Again thanks to ITTR. This was a long one, and so, you know... Sorry, typed a lot of those :)

POET Targeting New Markets for Co-Packaged Optics and Optical Sensing Applications with LightBar-C™

2:53, George from Agoracom: First one, guys, before we get into the technical press release, is the fact you completed a fifteen-million-dollar financing, and you did it with Cormark, IBK Capital, Pi Financial, and a syndicate led by Mark Lustig. So, what does this financing say about the confidence the market has in POET, and what does it do for the stability of the company going forward?

3:23, Tom: One of the hallmarks of this financing was that the investors in this private placement took unregistered shares, so they have a four month hold on these shares, and so I think that demonstrates that they are long-term investors in our stock. We really appreciate Mark Lustig, who led the syndicate, for this raise, he recognized a kind of asymmetric situation with respect to POET in that we have the right management team, we’ve got the right technology, and he believed we needed to have the right investors in this deal to attract others to it as well, and in fact he was right. We also had the sponsors as agents: Cormark, back to them again for another raise; our long-term relationship with IBK Capital; and a new entry, Pi financial. So, it really puts us in a much stronger position. Since we reported in Q3—our Q3—we’ve added about twenty-four million (CDN) to our balance sheet, which gives us a comfortable runway for what we’re doing now at our current burn-rate.

4:50, George: What kind of runway… ballpark… Tom, I know it’s subject to… obviously it’s subject to times change, things move on, but ballpark, what kind of runway do you think… what kind of comfort zone does this give the company?

5:01, Tom: We have a good two years at the current burn-rate, so I think we’re comfortable. But with CFO’s, you know, I’m always mindful of the needs of the company and need for capital. We’re a technology company, and technology companies always need capital to grow.

5:20, George: And you could have more money come in over the time period, as well, because you have other options out there that are still outstanding, that you would expect probably to be…

5:30, Tom: We have a fair amount of employee options, but just in terms of warrants we have the 0.52 (CDN) warrants that are still outstanding, I think the number is about eighteen million. And we’ve got warrants associated with the convertible debenture, that we issued about two years ago. Now those convertible debentures will mature in April and September of this year, so given that they’re strongly in the money, we expect those to convert rather than be redeemed, so that will further strengthen our balance sheet by reducing our debt-load to zero, and if those warrants convert, which we expect that they will, it will add another eleven million (CDN) to the balance sheet.

6:20, George: Bottom line, as a company, (the company) is in a great balance-sheet position. Thomas, CFO, you know, worries aside, because a CFO always has to think about those things, you guys got to be feeling really good about the position the company is in. So, with that in mind let’s move on to the business (technology) side press release that came out. Suresh, this is where I think you’ll come in handy because you’ve been great at providing investors with anecdotal, layman’s explanations of all the developments along the way. The headline here: POET Technologies Targets New Markets for Co-Packaged Optics and Optical Sensing Applications with LightBar-C™Product. That’s obviously a very, very technical headline, and the press release itself is even more technical. Why don’t you go ahead there with just the layman overview of why this is important?

7:16, Suresh: First of all, thanks for the time. Happy New Year. I don’t think we’ve really… or maybe we did?

7:29, George: Yeah, just after the New Year, but it’s been a while.

7:30, Suresh: Happy Chinese New Year! But nevertheless, thanks for the time. Look, I’m going to try to share my screen, just so people have something to look at.

7:40, George: Let me give you screen sharing capabilities. You’ve got it.

7:50, Suresh: There are a lot of questions about what the heck are we talking about? When we even say C-band, so I’ll do a tutorial.

