Ortel in Three
Acts
By Michael Rogers
From left, Ortel’s big three are Israel Ury, Amnon
Yariv, and Nadav Bar-Chaim.
By
1987, Ortel was producing semiconductor lasers
for military remote communications and introducing fiber optics to the
cable TV industry.
The story of Ortel
reads like a three-act play. Act I: Caltech professor and students develop
a unique technology and start a company. Act II: After modest success,
the company grows dramatically when it discovers that a burgeoning industry
is desperate for its product. Act III: The company stalls when the industry’s
market becomes saturated, but then revives when its product becomes in
high demand due to the growth of the Internet. The company’s founders
attain financial success when the company is bought out by a huge industrial
corporation. Curtain.
The author of this
story is Amnon Yariv, the Martin and Eileen Summer-field Professor of
Applied Physics, -internationally known for his contributions to both
optics and lasers. These contributions include starting the fields of
integrated optoelectronics and phase conjugate optics, which are central
to modern fiber-optical communication and to optical computing.
The Ortel story begins
in the late 1970s. Yariv’s Caltech research group consisted of about
25 graduate students, postdoctoral scholars, and engineers. Two members
of the team were Israel Ury, PhD ’80, who came to Caltech in September
1976, and Nadav Bar-Chaim, a postdoc who arrived in January 1979. Ury
and Bar-Chaim worked on Yariv’s research in integrated optics, in
which laser light is generated, modulated, and otherwise manipulated in
hair-thin layers of semiconductor crystals. These micro-optical-electronic
circuits combine lasers and transistors and are used as terminals in optical
fiber communications systems. In such systems, laser beams are made to
carry huge amounts of information such as computer data or voice channels,
either through the atmosphere or over hair-thin glass fibers.
One of the possible
applications for this technology was in military communication, and in
1979 the Defense Advanced Research Projects Agency (DARPA) approached
Yariv with a project to create high-speed interconnects for radar and
computer systems.
Yariv was concerned,
however, that what DARPA really wanted amounted to a commercial venture.
“We did the basic research on high-speed semiconductor lasers at
Caltech, published some papers, and were essentially done with the project,
but DARPA wanted a commercial source for these lasers,” Yariv said.
So he approached Bar-Chaim and Ury in late 1979 and asked them if they
wanted to start a company with him. “I chose them,” Yariv said,
“because they knew the technology, because I thought that they had
the talent and temperament to run a company, and because we could not
afford, and did not look sexy enough, to attract an experienced manager.”
“Starting this
company was somewhat of a joke, because the area we were active in was
so new that it had no market,” Bar-Chaim said. “When I came
to Caltech, I thought I’d spend two years there and then go to industry
or continue doing research in academia.”
“I had a job
offer from Bell Labs,” Ury said, “but I also had a plan to be
involved in a start-up. When Amnon made his offer, I thought, ‘Might
as well. I can always go to Bell Labs. It doesn’t seem too much of
a risk. If you lose a year in this, it’s not much.’”
So they signed on.
Ury became president. Bar-Chaim was the vice president, and Yariv was
a consultant. They set up temporary headquarters in Santa Monica in 1980,
but soon moved to Alhambra, just south of Pasadena, where the company
still maintains operations.
A grant of $180,000
from DARPA helped them pay the bills for a while. During the first few
years, the company focused on research and development. It shipped its
first lasers for the military in 1983 and then another DARPA project came
along.
According to Ury,
“With the satellite communications systems then in place, our soldiers
in the field were magnets for missiles,” because the missiles could
follow the transmissions like a beacon, home in on antennas, and kill
lots of soldiers. “The military wanted to put their antennas away
from personnel. They needed high-speed and high-fidelity links so that
you could have remote antennas, and our lasers were able to do that.”
By 1987, Ortel began
shipping semiconductor lasers for antenna remoting. But by that time,
the Cold War was winding down, government defense funding was drying up,
and the company needed to rethink its strategy.
Luckily for Ortel,
it didn’t have to look very long for a new market. In the late 1980s,
the cable television industry was on the upswing. As cable channels began
to proliferate, more people began subscribing. One major problem, however,
was that the coaxial system used to bring the cable channels into homes
was subject to failure.
