BluGlass (ASX:BLG) at the Stocks Down Under Semiconductor Conference on 30 November 2021

December 3, 2021

BLG, BluGlass

Summary

BluGlass (ASX:BLG) Chairman James Walker presented at Stocks Down Under’s Semiconductor Conference on 30 November 2021.

See full transcription below.

 

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Transcription

 

Marc: James, thank you very much for presenting today. It’s exciting times for BluGlass with the upcoming rollout of laser diode project. So I guess we should jump straight in. We’re a bit early, but hopefully for people that are joining specifically for BluGlass, we can post a video on the Stocks Down Under website. So let’s jump straight in, James.

James: Yeah, no problem. Let me just share my screen. Hopefully, everyone can see the slides there.

Marc: Yeah, they’re right there. Thanks.

James: Yeah. Great. Good one. Okay. So, morning, everyone, and thanks for spending the time to hear about BluGlass. So for people who don’t know, BluGlass is obviously an ASX-listed Australian headquartered semiconductor company. We originally [inaudible 00:00:57] at Macquarie University here in Sydney. We are a platform technology business with applications across multiple Marcets. And I’ll talk directly about which ones we’re focusing on in the interim. Two years ago, we pivoted our technology to focus on a direct to Marcet, product manufacturing strategy with a particular focus on the laser diode Marcet, the industrial laser diode Marcet specifically. I’ll talk more about that as we go through the presentation.

What we have built over the last six to nine months is we’ve built out the team with a laser diode industry experience led team now with a new director joining us from the U.S. in May and a new president who joined us in September, both based in the U.S. both with deep and long history in the laser diode Marcet. BluGlass as a company, we completed a significant capital raise last year where we now have over $8 million in the bank, and we are debt-free. I’ll just move on to the next slide. So a bit more about the team. As I said, we’re an international team. I’m the executive chair and I’ve been with the board now for about four and a half years.

Vivek Rao has been on the board for about five years. Stephe Wilks is a Sydney-based person and joined us about three years ago. And the new addition to the board was Jean-Michel Pelaprat. Jean-Michel is based in the U.S. He is a founder of a company called NUBURU and has been with that business with over 30 years experience in the industry. NUBURU is focused on the laser diode space. Our most recent appointment is Jim Haden, and as you can see there is president. Jim joined us in September and is really leading the day-to-day operations of the business. Jim is a veteran in the industry and has worked for a lot of the leading laser diode companies in this space, including Spectra Diode Labs, Coherent, and nLIGHT.

And we’ve also flushed out the team in the U.S with Dr. Arkadi who also comes from the industry. To give you a sense of what the company is like, we’re based here in Silverwater in Sydney. Our R&D and early-stage product development work and the epitaxy work for the laser diodes is done in Sydney. We also have a facility that we’re building out in the U.S. that is now operational in New Hampshire, where we will do a lot of the processes of the laser diode manufacturing process, which I’ll spend a bit of time talking about as we move forward. Next slide. So as a company so we’re listed on the ASX. As I said, we’ve got enough cash in the bank to get us through to the launch of our product later next year. No debt. Marcet cap is just under $40 million today, which I think, you know, is a great opportunity when we launch the product that that will be re-rated quite quickly.

The stock is widely held. We have nearly 5,000 shareholders with the largest shareholder just over 2% and board and management on a fully diluted basis owns just over 3%. So that’s a little bit about the company. Moving forward, as I said we are located here in Sydney, head office. Manufacturing and quality control for laser diodes is based in New Hampshire in the U.S. which is where our main Marcet will be once we launch the products. As you can see we have 86 internationally granted patents across about 10 patent families and in most of the major laser diode and semiconductor jurisdictions around the world.

So, why laser diodes? So in late 2019, just over two years ago, BluGlass made the decision to establish a direct-to-Marcet laser diode business unit and started working on securing our end-to-end manufacturing supply chain. We focused on laser diodes because our particular technology, which I’ll talk to you a little bit more later on, has some unique advantages in this space. We can operate in a high-value, high-margin product space where there are very few players. Today, there are only three end-to-end GaN laser diode suppliers. We will be the fourth. GaN laser diodes sell for tens of thousands of dollars, so, high margin, low volume which fits beautifully into our capacity.