First slide:

8:00, Suresh: So, light is an electro-magnetic wave. There is a spectrum. Whether you’re talking about wireless communication, light, whatever, there’s a spectrum: the electro-magnetic spectrum. It goes from extremely, extremely short wavelengths, gamma rays, on one end which are the rays emitted by the sun. And then you have extremely long wavelengths on the other side, which are radio waves… they have extremely long wavelengths, they travel very, very long distances, used for communications, of course, in radio and then in planetary communications and so on. Somewhere in the middle, there is the visible spectrum—which is VIS—that is what you can actually visibly see. And that spectrum is comprised of multiple wavelengths itself, from 380nm to 780nm. On the extreme 380nm side is violet, and on the 780nm side is red, so those are the colours of the rainbow, that you can visibly see, violet through red. Just south of violet is ultra-violet—so that’s UV—so anything that is shorter than violet is ultra-violet. Everything that is longer wavelength than red is infrared. And so that’s kind of how that spectrum is demarcated. So, where we play, at least for optical communications, is we play in this regime or band called near-infrared. So that is it is just north of, or just longer than, the red wavelength of light, and it’s called the near-infrared band. And that near-infrared band is made up of the 850nm to 1000nm band, which is serviced with gallium arsenide technology.

10:06, Suresh: When we are talking about using lasers, or using semiconductors, to service these frequency bands, it is also a function of what material actually emits light in that particular band. So, gallium arsenide is used in the 850nm to 1000nm range. From about 1260nm to 1650nm is the world of indium phosphide, and these are the lasers we are actively working with on the optical interposer today. Now that regime is also split up further into multiple bands. There was the original band, and that’s why it was called the O-Band, this is the original band that was put together between 1260nm and 1360nm. And then, finally, it moved to the C-Band, then the Long-Band, the L-Band. And the reason for that move was that people found out that the silicon fiber optic cables used to transmit light have the lowest loss at a certain wavelength: the wavelength is in the C-Band and the L-Band, compared to this original band.

11:20, Suresh: Back in the 1990’s, when fiber optics was a big thing and people were laying a lot of under-sea communications, loss was critically important so most of the technology moved to this C-Band, or L-Band, which is where primarily much of the optics growth happened. Then with data-communications really coming online in the 2000’s, and 2010’s, the O-band became very popular because the O-Band lasers tend to work well in uncooled operations, as opposed to always requiring to be cooled, and so that became very popular. But, regardless, the largest experience-set, volume, etc. of lasers is still largely focused on the C-Band, and that’s the band much of sensing-type applications typically use. So, sensing applications are either in the 850nm to 1000nm bandwidth, (using) gallium arsenide. Those are used for retinal inspections, OTDR (optical time-domain reflectometer) type applications. Then there’s the sensing applications like LIDAR, gas sensing, and so on and so forth, that all happens in the C-Band, and is a very important band for a variety of different applications, it’s just that data communications, which is our initial focus, our has been, continues to be our initial focus is all in the O-Band. So, this is really a high-level background as to what these bands are and why our original focus is O-Band—it still is our big focus because that is where the data communications market is settled on, in this regime of 1260nm to 1360nm—but there are, outside of data communication, applications that favour, for a variety of reasons, the C-Band.

13:32, Suresh: This press release is all about expanding the viability and capability of our platform. We’ve always talked about the importance of a platform technology, a basic platform that is compatible in an end-to-end configuration across a multiple set of wavelengths. And while we inherently and intrinsically know that our material system that we use with our interposer is, or should be, capable, there are still development activities that need to be done to ensure that capability and viability is in fact proven out. Towards the end of last year we spent a lot of time focused on the O-Band and now we starting to expand systematically our capabilities in this new band, which is C, which allows us to now participate in applications that are outside of the data communications, although I must insist that our primary focus still will continue to be datacom because we’ve got to get products out in data communications as the first step towards building a very large business across multiple verticals. But, nevertheless, this is an important press release in the sense that it is validating our capabilities as a platform at wavelengths that are outside of what is traditionally used in data communications.

15:02, George: What are some of the application examples in the C-Band?

