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BluGlass (ASX:BLG) James Walker presenting at our Semiconductor conference on 15 November 2022

November 18, 2022

BLG, BluGlass

BluGlass (ASX:BLG) James Walker presenting at our 2022 Semiconductor Conference

BluGlass Chair James Walker presented at the 4th Annual Stocks Down Under Semiconductor Conference on 15 November 2022 where he talked about BLG’s pivot into laser diodes and how the company’s fab in Freemont is giving BLG a lot more flexibility in addressing this market.

See full transcription below.

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James: I’m guessing there’d be quite a few people in this room or online that own BluGlass stock, and have for a period of time. We are an ASX-listed company. We have over 4,000 shareholders. Current share price market cap is just under $40 million. And as Mark said, the company has gone on a journey in the last couple of years. So, today, BluGlass, we believe, is the only Australian-owned, complete end-to-end, semiconductor manufacturer, and listed on the ASX. So, I’ll take you on a journey how we got to that place because that’s not where we were a year ago, but the company has gone on a journey. So, we have some fairly unique technology that we spun out of Macquarie University quite some time ago. The company has gone on some journeys over the period of time. But just over two years ago, we came to the conclusion the right way to build a sustainable business was to build products, use our technology, build products that we could sell, not dissimilar to the company just before me.

So, where we are today is we are one of four manufacturers in the world making GaN laser diodes. We do that through our facilities here at Silverwater, and we have two facilities in the U.S. And we acquired one of those facilities in April this year, which I’ll talk more about. So, let me move on. We are debt-free. We have good cash in the bank. Anyone who saw our 4C would’ve noticed that we got our R&D refund the day we launched our 4C. So, we have just over $4 million in the bank. We have some options that are due to expire the next couple of weeks that will continue to make sure the company is funded for a period of time. We are completely focused now on launching our own laser diode markets to the global industry. And I’ll talk particularly about where we’re focused as this goes on. We have been on that journey for just over two years now. And to help us on that journey, the team has changed quite considerably. And I’ll talk about that as we progress.

So, why laser diodes? So, interesting, we have some fairly unique technology in the semiconductor space that can be used in multiple applications. After a long research, and working with an executive team and experts, we decided to focus on the industrial laser diode market. And why? It’s a fast-growing market. The GaN space in particular, the entire laser diode market, is forecast to be $25 billion by 2025. The GaN laser diode space is forecast to be $2.5 billion of that and taking a larger portion of that market because GaN laser diodes has significant advantages over the current technology today. Within that, and the sectors that we’re focused on, which is industrial applications, advanced manufacturing, medical diagnostics and research, biotech, and other applications, that’s a $380 million market where we can have a significant role. I’ll touch on it later, but our manufacturing capability with our 3 sites coming online is $160 million. So, I’m not saying we’re gonna sell $160 million worth of product next year. Don’t take away that message from today, but we have the manufacturing capability to make $160 million worth of product a year once our new facility is online. So, therefore, we can actually have a meaningful role in that industry. We can play a significant role in revenue generation and market share within those sectors, and that’s why we’re excited, and that’s why we chose laser diodes. We also have some absolute technical advantages on why we chose GaN laser diodes, and I’ll come to that later on.

You’ll see up there there’s a few competitors. So, as of today, there are only three other manufacturers in the world in this space. One of them is based and completely focused on white light. And you’ll see soon that we’re focused on blue and green. The other two are large, large, large companies, OSRAM and Nichia. If you know anything about those companies, they’re massive companies, but most of their revenue comes from the LED space, not the laser diode space. And what our customers are telling us, and another reason why we chose the laser diode space, is the customers are unhappy with the flexibility and product selection they’re getting from OSRAM and Nichia. So, there’s a real opportunity for BluGlass to get in there, produce some products that the customers are actually asking for, in a form factor that they can actually use, and actually take some significant market share. So, we’re quite excited by where we are in terms of having products soon out into the market in that space. And I’ll talk more about it as we go on.

