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Aug. 22, 2010 9:33 AM ETLightwave Logic, Inc. (LWLG)42 Comments
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From the time Jack Kilby invented the semiconductor in 1958, microprocessor performance increases have been driven by ever shrinking circuitry allowing more and more transistors to be fit into a smaller and smaller footprint. While Gordon Moore, co-founder of Intel (NASDAQ:INTC), aptly predicted this trend we know today as Moore’s Law, the duration of the phenomenon actually has exceeded his original prediction of 10 years. However, we are rapidly approaching an impenetrable physical limit which is that it is not possible for a transistor to be smaller than one atom in width --today we are five.
For the last 7 years or so a small company named Lightwave Logic (OTCQX:LWLG) has been developing a new electro optical polymer material (EO polymer) that promises increased life for Moore’s Law. This material holds the promise of future speed and efficiency improvements that will open the door to a new era of data communications and computing.
Perkinamine ™ , the company’s secret sauce is a chromophore which in laymen’s terms is a sophisticated kind of dye that imparts light sensitivity to the resulting polymer material. Perkinamine is actually only one element in an advanced material polymer matrix that can be customized—or, tuned to meet varying customer-specific engineering specifications. Technically the finished material is a plastic, but more aptly an Electro Optical polymer crafted in such a way as to give it the unique ability to control the path of light—the key to moving digital information over fiber optic cable.
Perkinamine’s magic so to speak, is that less of it is more. Less chromphore yields a more stabile material—both thermally and photo chemically. This means that it can retain its properties even after surviving ultra high temperatures of the semiconductor manufacturing process. Additionally, its photo electric sensitivity won’t degrade after being continuously bombarded by photons. This may sound simple, but it has confounded much larger companies like Dow Chemical (NYSE:DOW) and Corning (NYSE:GLW) who gave up their efforts more than a decade ago.
The Third Order Effect
At this point in the evolution of the Lightwave Logic’s material matrix, an additional layer of RF circuitry is needed on-board the chip, but future generations may be able to operate without the electrical layer. The theoretical ability of one beam of light to control another beam is known as the Third Order Effect, which when achieved, will truly be a watershed event for mankind. The payoff will be the potential for a 10-fold increase in Internet and datacom speeds. It will also give birth to inexpensive, powerful all-optical computers ultimately fashioned entirely out of plastic with transistors made out of EO polymers. These transistors, however, will switch photons rather than electrons and will be able to run on approximately 10% of current power requirements of today’s copper based machines. The resulting double-barrel speed advantage will combine to usher in new applications that were heretofore only engineering conceptualizations, like true voice recognition, tele-medicine, and a host of others.
Modulators
Data networks and optical computers use modulators to turn light waves-on-and-off. This state of being on-or-off indicates a 1 or a 0—the basis of all binary information.
In the near term, Lightwave Logic’s advanced material matrix will allow equipment manufacturers to fabricate high speed EO polymer modulators that will greatly benefit existing fiber network providers by increasing performance along with the potential of reduced cost. It will also allow computer makers to begin the manufacture of 1st generation mass-market optical computers with a fiber optic bus that uses photons to move binary data to-and-from the central processor.
Ken Cadien, Director of Innovative Research at Intel Corporation, foresaw this trend as far back as 2006 when he spoke about significant future challenges scaling with copper and announced that it was time to begin evaluating optical interconnection. As recently as August 2nd, Intel confirmed that light beams can replace electronic signals for future computers by announcing the first silicon based optical bus, claiming a preliminary data rate of 50 Gbs/sec (see: Press Release, August 2, 2010, Intel Confirmed that Light Beams Can Replace Electronic Signals for Future Computers, here). It is not clear that this program is indeed employing EO polymer modulators, but at the very least it reiterates the continued commitment to the concept. Lightwave Logic now has a potential solution, and it would seem fairly logical to assume that Intel would be an interested party.
Corporate Background
Lightwave Logic has been around in various forms since it was incorporated in 1995 as PSI-TEC, Inc., a non-reporting publicly traded company. In July of 2004 it changed its name to Third-Order Nanotechnologies and in March 2008 the company was renamed Lightwave, Logic, Inc. to better define the strategic business plan and to facilitate shareholder recognition of the company.
The company’s key intellectual assets are the result of the work of Dr. Frederick Goetz, a recognized industrial expert in polyheterocyclic organic chemistry (the chemistry of polymers). Initially, the US Army became interested in this and for a while the company functioned as a technology consultancy to the various agencies within the Department of Defense. Dr. Goetz took a vastly different development approach than other major companies who were also pursuing EO polymers. Rather than starting with a material that was electro optically active and attempting to make it stable, he started with a material that was inherently stable and attempted to make it electro optically active. This approach turned out to be correct as the company appears to have the only thermally and photo-chemically stable EO polymer matrix that can be made inexpensively.
Once the substrate material is made, individual chips are spun from it using a conventional, inexpensive, thin film method. The resulting chips are then built into light modulators. In a sense, the process is a type of a nanotechnology because the design of the EO polymer also includes arranging or lining up the actual molecules in a technique known as polling.