15: 10, Suresh: The C-Band is currently the band that is used for, for example, artificial intelligence photonics processors, and that’s because the types of modulators used in those applications typically work well in the C-Band. Today’s LIDAR market, for example, is all focused on gallium arsenide, it 940nm wavelength. But one of the trends we see as we move to next generation LIDAR is that people need to put out more and more power out of these light sources when you’re doing these LIDAR applications. And the 940nm wavelength of light is not eye safe, that is, beyond a certain power level, it can burn your retina. So obviously you don’t want that, you don’t want cars blinding people so, over time as you increase the amount of power coming out of these LIDAR sources, there’s a move to move toward the C-Band, which is eye safe—that is even though we can pump a lot of power out of those lasers, they are not detrimental to the human eye. So, the next generation of LIDAR solutions are moving in that direction. It’s also that, atmospherically, the C-Band light is less susceptible to atmospheric variations: hail, snow, those kinds of things. It’s less susceptible to those so therefore… even though the current generation of LIDAR that’s in production in cars today is focused on 940nm and gallium arsenide, we expect the next generation of solutions to be in the C-Band and indium phosphide and so that’s another application.

17:05, Suresh: There are a variety of sensing applications; as you know we used to own Denselight and we were—POET at that point—was heavily into sensing. So, there’s a bunch of sensing applications that are also very much focused in the C-Band.

17:20, Vivek: Just to add to that, C-Band first started in long-haul communications. As Suresh mentioned, the loss of light as it travels through the optical fibers is lower in C-Band, so all the telecom, or longer-reach networks, use the C-Band on the 1515nm regime, because you can amplify signals as it travels and also the loss is lower. Although we’ve not gone into that field right now, there’s this huge other communications field of C-Band that we’ve proven out that we do, and with the muxes (multiplexer/demultiplexer) and everything that we’ve developed, so there’s a huge adjacent market, as well as very near market, or relevant market to where we are today in the intra datacenter.

18:10, George: By the way, I was going to ask because I know it, but for the people at home, Suresh or Vivek, you mentioned LIDAR a few times, and the new autonomous vehicles, can you just make that connection for people who don’t know that connection of what is LIDAR and the role it’s going to play, for example, in next generation vehicles?

18:33, Suresh: Yeah, autonomous vehicles require sensors—that’s basically how they can be autonomous, you need something that senses the environment and then makes decisions based on what it is that you see. So autonomous cars will have a combination of multiple sensors on them. They use radar, ok, so that’s typically used, and those are 77 gigahertz and 50 gigahertz radar signals. They use visible: so, there’s a lot of sensing that is just visible, like Mobileye, for example, so detecting of a speed limit and so on. And LIDAR: so, LIDAR is a laser-driven ranging and sensing, versus radar which is a radio wave, which is a microwave-driven ranging and sensing, and that is typically used for farther out, typically harder to detect objects, blockages, and then distance finding relative to vehicles in front of you and so on and so forth. So, an autonomous vehicle actually requires sensors of all sorts, and LIDAR is one of those critical sensors that is important for truly autonomous, what they call level 3 autonomous, vehicles.

20:08, George: At the same time, you don’t want those lasers blinding people, right?

20:12, Suresh: Yeah, the point is, with every one of these sensors, the sensitivity is important. Sensitivity means more power, more distance, and typically that requires you to boost up power levels, but there is a limit to how much power you put out with current lasers. Also, the longer the wavelength of light, the farther the light goes, right? I mean it’s the same reason people use radio waves, because you want it to go very long distances. I think that’s one of the reasons why people are starting to migrate in these applications to this other band. So, it’s one of the sensing applications, it’s not the only one, there’s a lot of bio-medical sensing applications that also work in that band. I just use that as an example only because people are probably more familiar with those kinds of sensors than the broad, wide range of sensing applications that are out there.

21:15, Suresh: But for us, more importantly, we did announce that we have engaged with a customer on artificial intelligence processors and servicing that business requires us to develop and demonstrate this capability and so what we’re doing here is tied to a customer, it’s tied to products, it’s not a R&D activity per se. But the capability demonstration is critically important because the underpinnings of our strategy is a platform approach that is scalable and this goes one step further towards validating that strategy, validating that concept.

22:00, George: What kind of feedback have you guys heard back from customers since you made this announcement? I assume maybe you’re speaking to customers beforehand, but extending the OI platform to new applications, markets… must have excited your customers somewhat… and potential customers… the industry.

