engine is the value added expensive part of any optical transceiver. It goes into a package with some other electronic chips and into a housing that is plugged in to the back of a server or switch.

[9:16] So to complete my simplified explanation and why this market is important to us, there are 1000s or 100s of 1000s of optical transceiver in a typical data center and even more in a mega data center. Some of the mega data centers shown here are massive. They are the size of many football fields put together. These are the ones that are being built by Facebook. But it is not just Facebook building these at an astounding rate, it’s Microsoft, Google, Alibaba and Tencent and others around the world.

[9:52] For our initial application we selected the market for optical transceivers in segments where our technology makes a material difference. Ethernet on optical fibers is one of the fastest growth segments in data communications. It is a large segment, about 4 billion, and the next generation of 400G transceivers is now being designed and deployed in limited quantities.

Although there are many technical challenges for any developers of optical engines for 400G transceivers. This is a segment that we believe we can penetrate. POET OI is unique with our embedded demultiplexer, a device which separates light into different wavelengths and allows all of the data to be successfully unpacked.

[10:44] Our second opportunity is 100G. It’s more straightforward in a technical sense but everyone is well established in that market by now. So it will take both the benefit of the interposer which will bring higher margins to module producers and the ability to scale rapidly. I can assure you that we are working on both aspects of these challenges. That is we are showing customers both the features and the benefits of the OI and making arrangements to ensure that we can scale rapidly to meet demand.

[11:20] Now things get a little more technical. POET has invented a platform that allows all the devices in an optical engine to be integrated which means they all work together seamlessly. This device is manufactured at wafer level. The lower layers of the interposer consist of high speed copper and aluminum traces built on silicon to allow devices to communicate along with a means to dissipate heat from the lasers and modulators and to connect the interposer to other devices.  The top layer is the optical layer, which allows the placement of lasers and other devices onto a fabric of waveguide material. All this is produced at wafer level which is what drives down cost. POET is the first company to demonstrate all of the complex optical engines fully at wafer level and at the same time to be completely compatible with standard semiconductor processes.

[12:16] There are three basic things that make the POET OI unique. First our waveguides. Including multiplexers and demultiplexers that are embedded in the waveguides. They are not separate from the OI, they are the OI. And they perform in a way that facilitates the placement and alignment of active devices such as lasers and photodetectors automatically without having to test each device after placement, which is also essential to driving down cost.

Second, every step in the process of constructing an optical engine is compatible with standard semiconductor processing methods. Today no other company has a embedded demultiplexing device in their OI. Standard demux devices are built separately. They’re not CMOS compatible and must be placed, aligned and tested one at a time. Because of this much of the wafer level cost advantage is lost in this kind of assembly.

Third, the elegant design, assembly scheme and features of the OI give it the ability to be adapted quickly to various devices. We can use the same platform with small variations and different devices to upgrade the speed, something that I’ll demonstrate in a later slide. This flexibility allows the platform to address a wide variety of applications and to give manufacturers of products the ability to span multiple product generations with minimal additional design and development costs.

 [13:50] I wanted to show you how a POET optical engine differs from other optical engines. CWDM is a method of multiplexing signals onto a single fiber. And that method has become a de facto standard in China. About 60% of the units are produced using convention methods of step-by-step assembly and test. In conventional assembly devices are placed and must be optically aligned one at a time. This is done with massive amounts of machinery and labor. At every placement the possibility of device failure exists. Which means a lot of partially or fully completed devices are scrapped using this method.

[14:40] Contrast this with POET optical engines which are built 500 at a time on a single 8” wafer. We have many fewer points for failure. We substitute all of those potential points of failure in a conventionally built transceiver with a single device that is known to be good. Even the fiber alignment needs no lenses which are common in both conventional assemblies and in the silicon photonics based modules from Intel, Cisco and others.

[15:12] For those patient souls who have been shareholders for a long time, I just wanted to illustrate all the critical technology developments that were required to reach the point where we are today. All done on a fraction of the capital that has been available to achieve an integrated solution. One such competitor, Rockley Photonics, based in the UK has raised 165M in funding over the past two years with a post funding market cap of nearly a half a billion dollars as of March 2019. And they still don’t have anything that compares to the OI in terms of capability and reach.

[15:52] POET is clearly moving from proof of concept, to design-in, and qualification with all of the building blocks in place. I won’t take you through each of these but suffice it to say they are in place.

[16:08] This slide illustrates how big the difference is between conventionally produced optical engines and POETs integrated device. Shown here is a typical 100G transceiver from the inside. On the left are the gold barrels that contain the components of the optical engine. In this case they have been divided between the transmit portion or the TOSA and the receive portion called the ROSA. In each of these gold barrels are the individual lasers, lenses and mirrors and detectors placed and tested one at a time. That barrel is hermetically sealed also. The control electronics are on the right side and they are on the printed circuit board. At present we don’t include these in an optical engine although they could be, and they may have to be when speeds of more than 400G. At that point the control devices may need to utilize the high speed metal traces that are built into the POET optical interposer. In the bottom half of the slide the POET OI replaces both the TOSA and the ROSA with a single device, much smaller in size and much lower in cost.