The team has changed as well. About 15, 16 months ago, we started to change the board. Jean-Michel Pelaprat, based in the U.S., one of the founders of NUBURU, one of the leading laser diode companies in the world, joined our board. So, he gave us some industry experience for the first time in the company. And then in September last year, we changed with Jim Haden joining us as President CEO. Jim is based on the West Coast and has over 30 years’ experience in the laser diode industry. The last two companies he worked at, his main role there was getting a product out to market, solving reliability issues, and really understanding what the customer wants. And that’s where BluGlass was when Jim joined the company. Part of the reason why we got him, and why he was excited, was technology has unique applications, and he had solved the problems that we were experienced in his last two roles. So, there was nothing scary about where BluGlass was in the product development stage. And having Jim on board since September last year has been fantastic in terms of increasing the skills inside the company, but also attracting new talent. And I’ll talk a little bit more about that as well.

So, what have we achieved in the last 12 months? Aside from changing the team, which I’ve just touched on, we were through Jim’s contacts, and through having people in the industry inside the company now, we were able to acquire a laser diode fab in California, in April/May this year. And we’ve heard stories, you know, fabs are expensive things do build, and they were always part of our roadmap, I guess, where BluGlass wanted to go. At the moment, we do the first part of the laser diode manufacturing out here at Silverwater. And then we were shipping those wafers to our contract manufacturers in the U.S. And that was going to be the way we launched products into the market and started getting traction. And once we got traction, we were then going to invest and build our own downstream manufacturing, our fab, to get our own products through to market all under our own control.

We were very fortunate with Jim joining us and his industry contacts. We became aware of this fab in California. It was being closed down as the company was moving to a much larger laser diode facility. And if you follow the company, we were very fortunate that we bought the equipment in that fab, took over the lease of that fab, and hired the team that were working in that facility, and some of them have been there over 12 years, for the price of $2.5 million U.S. dollars. So, the equipment was secondhand, was not brand new. So, but the equipment was secondhand, focused on making laser diodes, had a team that had been making laser diodes for a long time, and a facility that was set up for it. So, we were very fortunate because we were able to acquire that fab at a fraction of the cost if we were to build our own in a couple of years’ time. And that’s been the major achievement this year. That has lots of advantages for this company.

One, it brings forward our product development cycles. We can do more product tunes [SP] than we’ve ever been able to do with our contract manufacturers. We’ve actually got our own people working on the product development manufacturing processes. A lot quicker, more focus on quality, and a fraction of the price of what we’re paying our contract manufacturers. Now, sure, at the moment we’re running both in parallel. So, you saw our 4C, and you’ll see some of our next 4C expenses are a little bit high, but as we’re bringing those prices in-house, we’ll have immediate cost savings of no longer working with contract manufacturers, and we’ll get higher quality products, which we’re already seeing. We’re super excited about the quality of the team that we’ve got now under working for BluGlass. So, we’re very excited where we are. We’ve got our first alpha versions of products out in the customers’ hands. So, they paid for it, but let’s don’t get excited by that revenue. But it’s in customers’ hands, they’re trialing the products. That’ll lead to our next beta version, which we will hope to get out this year, and we feel confident that that will be out this year. The beta version is the final manufacturing design locked in. So, from there you can move quite quickly to manufacturing a product that you can sell, and then launching the product. So, we’re very comfortable where we are and what we’ve achieved in the last 12 months.

Why GaN, and why we are particularly focused on GaN laser diodes? One, GaN’s, our background, BluGlass always has been, but it has some significant advantages in the sectors we’re playing in. And the main one I wanna highlight to you there is copper. Far more absorbent, more efficient in what’s used, and copper is being used in most high-end applications today. If you think about industrial welding, so not the welding that builds bridges, but the welding that goes into your phone, welding that goes into EV batteries into cars, the current technology is welding using lasers on that copper. Most of them are not very efficient, and GaN laser diodes have a significant role to play in that. And, you know, we have those conversations going with the welders, for example, already. So, we feel very confident that GaN laser diodes have a significant upside in the industry, have technical advantages, will grow quite quickly, and will become a much larger share of that market size that I talked about earlier. So, we’re quite excited to be in there. And as I said, there’s only four manufacturers in the world today, and we’re one of those, and then one of them is focused on white light.