22:20 Vivek: So, yes. Industry, and as Suresh articulated, there’s all these applications as well as in telecom and communications also. The C-band plays a key role. However, we do need to be careful about how much we take on. It has to be very clearly progressed... out penetration into the market. We don’t want to be doing everything for everyone, right? We can quickly become too thin in our resources. So again, as Suresh emphasized, the intra-data center is really a focus, where we are getting products out, the products on our road map. This year there will be several products in the O-band, in the up-to 10km kind of regime. And then, specifically, this one customer that we’ve been working on is there. And then we will expand to the right, of course, within the artificial intelligence, within this optical processing space we will expand. And then we will see where the right fit, whether its in LIDAR, or other sensing applications that we expand to. So, there is excitement from customers, but at the same time we have to be diligent about how we expand and commit our resources.

23:40 George: So, the good news is this opens up a much, much bigger target, target markets, but you can’t chase them all at the same time.

23:50 Vivek: We don’t want to chase all of them, but at least it demonstrates that we are not a, for lack of a better word, one-trick pony here, right? It’s a very fundamental platform that goes back to our original value proposition. It’s a hybrid integration platform which is really fundamental to integrating all types of devices that require devices for transmission and for processing and for things like that.

24:20, George: So, there’s always a competition question, which is “How is Poet going to penetrate these new applications markets when there is competition there?”

24:33, Vivek, so again, being a very fundamental and broad platform, we have the ability to service the spectrum that Suresh showed. That entire, or almost entire, light spectrum in that regime, right? So, a customer and especially large customers that have need in the O-band, as well as C-band, right, where they are doing optical connectivity for two [kilometers], ten kilometers, but also need to do co-packaged optics or artificial intelligence clusters. We can service a customer, one customer, with all these different, you know, solutions. So that is highly valuable to large customers to have a technology that’s going to service multiple needs of theirs.

25:22, George: Are you guys ready to go to market with this right now?

25:25, Vivek: Well, we already have a customer. We had announced that earlier. So, we have seeded the market or are seeding the market. Then we will be diligent about which customers and markets that we expand from here. So, the answer to your question is yes, we are in the market, but in a very targeted customer and space.

25:50, George: Suresh, how do you target the markets? Do you target by where you could be strongest, or do you target by size?

25:56, Suresh: Well, I think it’s an intersection of technology and its capabilities, the value proposition we bring and its applications on the other side. I mean we don’t want to target every application just because we can do it. In this particular case it’s a good marriage between the size of the market, which is in this case, for example photonics-based processors, is projected to be large. It’s a marriage between that. A marriage between having a customer that is pulling. And the marriage between having the technology platform that has the capability and that we’ve been able to fund this activity and resource it to develop the solutions. I think its really a combination of having the customer, ensuring that the market is large enough for us to serve, and the platform has value and provides capability there. I’ve said this many times. We can pick up a lot of shiny rocks along the way, but that’s not our intent. I just keep getting back to that, because, yes, these are important announcements for us because we want to ensure that our investors, our shareholders know and understand that the platform is a scalable fundamental platform. At the same time, it’s important that the investors and shareholders know and understand that we as a management team are focused on our near-term deliverables and data centers as the first and primary source of revenue. And that these are important to build value in the company, to build value in the platform, and will be continued down, but they are not our immediate and first source of revenue.

27:42, Vivek: Just to add what we are doing here is not completely tangential to what we have been doing. So, we have developed O-band lasers which is in the 1310nm regime. No, we have lasers or we’ve co-developed lasers in the 1550nm DWDM C-band regime. Which is not entirely different. The wavelengths are different, and also the gratings and the multiplexer that we are doing in the O-band for our LightBar engines for 400G type is again… The platform has a capability. There was design work, you know, development work needed. But it’s not that there was a new technology development we had to do to have these AWGs that multiplex the different DWDM colors, or wavelengths, of light. So, it’s an adjacent or incremental development of what we’ve been doing. And that again emphasizes the strength of this platform.

28:40, George: Vivek, you are talking about CWDM and DWDM. Describe the difference between the two and is the fact that Poet can embed the DWDM in its waveguides give it any major competitive advantage?