Out of Silverwater, we have five reactors. And with that installed capacity at Silverwater, we can actually make enough EPI, which is the first component of the laser diode to generate over $170 million worth of revenue. So we have the capacity in Silverwater today to really have a significant impact on this Marcet. And that’s particularly when this Marcet is growing fast, particularly GaN laser diodes. There are some technical advantages on why GaN laser diodes are important, and we have a unique space to play there with our technology. So let me talk a little bit about the industry and why we’re in that space. So, total laser diode Marcet has nearly tripled in the last 10 years and is set to increase even more so in the next five years.

And what’s driving the laser diode uptake, particularly the industrial laser diode, and what is driving it is all the new megatrends, electronic cars, renewable energy, battery manufacturing, electronic manufacturing. One of our first applications will be in the industrial welding space. So not the large building that you see but the welding that goes into your phone and other electronics. Lasers are playing a more significant part in that particular application more often. And therefore, GaN laser diodes have a real advantage in that space and will continue to take large Marcet share away from other laser diode technology. How we are looking at the technology is that we think it is a $735 million opportunity. And it’s growing fast as I said because GaN offers some unique characteristics over the other type of laser diodes you can get out in the Marcet today.

And what that is, GaN can produce higher power, higher brightness, and therefore more efficient products, which will therefore allow these new applications to move to GaN and replace traditional infrared laser diodes. And we can see there that we see that Marcet growing quite fast. The main segments in that space, there are really five key segments that we look at for BluGlass, that’s the industrial Marcet, the scientific Marcet, and the biotech Life Sciences space. So that’s where we are focusing. Display and lighting Marcets also have applications for the lasers we are developing. But we see the first three, industrial Marcet, scientific, and biotech [inaudible 00:07:57] where we should focus our energies.

So, what are we producing? We are working on developing a 405 nanometer, 420 nanometer, and 415 nanometer devices. And they have particularly strong applications in welding and other scientific applications. So a little bit more about those three industries. Our initial focus is, as I said, industrial, scientific, and biotech Marcets where we believe the most unmet need in the industry exists today. That is that provides the most significant opportunity for BluGlass to actually have a significant impact on that space.

What the customers are looking for in the sector, they are looking for high power, high brightness, flexible manufacturing, and a range of wavelengths, as well as the ability to deliver novel designs to facilitate new applications. Our roadmap aligns well with these three Marcets. These three Marcets combined are forecast to become $380 million total opportunity by 2025. And our potential customers in this space include IPG, nLIGHT, Nuburu, Optical Engines, Coherent, and Toptica and many others. And that’s where we will focus…and particularly because we can be flexible on our wavelengths and we can be flexible on our form designs. And that’s critically important in these early applications.

So in order for us to compete with the large incumbents in this space, which is companies such as Nichia and Osram, we will approach this Marcet to meet the specific unmet needs that our customers are telling us they need from their manufacturing partners. That is, existing large players do not provide flexible form factors, which means customers need to undertake significant and expensive customization and post-purchase packaging in order to simply implement and use the laser light. We will be flexible in that space and therefore make it easy for our customers.

In the short term, we’re focusing on addressing immediate unmet manufacturing needs in some undeserved wavelengths from 405 to 450, delivering it in a standard package. Longer-term will provide multiple benefits, including our unique manufacturing capability for enhanced designs to customers, which will mean we’ll have high efficiency, novel architectures, expanded wavelengths with flexible packaging, and hence, therefore, reduce the integration costs for our customers. This differentiation, this being addressing the customer’s need is what will differentiate us from the rest of the Marcet. So what are the challenges and why do we think we can make a difference in this space?

The main industry challenges and economic drivers including our product development roadmap, across these key Marcets, customers are telling us that there’s a need for increased manufacturing flexibility. They are looking for cost-effective solutions that are easy to integrate, and these are not readily available in the Marcet today. As I said, the two large players in this space are providing a standard product which makes it difficult for these new applications. Further, with our solutions, customers require a combination of greater power, brightness and efficiency per dollar invested. Like the computer industry, the laser Marcet demands more output power for less dollar unit. In this case of laser, this is dollars per watt. The drive for more power per chip has been driving the industry since its inception.