So, here’s the market we’re talking about. So, $2.5 billion, GaN. We are focused on, as I said, the scientific, the industrial, and the biotech. So, $380 million, that’s our immediate focus where we’ll be launching products. They’re the sectors that we’ve been talking to customers about. So, we already have a salesperson based in the U.S. who’s been having those conversations for quite some time. We feel very comfortable that customers are waiting for our products. Very unhappy with the current two. You know, I would love to say if we’d had a product out now, we would already have revenue. Customers are looking for a change in those three sectors, and we’re having those conversations already. A little bit more about each of those. I’m not gonna go through these in details. These are in our GM slides. Jim Haden, if you look at the video from our GM, spent a lot of time talking about the market and the opportunity, and the technical advantages. So I won’t go through those today, conscious of time, but you can see the customers on the left-hand side, the people that, you know, we’ve got conversations going, people who are waiting for our products, and other people in the space. So, I feel very comfortable about this. We’ve identified the customers. We’ve got a sense about what the process would look like when we’re starting to sell, and therefore what our profile looks like over time. THe same in the next sector, the advantages of why, you know, GaN laser diodes will have a good interest, what sectors they’ll be used in, and then the customers we’re talking to. So, I’m not gonna spend a lot of time talking about those today.

I talked about the team. So, Jim Haden, as I said, has been in the industry for over 30 years. Straight outta university, laser diodes, his entire working career has been instrumental in one, attracting talent, and two, as I said, identifying the fab that we acquired in California, which brought forward our entire product strategy, made us more reliant on ourselves, being able to, as I said, to produce more products quicker and cheaper. Jim’s been instrumental in really getting the company where it is today and where it will be in 12 months’ time. Jean-Michel, as I mentioned from NUBURU, joined our board in the last year. I’ve been on the board for about five years and chair for just over two. And Vivek and Stephe have been with us for a couple of years as well. Quality team. We’ve just brought on a professional CFO. I’m very happy with the changes there to get us ready for all the systems and processes required as we move to product launch, sales, tax treaties, and selling products in the U.S. where most of our customers will be sold, and adding the bench strength on just being a listed company. And Stephe, who is in the room today, has been with the company since the listing. You might be surprised that we listed a long time ago and when you look how young Stephe looks, but Stephe has been with us a long time and has as much knowledge about the company as anyone.

All right. So, as I’ve talked about, I’ve talked a little bit about this, but I really wanna emphasize just how important this has been to BluGlass for achieving our strategy. You know, we will get products out to market, and when we do, we’ll be able to scale up quite quickly to that $160 million potential that I talked about, and we’ll be able to get out more products, different wavelengths in different form factors than we originally planned. And that comes around because of this facility in California. I didn’t mention it, but we have over 35,000 square meters of manufacturing capability over the 3 sites. So, it’s quite a big facility. It has a significant impact on our cost of goods sold. And you can see our cost of goods sold come down significantly. The beauty of focusing where we are though, this is, you know, a niche market with low volume but high margins. So, there are good margins in this space, and we feel quite comfortable not at full capacity, but as we scale the margins should be 45% plus on the products that we sell. And we’ve talked about that before.

So, from the investor, what’s going on? Why would you be interested in the story now? There’s a lot of good things going on. So, we’ve already announced the facility in California. It’s now online. We have all the permits from California, which you can imagine was probably a little bit tricky. We are now bringing in-house all the contract manufacturing steps. Not all of them are in, and we expect, you know, the rest of them will be in, in this financial year, if not, you know, the first half of next year. We will announce each of those as we bring them in-house. So, one, it reduces our burn, it increases, you know, the quality of the products that we’re producing because they’re in our team. Our team has been developing lasers for a long time in this facility in California. We will have our beta versions of our products out, and we’ll start to have sales. There’s a fairly large, the largest laser diode, show in San Francisco in January. We expect to have some fairly significant news around that time. It’s in November, so let’s see.

There are some examples of the products we’re bringing out. The message here is there are quite a lot of products at quite different wavelengths in quite different form factors. That’s important for the customers we’re talking to because at the moment they’re not getting that flexibility from the two large guys. And that initially is what’s gonna make us different. The customers we’re talking to wanna change because they want flexibility. Our first version of products are not technologically or industry-specked much different than the current products in the market today. We’ll be able to sell them at the same types of prices, and thus make a good margin on them. But why people will buy from us is they’re unhappy with the current two. They want a third supplier. They want flexibility.

So, our initial sales will come from those similar products that are out in the market today. Where we get to though, and why we become even more interesting, and why some of the customers are willing to buy similar products from the start, it comes back to the original technology that BluGlass spun out of Macquarie Uni called RPCVD. And that will allow us, particularly in the green, but to produce lasers that are far more efficient, have more power involved, and should be at a lower cost than the current ones today. And that’s the roadmap that you see on other products that we’re gonna be producing in the future. And hence, there’s the timeline of what I’ve been talking about of where we are today.

