II-VI: The laser years

In the second of a pair of features to mark the fiftieth anniversary of II-VI, Chuck Mattera, the current CEO, looks back at the diversification of the company’s offerings through the introduction and expansion of its laser portfolio
INTERVIEW WITH RICHARD STEVENSON

RS: Your involvement with II-VI started long before you took over as CEO in 2016. Back in 2000, when working at Lucent Technologies Bell Laboratories, you started a two-year stint on the II-VI board, offering your expertise surrounding a variety of InP and GaAs laser diode technologies. At that time, how much progress had been made on the laser side of the business?

II-VI: When I came into the company as a board member, I was coming from a perspective of a company making semiconductor laser components and fibre amplifier subsystems for communication networks. Whether they were 1480-nanometre pumps or 980-nanometre pumps, or both, they were ending up inside an amplifier for a long-haul network. I was aware that IPG was figuring out ways to combine these pumps to cut steel. The workhorse of II-VI at that time was CO2 laser optics, used by the Industry 3.0 infrastructure for cutting up to 25-millimetre-thick steel.

We had to ask ourselves the questions, ‘Is the one-micron laser an opportunity, is it a threat, or is it both? How should we think about it, from a strategic point of view?’

Well before I got here, on the heels of the invention of the YAG laser, which operates at 1064 nanometres, II-VI realised that one-micron solid-state lasers were also going to be important. So II-VI acquired two small materials companies: Virgo Optics, in 1995, and Lightning Optical Corporation, in 1996. Those acquisitions of Virgo and Lightning created the well-known II-VI VLOC. VLOC became a division, and Fran [Kramer, who went on to be the company’s second CEO] had a lot to do with that. I think it was the beginning of the company starting to cut its teeth on acquisitions: how to stage them, how to execute them, and how to integrate them.

The acquisition of Anadigics in 2016 enabled II-VI to increase its production of VCSELs.

RS: In 2004, you joined II-VI as Vice President, with a charter to establish a compound semiconductors capability. You have been with the company ever since. What did you work on to begin with?

II-VI: Fran and Carl [Johnson, co-founder and CEO at that time] encouraged me to think long-term about one-micron solid-state lasers and fibre lasers. We had this strategic challenge, and the future was unclear, but we acted on what our board also believed was an opportunity to transform the company. They encouraged us to take the long-term view, including ten years and beyond, and come back with the management team and help lay out a number of scenarios that could play out and drive exceptional long-term shareholder value.

We laid out, over about a five-year period, a roadmap to enter the one-micron laser market. It was clear that IPG had already gotten started a few years before. It probably wasn’t going to pay off to try and compete head-on without the basic competency, which was the semiconductor laser. So, we laid out a roadmap to take a view further up the food chain, for a component that was agnostic as to whether it used a YAG laser, a fibre laser, or a direct diode laser. Knowing that we would need time to either acquire or develop the competencies of the laser, we decided – and Fran guided us – to get two or three levels up in the stack as a high ground from which to learn the market and develop new competencies.

We identified a beam delivery system for cutting steel as a place where we could get organised and establish a beachhead and, from there, understand the market. So, in 2007, we acquired HIGHYAG. We acquired 75 percent of the company in 2007, and the remaining 25 percent in 2013. [With that acquisition] we could address people who were in the system business for establishing competencies for cutting steel, and at the same time collaborate with people who had a YAG laser, a fibre laser, or a direct diode laser. No matter where you looked, every place our optics were employed, a laser was being either focused, reflected, or refracted. A company that had this footprint could further accelerate its penetration into a growing market if they had access to the semiconductor laser. So, after Giovanni Barbarossa joined us in 2012 as our first CTO, we made a strategic decision to acquire a semiconductor lasers platform.

RS: How did you progress toward that goal?

II-VI: Along the way, in 2012, we acquired the Santa Rosa optics coating facility of Oclaro, which had been Cierra Photonics, a thin-film filter company acquired by Bookham; Oclaro got it through the acquisition of Bookham.