On the flip side, customers will pay higher prices for brighter emitting sources because brighter sources are easier and cost-effective and cost less to integrate. Efficiency is also a key metric for BluGlass. Power conversion is incredibly important and not just from an environmental perspective, but as a way for customers to save money. Higher efficiency reduces the total cost of ownership for our customers, especially when they’re running high-powered lasers in 24/7 operations as needed in many of our industrial applications that we’re targeting.

Customer integration ties into delivering the easiest to use light for our customers by providing a greater manufacturing flexibility and customization, not just a novel device architecture, but integrators designs. Customers will pay more for higher brightness, high efficiency, plug and play, customized modules that provide not only a brighter solution, but are easier and cheaper for customers to integrate into their own systems. So, for example, we will sell to the integrators who then sell the industrial welding units to the end customers. So if we can be flexible in our design, it’s easier for the integrators to put it into their products to then on-sell.

So, a little bit about our technology and, you know, what makes us different, and why we think we can be significant. Most people who know the BluGlass story know that we have a unique epitaxy capability having invented a unique manufacturing technology called Remote Plasma Chemical Vapor Deposition, or RPCVD for short. RPCVD offers many unique advantages over the industry and company technology called MOCVD. That is, we grow in a low temperature growth technique in that we can produce the same epitaxy reactions in our growth environment several hundred degrees cooler than MOCVD. This means that we can perform a number of unique things with our technology, including grown as active tunnel junctions to enable novel laser design architecture.

During the year, we actually demonstrated the world’s first RPCVD tunnel junction laser diode. This is a significant advancement and has not been done by anyone else in the industry. The beauty and the benefit of having an RPCVD tunnel junction laser diode is that today 50% of the performance loss in laser diodes can be attributed to these current techniques. RPCVD will solve that problem, and therefore, we’ll be able to manufacture high performance, high brightness laser diodes. So the manufacturing process and what are the steps in making a laser diode? So as you can see here, there are nine steps in making a laser diode. We do the first two steps as you can see in BluGlass in Sydney at Silverwater. And then we work with our contract manufacturing partners mainly in the U.S. to help us with the next five processes.

And then once the product is manufactured, the final reliability testing is done in our facility in New Hampshire and then shipped to the customer. As many of you will know this year, we were due to release the laser diode product earlier. We had some reliability issues which have to do with the facets and the coating, which is where we’re working with our manufacturing partners. We are continuing doing work with our partners on solving these problems. But we’re comfortable to say that, you know, with the epitaxy process, we’re comfortable that we have, one, the capacity and, two, quality epitaxy to produce the laser diodes. We just need to work closely with our partners to solve these solutions.

The good thing is, though, with Jean-Michel coming on board, Jim joining us, these are problems that the industry has known for a long time, that the industry has solved, and directly Jean-Michel and Jim have solved in their previous roles. So we will work with our manufacturing partners to solve that. That’s the manufacturing processes as we see it. So the year ahead, the year ahead, what does that look like for BluGlass? So, our laser diode product and operational timeline: This year, our prototype devices achieved single-mode operation equivalent to the competitor’s products. As I said, we were reducing products in spec with the industry today. We just need to work on solving the reliability problems so they last longer.

This quarter, we are working through the metals and the thermal-mechanical bonds with our partners to solve those problems. Once we have achieved better results in those two spaces, we’ll continue to work on our facets and then work through to delivering a reliable product during the final reliability testing in New Hampshire. Laser diode beta sampling will then be shipped to our customers mid next year in the 405 nanometer and 450 nanometer wavelengths. And we anticipate that our first laser diodes will occur shortly after that. These product sales and our revenue generation are anticipated to ramp up from that point onwards and for the rest of 2023.

Early next year, we will also start the development of our multi-chip products and expand our product wavelengths, including the expansion of the RPCVD products, hopefully through to a product. Operationally, our U.S. facility in New Hampshire is up and running, as it isn’t Silverwater obviously. We continue to work with our supply partners and our contact manufacturing partners in the U.S. and we are preparing them for the volumes that we think that we will need to produce. Over the next two quarters, we’ll continue low-level pilot volumes, chip on some out and single-chip packaging in our test facility. And longer term, we see that some of those earlier steps that I identified in the manufacturing process, we will look to bring them in-house.