28:57, Vivek: Yes, it does. And just to describe the difference so everyone can appreciate it. “C” in CWDM is “coarse” wavelength division multiplexing. And then DWDM is dense wavelength division multiplexing. Really for people to understand think of it as colors of light. I’m translating wavelength as being colors, so think of it being synonymous. Wavelength of light and colors of light. So, in colors of light, I use that word, in CWDM… Actually, one thing I should first explain is as the temperature of the laser changes, the color of the light slightly changes... of the laser light. So, in CWDM, thin about it as distinct colors. You know, red, orange, blue, you know very distinct. So, if that light moves and [the wavelength] changes, its still distinguishable. You don’t confuse red from blue, even though the shade of red or shade of blue changes. In DWDM, think of it as different shades of the colors, very close to each other, but becomes difficult to distinguish. However, what it enables is many more colors. So, if you have a particular, you know you can do light blue, navy blue, etc., and try to expand that way. So, you can stack up many more colors of light into that one channel, so really what does it mean? Of course, so one thing as Suresh has explained, in the longer band, in 1550nm, you can transmit longer distance. But also by stacking multiple colors, in this narrow spectrum, you can transmit a huge amount of data. So, what artificial intelligence needs, and these optical processors. There are huge, huge, massive amounts of data that has to be processed. So, this C-band enables that. So, of course, being in the eye-safe region for things like LIDAR and all where its exposed to humans and concerned with eye safety, C-band provides this. So, I’ll come back to your question of CWDM versus DWDM. So CWDM is used more in an uncooled operation because the light, the wavelength of light can change but its still distinguishable. So, it provides the benefit of lower power consumption in the system. But it is still limited to a certain amount of data it transmits. Which is very good for the shorter reach transmissions within the data center. For DWDM systems, they have to be cooled. So, the temperature of the laser is maintained, so that light blue or navy blue are always consistent even when the temperature outside is changing, the ambient temperature. So that’s really the difference between DWDM and CWDM.

32:18, George: Last question, how is the term co-packaged optics (CPO) applied to both the switches in the data center and to optical processors? Are the functions that similar?

32:32, Vivek: So, CPO really means where you have the optical connectivity very close to the ASIC. Whether it’s a switch ASIC in a data center, or an optical processor in an optical computing application. Because as you increase speed, and in order to go longer distance, the power consumption increases tremendously. So, you want to shorten that distance quite a bit and really co-package the ASIC chip with the laser or the optics. So, it applies to both data center applications with the speeds going to Terabits and higher. You need the CPO in the data center. And in artificial intelligence and optical computing applications, you want the optics very close to the ASIC or the microprocessor chips in this case. So yes, it applies to both.

33:36, George: In the press release you guys have a quote, and I want to make sure investors really understand, even people like me. The quote: “The mega-trends of cloud computing, 5G and the rapid growth of artificial intelligence are spawning numerous applications and increasing volume demands for both high-performance lasers and integrated photonic solutions.” These are mega-trends. What is Poet’s view on how long and how far these trends can continue, because to me it seems like this is a decade at least in front of us? Which means just massively expanding, expanding applications and markets for you.

34:22, Vivek: Its just started, so it’s multiple decades. We don’t know how long it will keep evolving, but the mega-trends that we are playing in: cloud computing, sensing, IOT, autonomous vehicles… all this, we’ve just started. Artificial intelligence, the applications are so vast. At least I cannot see in our lifetimes that this mega-trend would end. It will still keep growing.

35:00, George: Suresh, what does that mean? I mean aside from the obvious, that it means a much bigger and bigger market will be available to Poet and more and more applications. What does that mean in terms of the size of…? Is that a double-edged sword, which means, great we’re just in the beginning like Vivek says. But at the same time, you’ve constantly got to keep in front of it.