EO polymers have the ability to dramatically outperform more exotic materials like gallium arsenide and lithium niobate. These materials are commonly used in devices that make up the current backbone of data communication networks over which the world’s digital information is transmitted. EO polymers have inherent cost advantages over the exotic materials which are actually crystals that must be grown in ultra clean rooms, sliced like bologna, and carefully made into semiconductor chips. This involves formidable production challenges that can result in low yields due to issues like contamination.
Furthermore, once the crystals make it off the production line, and are fabricated into chips, their extreme reactiveness with the environment requires specialized packaging. This packaging is typically made out of an expensive form of stainless steel which also adds a significant layer of cost to the finished product.
Cost Advantages of Electro-Optical Polymers vs. Lithium Niobate
Chip Cost
Packaging Cost
Final Cost*
Lithium Niobate
$200
$1,000-$2,000
$5,000
EO Polymer
$100
$100
To Be Determined
*Including markup
Modulation
Modulation is simply a way of turning a light path on or off which is how binary information is moved from point- to-point. Whether it is across thousands of miles of fiber optic cable, around a storage network, your office, or around a computer, the speed at which digital data can be transmitted is limited by how fast you can turn the lights “on” and “off.” Up to about 2.5 Gb/sec, it is possible to simply switch a laser directly (known as direct modulation), but to accomplish greater transmission speeds, it is necessary to create a dedicated electronic shutter of sorts—a modulator that can perform the task. At 10 Gb/sec that’s greater than 5-billion times per second! As astounding as this may sound, much higher speeds are possible using modulators made with EO. Lightwave Logic appears to be the company that will have the first product offering that can not only meet the demanding scientific and engineering specs, but also be able to do it at a price point that will make it economically feasible.
To deal with the growing demand for bandwidth, telco providers have resorted to various work-around solutions to surpass the 10 Gb/sec barrier—typically this involves ganging multiple 10-Gb modulators together. This however, is not a viable long term solution because four 10-Gb /sec modulators do not perform as well as one 40 Gb modulator. Also, this is an expensive proposition from the standpoints of cost, maintenance and power consumption .
AT&T recently announced a change to the way they will be selling bandwidth in the future. The company will no longer offer unlimited data for a fixed price. What is significant about this is that the company has indicated 40% of their capacity is currently being used by a mere 3% of subscribers. This statistic is startling and should crystallize the problem that large network providers are experiencing. The number of heavy users will most surely continue to grow driven by an expanding array of new devices like the iPad and the Droid.
The problem could have disastrous consequences for network providers who obviously, need a long term solution that can carry us all into the future. Lightwave Logic is holding key technological knowhow with patents pending on working prototype material that can provide a real solution to the problem of moving more and more data. The company’s stated goal is to ultimately be able to move one terabit of information per second. The timing couldn’t be more perfect.
LWLG plans to offer materials and designs for both amplitude and phase modulators. This will allow them to meet the present and future needs of service providers. Amplitude modulators are most commonly deployed in today’s legacy networks while phase modulators will be used in future fiber optic networks. An easy way to comprehend the difference between the two is to think about the difference between AM and FM radio.
A large part of the speed-gating factor in contemporary networks has been due to the capability of the current generation of deployed fiber. The other part of the problem is due to a technical issue known as wave matching. Because it is necessary to send an RF signal down a fiber along with the optical signal, both wave patterns must be matched. Mismatched waves can result in dropped data packets. At transmission speeds above 10 Gb/second, it becomes virtually impossible to perform accurate error correction. Investors should understand that problems with wave matching are specific to exotic materials and not a problem for modulators made with EO polymers.
Future Internets
It is not commonly known that new fiber optic networks are actually being built out today with advanced fiber optic cable able to take full advantage of modulators made with EO polymers.
Since 1997, the US government (see: "NGI Concept Paper" July 1997, here) has been funding the build out of a next generation Internet (NGI). The stated goals of the project are:
Expansion of bandwidth
Creation of universal high speed performance
Construction of sophisticated distributed applications for everything from libraries to telemedicine
In addition to NGI, certain high tech companies and universities are building out another Internet known as Internet2, an advanced hybrid optical packet data network intended for academic use. Internet2 is being designed to provide next generation services as well as to provide a test-bed for the development of new networking technologies. Modulators made with Lightwave Logic’s EO polymer materials will likely be used in these networks which will be able to take full advantage of their enhanced capabilities.
The Path Forward
As discussed earlier, over the last 15 to 20 years researchers have tried to attain the largest electro-optical effect by balancing the need for thermal stability versus the need for photo chemical stability and sensitivity. Photo chemical stability refers to how much degradation the EO material experiences after it is hit billions of times with a laser. Less stable materials have a tendency to bleach out and lose the electro-optical properties.
Withstanding the high temperatures (thermal stability) relates more to the manufacturing process than the operating environment. Telecom operating environments require that the materials be effective within a range of -4°C and +85°C (the Telecordia Standard). This falls well within manufacturing specifications. In the datacom /computing environment, operating temperatures are similarly low, but here too, polymers must be able to withstand manufacturing temperatures of approximately 270°C (518°F) in order to be vertically integrated into semiconductor production lines.