And we will look to bring them in-house for faster manufacturing cycles, tighter control of the quality because it will be in our facilities and also be able to make the manufacturing process a more cost-effective solution. Going forward as volumes increase, we will continue to look at which of those other manufacturing processes we can bring in house. So what does that mean? So you’ve already heard me say that the epitaxy, which is the first step in the manufacturing process, we have enough capacity at Silverwater to generate over $170 million worth of wafers, which can be then obviously built into laser diodes and sold. We are focusing, as I said before, on the industrial, scientific, and biotech space. And we think the products that we’re delivering in the 405, 420 and the 450 will have good uptake in those three industries.

Why we’re not producing a forecast at this stage? We see that we can actually generate and capture good Marcet share quite quickly because of the feedback we’re getting from our customers. And with the capacity already in the epitaxy, we can see that revenue can grow quite smart and we can capture good Marcet share in a fairly quick manner. So what does next year look like? We are well on our way from transitioning from an R&D company to a product manufacturing technology development company. And the changes in the team reinforce that. We are focused on moving through to a sustainable revenue-generating business by having control of selling products direct to the Marcet.

We feel that with the capacity we’ve already got at Silverwater in this particular Marcet where low volumes and high margins, we can build a sustainable business and because of our flexibility on wavelengths and packaging, can actually take good Marcet share from the two gorillas in the room. We’ve built out the team to help us on that journey. We now have an internationally experienced laser diode team to help the development optimization and commercialization of our gallium nitride laser diodes. Clearly, the team in Silverwater is without doubt are world-leading in RPCVD tunnel junction and early-stage epitaxy. They will continue to be a key part of the team, and continue to improve on the laser diodes.

But you will see a growth in the U.S. team as we take more and more of those manufacturing processes in-house. The skills are already in the U.S. The infrastructure is mainly in the U.S. already. So you can see that that will change over time. We have a clear technology roadmap and Marcet positioning where we feel we’ll be able to quickly launch our first products, secure customer orders, and repeat orders and then start to generate revenue. Longer-term, our RPCVD tunnel junction laser diodes will provide us with a technology advantage over the Marcet, which therefore will give us a significant Marcet opportunity offering brighter, more efficient, and better-performing blue GaN laser diodes. And on that basis, we are done. So, Marc, happy to take any questions, if you can hear me.

Marc: I think I was having the same problems as Kobe earlier. Anyway, we’re back. So if you’ve got a question for James, type it in on the right chat function. We’ve got a question, James, that I think you probably have had a couple of times before, how many years will it be before BluGlass is cash flow positive?

James: Well, as I said, we expect to be launching our product mid next year, and therefore revenue will grow from that point. I mean, we’re already getting some revenue today with our contracts with DARPA and Yale University in developing novel laser diodes, but that’s not sufficient for us to be cash-flow positive. We don’t put forecasts out there, but clearly delivering a product and having repeat sales is well on the way for us getting on that journey. So, no forecast provided but, you know, I’m feeling very confident we will have revenues next year and therefore be on the journey to sustainability.

Marc: All right. Question from Glenn, and this is a long question, bear with me. With your 170 million installed GaN epitaxy capacity, currently represent low double-digit share of the global installed capacity, what are the dynamics e.g. time to install CAPEX to increase capacity both for yourself and your competitors?

James: And our competitors?

Marc: Yeah, maybe focus on your own.

James: Yeah. So, as I talked about it right at the beginning, we think our immediate Marcet opportunity with the products we’re looking to launch next year, the 405, 420, and 450, the immediate opportunity is about $175 million, $233 million Aussie dollars. And if you take that into the three industries that we’re focused on, that’s nearly $380 million U.S. of revenue opportunity. So with $170 million in stored base at Silverwater, I think that’s actually a pretty significant Marcet share of the $380 million U.S.

So I know I’m talking apples and oranges with Aussie dollars and U.S. but let’s call $170 Aussie $120, $120 on $380 is a significant Marcet share. So we feel that we’ve got the opportunity to capture significant Marcet share pretty quickly. The question comes for us is, what are the other than manufacturing steps that we would look to bring in-house to make those products more profitable?

Marc: All right. Question from Warren, what do you see as your biggest risks right now?

James: So the biggest risk for us today is clearly solving the reliability issue that we’ve updated the Marcet on. That’s our biggest risk. But in saying that, as I said in this presentation, as Jim, our new president has said before and Jean-Michel, the problems we’re having in reliability are the downstream processing, particularly the metals and the facets.