When we acquired the thin-film filter business, Fran established a rapport with Alain Couder, CEO of Oclaro. On the heels of a successful transaction in thin-film filters, and that CEO-to-CEO relationship, we expressed our interest in acquiring the Oclaro semiconductor laser capability in Zurich. That platform focused on the industrial market and was not in line with the core of Oclaro, which is communications. Fran saw that as a nice opportunity.

I had been to [Oclaro in] Zurich for the first time in 1988, when it was IBM, and I had been there a few times before 2013, when we started due diligence. I had a real good idea about what a compound semiconductor fab and team looked like, because I had said goodbye, in my humble opinion, to the world’s best when I retired in January 2003. Maybe I spent a week or two there. I was so impressed by what they had accomplished, and I fell in love with the team, as I have with all the other acquisitions we have done since I’ve been at II-VI.

I really liked the gallium arsenide laser. What I liked about it, besides the team, was the technology endowment, the accumulated knowledge, and the experience they had developed, all the way back to the investment by IBM for getting high-power LEDs and lasers to keep pace with the high-speed printing infrastructure, including for 200-megabit optically linked mainframe computing.

What we got [from the acquisition] included Avalon Photonics, a VCSEL innovator. They were selling VCSELs into the mouse market and the Blackberry market for finger navigation.

In 1988, I was part of the Bell Labs development team for VCSELs. There were maybe 35 to 50 of us. So I had a perspective about VCSELs when I got to Zurich, and I was excited about that. It wasn’t too long after that we learned about other opportunities for the VCSEL, including those for the 3D sensing market.

Given our long-term roadmap for the industrial fibre laser market, and the benefits of vertical integration of our components capabilities, we thought that the best thing we could do was acquire the amplifier business from Oclaro at the same time. So, our management team recommended that we do that. Fran understood the value proposition, and he could easily see that this long-term vision that he and Carl asked me to take early on with regard to the one-micron laser market was beginning and was complementary to Photop Technologies, the one-micron optics platform we acquired in 2010. So, by this time, we had established the beachhead, and now we were working to backward-integrate all the way to the laser component, which I believe was a great decision and a turning point for II-VI.

RS: What else did you need to complete the line-up?

II-VI: There was one step in between: the subsystem, as it relates to communications in the future. We acquired the core elements of the laser, the subsystem, and the beam delivery system. Those three things were ultimately essential parts of the industrial food chain that would also branch out to serve an aerospace and defence market.

[At the time] we had built the foundations and the roof but in a sense were missing some floors. We had to go a bit out of order; sometimes you can’t time these things perfectly, and you’ve got to have a long-term vision. Carl always ingrained in us the value of not getting full of ourselves with big ideas about revolutionising things, preferring to maintain a posture that the long game is won by evolution, rather than revolution.

II-VI has a strong pedigree in SiC. In 2015 it produced the world’s first 200 mm SiC substrate, and recent acquisitions of Ascatron, INNOViON and the IP of GE have strengthened this part of the business.

RS: In 2016, just three years after buying the Zurich facility, II-VI bought Anadigics. How did that come about?

II-VI: When explaining laser technology to the II-VI board, we got to introduce the concept of the VCSEL. It became the centrepiece of a lot of our conversations when the opportunity for 3D sensing became more than just obvious; and when it became more than just obvious, it was that the scale that was going to be required was beyond that which Zurich had been sized for, so we needed an alternative.

At the time, Anadigics was still a public company. It had, by some measures, its exciting years behind it. To transform itself, it started offering a foundry service for making VCSELs for 3D sensing in 2014.

I went there as a prospective customer who might want to use their 6-inch technology to scale the design we were developing in Zurich. I visited their Warren, New Jersey, fab on a Sunday. On the way back, I called Fran and said I think we should acquire the company, as it would be the best way to scale our VCSEL capability and meet the market window.