35:22, Suresh: Yeah, absolutely. I mean, let’s not kid ourselves. Just because there is a very large market and we have a competitive advantage, you have to stay ahead. You have to keep innovating. And there are going to be competitors, and nobody is going to own 100% of the market, you know. It just never happens. So, I think yes, the fact that it is a big market is exciting and interesting because it enables us to have our share in it. Which is what we use for our projections for where we believe this company can be several years out. But I think at the same time we need to keep innovating, keep ahead, understand the trends, understand the directions people are headed, ensure that our platforms value proposition continues to be occurred[?] and continues to be viable for all the different applications that are out there. I think there are many applications… that the highest volume applications that we believe we can play in, and we don’t even want to consider because the amount of value of the marginal improvements that we would bring is not enough to cause people to change what they are already doing. So, I think we need to always keep in mind that you know we are not the incumbent. Therefore, we have to keep winning business or changing people’s minds on how things ought to be done versus how they are doing things. There is a gestation period. We need to go through that systematically. It’s not one of those “Oh here’s a platform,” and so suddenly you sprout multiple revenue streams. They have to be developed. I think there’s an expectation among the investor base that just because we put a press release out like this, that tomorrow we start generating revenue. And while tomorrow is going to happen, it’s not truly tomorrow. We want to set the expectation that we will continue to put press releases out based on real data and based on our strategy and based on the fact that we are expanding this platform. And that we expect this company therefore to have multiple verticals as an underpinning of its total revenue picture. But our focus will continue, and our near-term revenue will continue to be generated in the data communications and intra datacenter as Vivek has mentioned.

38:15, George: As CEO I think it’s great that you are cautiously optimistic, the way you sound. Which is great because a lot of CEOs get carried away sometimes and provide a false sense of... or overpromising and end up under delivering. I think that’s great. But for the sake of investors at home, milestones like this press release, how much more confidence does that give you as to the positioning of Poet?

38:50, Suresh: I’m not quite sure what specifically you are asking for, but we weren’t going to put a press release out if we weren’t confident that we could deliver a solution that we’re talking about. So, yes, I think the fact that we’ve put a press release out is itself a milestone because there’s work that has been done and data that has been taken, and a certain set of, kind of maturity if you will, that has been achieved prior to us putting out a press release. We wouldn’t put out a press release on just an idea that hasn’t been vetted. So, from that perspective it is in itself a milestone. Now in terms of actually converting this into a product that’s already underway. It’s one of the products that we’ve put together and taped out and you know we announced that late last year. So, we do expect to have this converted into a real product taken through its qualification process and so on over the course of this year and we do have a customer waiting and engaged with us in that. But I think the proliferation of it will happen upon qualification. So much of that is in our plans for this year.

40:05, George: Yeah, thanks for answering that, and maybe I’ll try to rephrase it, hopefully I can rephrase it better, which is, with this milestone, not necessarily the press release, because obviously the technological milestone came before the press release. But with this milestone, what is your level of confidence and how has it grown in terms of how Poet is positioned within its market.

40:26, Suresh: You know the confidence has always been there. I think we just have you know… Look, just because I tell people that I’m confident that doesn’t mean anything. You know we’ve got to back it up with real data, so I think we’re just scratching the surface honestly.

40:40, George: All right Gents, last word to you guys. If there is something that we haven’t considered yet, or what your final words might be on what you want investors to take away from this milestone.

41:00, Vivek: So again, I’ll chime in here. The coming back to the capability of this platform… it’s vast. All these mega-trends that we discussed, we talked about... We can play a role in all those mega-trends in our way. And being a hybrid, and truly a hybrid, integration photonic platform we can enable all these applications which require photonics to be successful… those applications. So again, you asked about confidence, I believe with additional milestones being validated like having solutions outside the work we’ve been doing like O-band now expanding to C-band just demonstrates and gives us the confidence that we can go after multiple markets. We have to be diligent. We have to be cautiously optimistic, as you mentioned. But there’s a vast market for us to target systematically and diligently.

Well clearly the market believes you gents, because you are able to raise some substantial funds. And that comes from people who must do great due diligence and it’s great to see that kind of confidence. I think that helps for people at home. Obviously, this is beyond the level of expertise of many investors. So, understanding what Poet does, understanding this milestone, and combining that with this great raise, I think puts the picture together pretty nicely as to the level of confidence in Poet. And congratulations on this milestone and look forward to having you guys back again soon.