These problems are well understood by the industry, they just haven’t been well understood by BluGlass, because we didn’t necessarily have the laser diode industry people in our team. We’ve now solved that problem. They understand and have solved these problems before in their previous roles. So why it’s our biggest risk because we haven’t delivered a product yet. You know, I’m very, very confident that we’ll solve those problems and as I said, get a product out next year.

Marc: All right. Question from Katherine, who are your main competitors? I think you spoke about that a little bit. Is there any competition from GaN on silicon?

James: So, Nichia and Osram are our largest competitors. I mean, they’d be competitors for anyone. So, but as I said, they’re focused on a standard product, you know, where we think we can play in that space is by being flexible on the packaging, and flexible on the wavelength. So, you know, we think we’ll be able to carve out a good share of the Marcet for us. And hence, you know, I think they’re our biggest competitor but we can solve that problem.

Marc: All right. How big would be, with the existing laser diode Marcet for replacement opportunities, be versus going to new Marcets and new applications?

James: Yeah, so that $380 is the existing Marcet today. So $380 is the existing Marcet in those products that we’ve identified. As I said, particularly when RPCVD comes out, and we can offer, you know, a more efficient and brighter product, we think that will fast track taking over new Marcets and new applications. But the Marcet is large enough for us today, just in the current space.

Marc: Okay. What would you say is the probability you will solve the issues you’re having and be able to launch your product mid-next year?

James: Well, as I said…I think I’ve said a couple of times now…I think with the team that we’ve now got in place, I’m feeling very confident that we’ll be able to solve these technical issues because particularly Jim has solved them in his previous roles in previous companies in this space. So there is a high level of competence for me. Now, remember, I’m just a poor accountant. So I’m not a technical person. But with the team we’ve got in place and, you know, the work we’re doing and the changes that the team are making, I am feeling confident that we’ll get the product out on time.

Marc: Right. Okay. I think I know the answer to this question, but is there any EBIT outlook for the coming three years?

James: No.

Marc: A follow-up from Katherine, she actually meant the prospects for GaN on silicon carbide. And of course, silicon carbide for people that don’t know is used heavily in high voltage, high power applications like electric vehicles or solar panels or inverters for those. So I think the question that she asked was a bit specific for GaN on silicon carbide, James.

James: Right. Well, it’s too specific for me, I’ve got to say. I actually don’t know the answer.

Marc: All right. I had a few questions on my own. I saw your slide where you mentioned the three verticals, so industrial, scientific, and biotech. I was wondering is there any margin difference for you as a company in addressing those various products for those Marcets?

James: So the short answer, there doesn’t seem to be because, you know, we will be selling to the integrators who then sell the final products. The margins look fairly consistent across all of them. And the margins are high in all three spaces, particularly…

Marc: Are you talking about those or is that competitively sensitive so to speak?

James: So we talk about the sort of industry margins that we will get to at scale, you know, and they’re in the plus 50s and higher type margins. And as we get to scale, you know, we expect to be in the same space, particularly as we bring more of those processes in house.

Marc: All right. The biggest challenges for you? So I think someone asked that question before, but in terms of challenges, where do you see the biggest sort of risk? Well, it’s sort of related to that question. But I can imagine that going head to head with some of these larger players like Osram, for instance, one of the top three lighting manufacturers globally, that must present certain challenges for a small company like BluGlass.

James: Yeah, no, absolutely. I mean, they’re big gorillas. You know, they can… So how they’re looking at the Marcet is they have a standard product. So their standard product is what they sell. They offer no flexibility on packaging or wavelengths. I don’t think they’re going to change that. They’re very profitable businesses. They’re very profitable sectors within the entire company.

So I don’t think they’re going to change that approach too much. Now, clearly, if we take significant Marcet share because we are flexible and we are nimble and we’re quick and we can get different wavelengths out, that’s an opportunity and a threat really, right, isn’t it? So I don’t think they can be flexible enough to cause us some issues in the short term. Longer-term, if we capture significant Marcet share, then, you know, that’s a good problem for us to have.

Marc: All right, excellent. Well, thank you very much. James, it’s been a pleasure to have you. Good luck in the rollout of laser diodes in that Marcet, and we’ll hope to see you again at our next conference.

James: Yeah, great, and thanks for having me, Marc. I really appreciate the opportunity.

Marc: Our pleasure.

James: Bye.