Fran encouraged us to work further on the strategy, so we prepared a presentation to our board. As part of the strategy, we needed to be sure that we had enough VCSEL epitaxy capacity to serve the Warren fab should we be successful at acquiring Anadigics, so we identified EpiWorks of Champaign, Illinois, as the strategic target. We knew a lot of the functionality and value of the device was going to be added into the VCSEL by proprietary device designs and the epitaxy itself.

RS: You became the company’s third CEO in 2016, the year II-VI acquired Anadigics and EpiWorks. Three years on II-VI bought Finisar. How important was that?

II-VI: In August 2016, I presented to the board a number of strategic opportunities in compound semiconductors and innovations in photonics, which underpin mega-growth markets. We had begun developing a footprint, both geographically and from a market perspective, in a number of growing markets. We had established a number of technology platforms, but some were missing. There were half-a-dozen or so opportunities that would allow us to increase the scale of the company and build out other parts of our infrastructure that would enable us to drive long-term value.

The single biggest opportunity at that time was the indium phosphide platform that Finisar had invested in for a long time. We like acquiring companies that have made long-term investments in innovation and R&D. With those investments and endowments, we begin to think about ways in which we can stitch together those platforms with either the business we have, or ones that we could have, don’t have yet, but could target.

We liked that complementarity. In addition to the indium phosphide platform, a fabless design capability for electronics – for TIAs, for clock and data recovery circuits, and for laser drivers – and the experience Finisar had in not only designing but also making and scaling production lines for indium phosphide lasers, Finisar had also done a world-class job of integrating them with optics and electronics in a transceiver.

II-VI added GaAs lasers to its portfolio through the acquisition of Oclaro’s Zurich facility.

RS: How will the buying of Coherent strengthen your offerings?

II-VI: Coherent is the market leader in laser technologies and is a great complement to II-VI. Together we will make for a great opportunity to innovate at scale and drive long-term value in our respective markets, while we aim to drive growth in new ones as well.

The acquisition goes with having the roof and foundation, and now putting in the floors. And as only one example, that relates to our earlier investments that we discussed: we believe it will enable us to competitively address the industrial fibre laser market. We have the amplifier, the laser, and the laser processing [head]; now comes Coherent’s fibre laser.

RS: Recent acquisitions have positioned II-VI as a major player in the compound semiconductor industry. In some of the sectors of this industry you are offering materials, and in other cases, it is devices. Do you have any plans to try and develop any vertical integration? And is this important within the compound semiconductors industry?

II-VI: As it relates to compound semiconductors, vertical integration is an important element of our strategy, and I believe it will continue to be.

In silicon carbide, we started with more than two decades of investment in the substrate itself. We have realised that there is both an opportunity and an unfulfilled need, long-term, for high-performance modules based on high-performance devices, which in turn are based on high-performance silicon carbide substrates, epitaxial wafers, and ion-implanted devices.

To accelerate the development and the offering of those products, knowledge is gained between multiple levels of substrate and epitaxy, epitaxy and device processing and design, and reliability assurance and incorporation into a module. Overall integration of all that proprietary knowledge and innovation is most efficiently done when focusing on multiple layers of integration.

You can’t do everything at one time, so it’s not about revolution, but evolution. We have that underway with silicon carbide. To accelerate our developments, we acquired Ascatron in Sweden, which has capabilities for silicon carbide epitaxial growth; and before that we acquired INNOViON, that’s an ion-implantation service provider that has IP and capabilities for high-temperature ion implants into compound semiconductors, including silicon carbide; and we acquired IP from GE, based on their long-standing investment in this technology. With these investments, we have a multi-year plan in place to be able to vertically integrate forward from the strong foundation we have in the substrate.

Finally, I wish to acknowledge the pioneering work of so many extraordinary companies and people who have invested for nearly fifty years to create an entire technology ecosystem that is vital to the world.

Since its founding in 1971, II-VI has had just three CEOs. To mark the fiftieth anniversary of the company, they got together this summer in New York. The current CEO, Chuck Mattera (centre), has led the company since 2016. Co-founder of the company, Carl Johnson, is on the right, and Fran Kramer, CEO from 2007 to 2016, is on the left.