So, you will see news about more customers trialing our products, more processes taken in-house. Fairly large conference in the news around that coming in January. And then, obviously, some product launches and therefore some revenue. Now, we’re not expecting revenue to be product supply agreements from day one. That’s not what you should expect from us. What you should expect is that customers will trial us, get confidence with our quality, and therefore it’ll be purchase-order-driven. And then, once we’ve proven a quality supply and a quality product, that will then move to purchase orders, minimum contracts. And that’s what we’re moving towards. And I think that is a summary of everything I’ve just said. So, hopefully, that was on time, if not quicker.

Man: Perfect. Thank you, James. And with that, let’s see if you’ve got questions in the room here. And let’s move online. Stewart, what did come in?

Stewart: Okay. So, can you give us an idea of the cost difference between LEDs and laser diodes? Are they similar?

James: Completely different. Orders of magnitude higher for buying laser diodes. So, in terms of customer’s purchase price, the manufacturing process is not too dissimilar.

Stewart: Okay. How much extra money is it gonna take to retool the new plant you’ve got in Fremont?

James: So, we’ve already started that process. There is a little bit of a CapEx required to complete the process and bring everything in-house. But most of the expenses, most of the infrastructure, most of the resources are already in-house. So I’m not expecting that to be a significant outlay going forward, in the sub $2 to $3 million.

Stewart: Okay. The third question is, how long until we’ve got all colors, and we’ve got single and multi-mode, like you’ve got a complete product suite and push the other two competitors outta the game?

James: Well, I don’t think we’ll ever push ’em outta the game. I mean, it’s OSRAM and Nichia we’re talking about here. And actually, to be honest, my immediate focus is getting those first three products out. 405, 420, 450 is where we’re getting lots of customer demand, lots of customer interest. Single mode, multi-mode are all important. The form factor, in what form that they can buy the product is actually just as important. So, you can see multiple variations of those three products quite quickly. On the green, that is a little bit further down the line as we’ve talked about.

And we mentioned a partnership with the University of California Santa Barbara, which is probably the world’s leading GaN consortium in the world in terms of leading-edge technology. We had a Nobel Prize winner talking at our seminar on semiconductors a couple of weeks ago. He’s based at that facility. We have a collaboration with that university and the other invited participants to get a green product out fairly quick. So, we are focused internally on getting the blues out as quick as we can, and then partnering with other people to get the longer-term products out. I’d be very excited with the revenue we generate from those first three products.

Stewart: What are the advantages of RPCVD over current manufacturing technologies, if you could summarize?

James: Yeah, so this is where the chartered accountant in the room puts his hand up, but, you know, so lower temperature, less harmful chemicals, which should produce a more efficient and cleaner product is a summary that I can say in a non-technical speak. From our point of view, the other advantages are it’s covered by our patents. We have over 93 patents around the world. We are really the only ones who have that technology and are really taking it forward. So we see some significant advantages in terms of, I guess, of economics of scale of how we can actually scale that up quite quickly because that’s been our history, that’s what we’ve been working on. So we think it’ll have some significant advantages in terms of the products that are produced, but it’ll also have some significant advantages for us in terms of our manufacturing process.

Man: James, on one of the slides, if I’m not mistaken, was a, where you mentioned the customers for the industrial segment, I think, was it NUBURU…

James: Yep.

Man: …that’s on there, which it could also classify as a peer, maybe not a competitor. Would that be a fair assumption?

James: Well, no, I guess. Jean-Michel is the founder of NUBURU, on our board. He was recently, only just recently retired from that company. They rely on partners for their products that they’re manufacturing. And the reason why they’re on this list is we feel pretty confident about when our products are out in the market that we can become a supplier to them.

Man: Right. Okay. So, yeah, it’s good to see that they’re working this way as well.

James: Yeah, completely.

Man: products and sourcing from BluGlass to be more specific.

James: Yeah. And remember, they’re not a GaN manufacturer, so they work with partners on that, and we would like to be one of their partners.

Man: All right. Excellent. A question right here.

Woman: Yeah. How long would the beta testing take place?

James: So, beta testing is the final design, final manufacturing design, and as we said in the AGM and repeated today, we expect that out in the market this year. We expect that will take a couple of months with customer feedback and any iterations that come out of that. That’s the sort of timeframe we’re talking about. We’ll have a good idea on where we are by the end of the first quarter in next year, I would’ve thought.