what to do differently—set low expectations, under-promise, and over-deliver in terms of products.”
One thing that helped Acacia in the early days was that big networking companies hadn’t yet invested a lot in silicon photonics. People had been saying, “there’s too much fiber, too much bandwidth, nobody needs it,” Shanmugaraj says. “Once we came out, we didn’t see another competitor forming that is going to take over.”
That all changed with the explosion of smartphones, online video, cloud computing, and big data analytics. Suddenly everyone wanted more bandwidth. The optical networking industry talks about gigabits per second—the rate at which data can be transmitted between systems. The current standard is 100 gigabits per second, and that’s mostly where Acacia sits. (The next frontier is 400 gigabits per second, which should be reached in a few years.)
The company’s products connect fiber-optic networks to data centers, cell towers, and other facilities that provide data service to metro areas and large businesses. Part of what the technology does is process the data so it can be sent reliably over long distances—80-100 kilometers, say, or even across the ocean.
Shanmugaraj says optical networking devices that traditionally were the size of pizza boxes can now be made into “modules the size of an iPhone, by doing this in silicon and making it into two chips.” One of those is an application-specific integrated circuit chip, and the other is a silicon photonic chip with 50 optical functions, he says. “It makes it easier to build networks,” he says. “What used to take weeks, now you do it in a matter of minutes.”
More than two-thirds of Acacia’s business comes from outside the U.S.—mostly in Europe and the Asia-Pacific region. Shanmugaraj says the firm’s technology is “deployed in a majority of the large carriers worldwide,” and that networking systems that connect across data centers (that’s the fastest-growing market segment) all use similar products.
Other companies that compete in optical networking systems include Finisar, Oclaro, and Ciena.
As it built its business, Acacia raised more than $32 million in venture capital from investors including Matrix Partners, Commonwealth Capital Ventures, and Summit Partners. Those investors look to make out well, as Acacia’s stock has risen since its May IPO, and its market capitalization currently stands at $2.57 billion.
Which brings us back to Acacia’s timing for going public, even as most later-stage tech startups are staying private.
“We were ready,” Shanmugaraj says. The company’s profits “put us in a strong fundamental growth position,” he says, adding that “you don’t see many companies coming out with good top line and bottom line” results.
Asked which companies he sees as role models, Shanmugaraj names Intel, Broadcom, and Qualcomm. Each of those “converted a lot of analog into digital” systems, he says, and “sold lots and lots of chips.” Starting tomorrow, we’ll see how Acacia follows in their footsteps as a public company.