“If one wire
broke, tens of thousands of people would lose reception,” said Ury,
who stepped down as president in 1985 and became chief technology officer
when Ortel hired a CEO from outside the company. “Or if there was
a power outage, the same thing would happen. Everything was on one line”
and there were no backups.
In late 1987, Ortel’s
marketing director took a military satellite link to a large cable communications
company and demonstrated that the link could be used to transport TV signals.
Then, in December 1987, Ortel rented a booth at the Western Cable TV conference,
hooked up a 40-channel TV cable system, and demonstrated that the signal
could travel several miles on optical fiber. “That got lots of people
interested,” Ury said. “Our booth was packed.”
Ortel quickly changed
from a military hardware supplier to a company serving the entertainment
industry. Within a few years, all cable systems were using fiber optics
instead of coaxial cable and Ortel was one of the leading suppliers.
To serve the cable
industry, Ortel needed to expand into new markets and increase production,
which required money. So in 1994, the company went public, raising $40
million.
“In 1994, we
were one of the first optoelectronic companies to go public,” said
Ury. “We were on the cusp of that industry.” Throughout the
1990s, until 1997, the company’s sales grew by approximately 40 percent
each year. “Then sales slowed,” Ury said. “The market became
saturated. There was more competition. Prices declined.”
Then the Internet
came to Ortel’s rescue. Introduced in the early 1990s, it started
to take off in about 1997. Ironically, the initial lasers that Ortel made
for the military were too fast for general purposes at that time, but
they were perfect for the Internet, where users have become obsessed with
rapid speed of transmission. So in the late 1990s, Ortel began to focus
on making high-speed lasers, an area that had few competitors, according
to Bar-Chaim.
In 1999, the cable
business represented approximately 90 percent of Ortel’s sales. But
within one year, the Internet business accounted for more than 50 percent
of the company’s revenues. Investors took notice. In the middle of
1999, Ortel’s stock was trading at about $10 a share. By February
of 2000, it was over $170 per share.
Lucent, the telecommunications
company that had been spun off from AT&T, had been paying close attention
to Ortel’s success serving the computer industry, and early in 2000
it agreed to buy the company for $2.95 billion in Lucent stock.
“In the period
after the takeover, it was nice to see some Ortel employees with new cars
and trucks,” Ury said. Added Bar-Chaim, “Some people were also
able to afford new homes.”
Both Ury and Bar-Chaim said that they resisted the temptation to splurge.
“We both kept the same homes, cars, and wives,” quipped Bar-Chaim.
While he remained
with the company, Ury cut back his hours and now works only part-time
for the company.
“I pulled back
in terms of my involvement with the company to pursue personal interests,”
Ury said. “I
have personal community interests that I think are more worthwhile.”
After the deal, Yariv
gave $1 million to Caltech to create two graduate fellowships at Caltech.
To fund one of those fellowships, Yariv joined with a former student.
“Can you think,” he said, “of a better way to use a million
dollars?” Henry A. Blauvelt, PhD ’83, another former graduate
student from Yariv’s lab who went to work for Ortel, and his wife,
Caroline, whom Blauvelt met at Ortel, also used the Lucent buyout to provide
funds for graduate support at Caltech, creating the Henry A. Blauvelt
Fellowship to
support graduate students working in applied physics.
While Lucent’s
stock price has dropped over the past year and a half like the stocks
of other technology companies, Ury and Bar-Chaim say that the future of
Ortel—which since the buyout became
part of a Lucent subsidiary called Agere Systems—is still strong.
“The cable side
of the business will still grow,” predicts Bar-Chaim. “In 1990,
there were 20 channels per fiber-optic line. Now there are 100 channels
per fiber and better quality. We don’t expect any slowdown in the
next three to five years.”
And as far as the
Internet goes, Ury says that consumers still have an insatiable demand
for information and speed of delivery. “There’s a bottleneck
as you get to the home, since no one has brought fiber right into the
home yet; just to your doorstep,” he says. From there it travels
via modem or cable, which slows down the speed of delivery. “People
want speeds one hundred times faster.” Plus, as the speeds of computers
go up and more people begin using their computers as a source for entertainment,
the speed of information delivery will need to go up, and fiber-optic
lines will be the solution.
“People will want to download movies in a few minutes,” Ury says. “Fiber into the home is probably where we’re heading, and there are a lot of homes.”
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