Where others have failed, Lightwave Logic appears to have been able to craft a material that has met all of the basic requirements for a commercially viable product.
Finally, a key commercial consideration is the amount of drive voltage required to affect a 180-degree phase shift of the light (one of the ways the off-signal is created). The industry demands no more than 10 volts. While more competitive products run at 5 volts, Lightwave Logic believes that devices made with their material can run at 3 to 5 volts (per device) but believe they can get that down to less than 1.5 volts.
The ability to run at extremely low voltage will be a key technological differentiator for modulators made with the company's EO polymers.
Competition
Not much is known about the current competitive programs as many of these types of initiatives, if underway at large companies, would be buried within R&D operations. Gigoptix (GGOX.OB), a Palo Alto fabless semiconductor company through its purchase of Lumera, currently sells a polymer based optical modulator. Industry price estimates are in the $4,000 to $7,000 range per modulator. Due to the prohibitive cost, there has been no wide scale implementation of these devices.
Investment Considerations
An investment in Lightwave Logic is an interesting risk reward proposition at this time. One can make the point that the situation is analogous to a post phase III, pre-NDA biotech stock. But looking at the size of the opportunity here in contrast to what the market cap for a typical biotech might be after a successful clinical trial and before an FDA approval, LWLG looks inexpensive at approximately a $60MM market-cap.
Importantly, the company has announced its first ever commercial development contract with Celestech, a technology development firm in Chantilly, Virginia involving an optical computing application. Though the initial revenues from this project will come from assisting with the engineering design, next year more substantial revenue will likely come from supplying the material and ultimately royalties on sales. In the meantime, the good news for investors is that this in reality amounts to externally funded R&D.
Lightwave Logic has also announced that they are in discussions with several other large technology concerns to develop other applications for the material. A few of these programs have been on-going for several months and it is anticipated that we should hear soon results of at least one of these evaluations.
Potential to Expand Market Opportunities
An advanced fiber network deployed with EO polymer modulators could run at speeds greater than 100 Gb/sec , or 10 times faster than today’s networks without problems of error correction due to wave matching. As future Internets like NGI and Internet2 are now being built out, the reality of this may not be that far off. Until the Third Order Effect becomes a reality there remains a large market opportunity for first generation materials. The total market for light modulators is estimated to be in excess of $1B/yr and the segment of it that EO polymer can initially address—though small, is enough to build a profitable company. As polymer based devices gain acceptance, they will penetrate further and further into the network architecture. It is also likely that they will be able to be used in other areas of the network that haven’t yet incorporated modulation. For example:
Short Haul Telco
Outside of the transmission of data directly over the fiber optic network, EO polymer modulators will enable connection at each line card as well as between the telco backplanes to the fiber cloud.
Within the rack itself, EO polymer modulators could be used for board-to-board optical interconnections which would vastly improve network performance
Fiber-to-the-Home
Placing inexpensive EO modulators on the street side of a fiber optic cable to a home installation would substantially improve fiber service to a home.
Storage Area Networks
Using modulators made with EO polymers it may be possible to use multiple wave lengths of light for optical interconnection which would vastly speed up back up times.
Also optical encryption at speeds greater than 10 Gb/sec may well become a necessity as the overall quantity of data grows.
Military Markets
Satellite Transponders would be a natural niche given the thermal properties of EO polymers which can operate at extreme temperatures. In addition, government Internets will likely need whole fibers encrypted which, given the enormous amount of information and speed needed will create markets for optical encryption at speeds much faster than 10 Gb/sec.
Short Haul Telco
Outside of the transmission of data directly over the fiber optic network, EO polymer modulators will enable connection at each line card as well as between the Telco backplanes to the fiber cloud.
Within the rack itself, EO polymer modulators could be used for board-to-board optical interconnections which would vastly improve performance.
Fiber-to-the-Home
Placing EO modulators on the street side of a fiber optic cable to a home installation could vastly improve performance.
Storage Area Networks
Using modulators made with EO polymers it may be possible to use multiple wave lengths of light for optical interconnection which would vastly speed up back up times.
Also optical encryption at speeds greater than 10 Gb/sec may well become a necessity as the overall quantity of data grows.
Military Markets
Satellite Transponders would be a natural niche market because of the ability of EO polymers to withstand extreme temperature variations. IAs well, the increased speed ability will be very useful to secure government networks which will likely need whole fibers encrypted.
Optical encryption stands to be a very important and lucrative market for EO polymers.
Optical Computing
Initially all new computers could make use of optical interconnect using a modulator and fiber optic cable to replace the bus on a computer. The result would create supercomputers for the masses. Furthermore, EO polymers will also have application in massively parallel processing applications where optical interconnection on a chip-to-chip basis will greatly improve performance.
Conclusion
Adding up all the addressable markets for Lightwave Logic’s advanced material matrix could get one to potential revenue numbers so large as to appear exaggerated. The more likely scenario is that the company won’t be around to generate the sales. Once the patents are filed and a large customer agrees to move into a commercial implementation, Lightwave Logic will likely be acquired because the technology would be too important for large players to want to share with competitors.
Disclosure: Author is long OTCQX:LWLG
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