[17:26] POET’s optical engine actually eliminates a step in the optical value chain. Integrating devices from the companies listed in the purple box within the POET optical engine which is then sold directly to module makers and systems companies. All of the companies on this slide are potential customers for POET in a variety of business models which might include direct sales of complete optical engines, joint ventures, licensing, royalty arrangements, etc.

[18:00] The concept and power of a platform technology is difficult to get across, so I hope with this and the next slide I hope to do so. Outlined on the right from top to bottom is the process of creating an optical engine based on the POET OI. It is all done at wafer scale and what is produced is a known good OI at the end. On the left, we start with a design for 100G CWDM engine. We fabricate the OI for that design, attach the lasers, burn in the lasers and test the finished optical engine.

[18:38] But suppose we want to move to 200G which more companies are considering now that 400G has been pushed out about a year because of the technical challenges. We can use the same device, but encode a software algorithm called PAM-4 into the control electronics and we now have a 200G engine without any changes to the optical engine itself. To move to 400G, we substitute externally modulated continuous wave lasers for the directly modulated lasers, the DMLs, used in 100 and 200G devices. For 800G, we either double the number of lanes on the OI or use even higher speed modulators to achieve those speeds. In other words, one investment yields multiple devices giving many companies a path to higher speed that they previously didn’t have other than designing a new device with every evolution.

[19:41] POET OI is a disruptive platform technology. We have the basic building blocks and essential compatibilities in place for 100 and 200G transceiver markets. We have them for the 400G and 800G transceiver markets. We have them for segments of the 5G infrastructure market. We have them for segments of the global passive optical network market. We have them for LIDAR. And we have them for the on-board optics market, which for us is the most interesting market, because of the potential parity with the semiconductor market which is massively larger than the current optical market.

[20:30] This platform technology unlocks tremendous market potential for us. There are applications for the POET OI that we cannot even imagine today. Not a fair comparison, but I doubt when Shockley invented the transistor, that he imagined the internet and social media. One such example is we recently saw an opportunity for an optical processor that might incorporate aspects of the OI that essentially represent a supercomputer for artificial intelligence.

[21:15] Finally we wanted you to know, we at POET, Suresh and Vivek and really the entire team, wanted you to know that we are executing on our strategy focusing on what we regard as a disruptive invention that has almost unlimited potential for growth.

I see that there is some time left so I am happy to take some questions…

[21:56] I have a question that came in from Dr. Rowder<?> in Europe. He’s in Germany and he asks essentially if Tier 1 customers order high volumes will we have the supply chains guaranteed?

I think I addressed that earlier in the presentation, We believe that particularly for Tier 1 customers and large customers which is in that list of customers that I showed. The first question is, “does this work?” The second question is, “can you supply it?” And that’s a question that we recognize and understand and are addressing. I can’t tell you exactly how. I think we will have some things in place later this year that we will be able to announce.

[23:35] There’s a question about.. someone assumed there was another party interested in the DL purchase..

That just all got worked out satisfactorily and were please d with the way it did work out.

[23:55] Does the company expect to secure additional development projects that will continue to contribute NRE revenue during 2020..

Absolutely yes we do expect additional NRE revenue during 2020. And all of that is going to be related to actual product sales in 2021.

[24:50] What are the next one or two developments or business milestones that shareholders should watch for or expect in 2020.

We have a pretty good pipeline of companies that are interested in various aspects of the optical interposer. We are pretty confident that more than one of those will be engaged for the purpose of designing aspects of the interposer or the complete interposer into their products.

[25:39] Will there be a laboratory in Allentown?

Yes, as a matter of fact there will be. The way that we have organized the company is that we are expecting to do design and development in Allentown where there is a very large pool of talent related to Lucent and the old Bell Labs that we’re beginning to tap into. And those design and development engineers need a lab to test their devices. Singapore is more about supply chain management and its about testing devices that come off of the production line there. So that’s the way that we are organized. And we continue to be obviously headquartered in Canada.

[26:44] When do you anticipate that you will announce sales?

We will announce them as is required when we have them. And we certainly expect to have more revenue this year and when we do we will be reporting that both in our quarterly reviews and doing press releases when those events occur. I should remind everybody it would be very seldom that we would make a major announcement during a conference like this since we are required in Canada and in the United States to make material disclosures within 24 hours of when they happen. And it would only be coincidental that we would make a major announcement in a conference like this

[27:44] I’ve a question about our repricing of... sorry not the repricing but the extension of the warrants that we did just a few weeks ago.

Those warrants were issued connection with the public offering that we did in March 2018 and they had a two year life..  We recently extended those for a few months, four months.  And we would not have gone through that effort if we did not have a good reason for doing so. What are the chances that they will get exercised. We think the chances are quite good, actually.

[28:48] Is POET prepared for the possibility that one of these big companies will want to gain access to the technology.

I think that’s probably a question of whether we expect to be or are trying to be acquired. The answer is no. We expect to grow a major company based on a unique invention of the interposer. That’s what our plan is, which is to grow a company. No one ever plans to be acquired. At least I don’t think they do.

[29:45] How long will funds last at present operating expenses?

I believe I addressed that question also. We are… we have sufficient cash to take us into 2021 so we don’t anticipate needing to do any additional capital raises for at least that time and we fully expect.. Look we have options and warrants that are already built into our total share count fully diluted. We have 31M dollars US available.

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