Interview with BluGlass (ASX:BLG) President Jim Haden: Capturing the opportunities in laser diodes

BluGlass (ASX:BLG)

We spoke with Jim Haden, President of BluGlass (ASX:BLG) about the company’s ambitions in laser diode manufacturing and how the Freemont fab is game-changing for BluGlass.

Make sure you check out the in-depth research report on BluGlass by Pitt Street Research.

See full transcription below.

 

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Transcription

 

Marc: Hello, and welcome to Pitt Street Research. Today we’re joined by Jim Hayden, the president of BluGlass. Welcome.

Jim: Thank you.

Marc: In a nutshell, Jim, can you tell us who is BluGlass? What do you guys do?

Jim: BluGlass is Australia’s only vertically integrated semiconductor manufacturing company. We’re a GaN laser organization, and we use our proprietary growth technology to propel us forward in the GaN laser space. So what we do is we grow and then process semiconductor wafers, turning them into lasers that can be used in multiple industries, industrial processing, microelectronics, medical, biomedical sensing, quantum computing, those types of applications.

Marc: Right. And a couple of years ago, BluGlass pivoted towards laser diodes. Why laser diodes, not say LEDs or some other sort of related product?

Jim: Yes. So we did this pivot, and it basically comes down to trying to match what our talents are and what capabilities we have with where we think the best play for us in the market is. And we believe with the capacity we have in our Silverwater facility, that we could get the best return on that investment by using lasers rather than LEDs. When you look at a LED, the wafer that you get, how much you could turn that into ledLED sales is not nearly as much, could be 100 times that with laser diodes. So the average selling price is much better, and that’s why we moved in that direction. We believe that our technology is great, but the licensing play didn’t seem to be as attractive as the laser diode plays.

Marc: Okay. Not too long ago, BluGlass purchased a manufacturing facility in Fremont in California in the US. That’s a big game-changer for the company, right? As on a number of levels. Can you talk us through why that is?

Jim: Yeah. So there are many levels that we’re already reaping the benefits of, but the first one is, it gives us the technology and the capacity, it was a working fab. And we’ve been working with contract manufacturers to do development, and contract manufacturers are much better at doing the same thing the same way all the time. When we’re doing development, we have our fab now that comes with this equipment. It was built for doing semiconductor processing, all we had to do is convert it from one type of semiconductor to another. But the first advantage is getting the capability to do what we have and having it in-house, our control of it. The next thing is it was operating fab and it had talented people. And the talent pool is key to getting done what we need to do. And so having those people in place, and then just bringing in a new management team also afforded us the opportunity to start doing development right away. And we have been, for instance, looking for laser scientists for quite some years, since we decided to do this pivot. And what we found is in the fab in Silicon Valley opened up a whole new resource to us. I have a colleague and friend at the University of Santa Barbara, and he called me up was talking about, “Hey, you got this great new facility, how are things going.” And just having that connection and knowing that we had to play series, like, hey, I got a grad student coming, right? He’s gonna get his PhD. Few months, he was an engineer before that. So he comes with experience as well, industrial experience, and we were able to hire him. And so that’s another advantage that we have.

So a talent pool that existed and then reaching another talent pool, and then going into the resources, UC Santa Barbara and other local colleges in California is a great thing. But then coming back to having the equipment and process capabilities, and then talking a little bit about how it was it, the CMs. CMs are good at doing the same thing all the time. Well, this team is used to doing iterations. And they’re used to saying, hey, let’s try this or let’s try that because they’ve had to do development of lasers. They weren’t our type of lasers, but they were lasers, right? And so they already have that experience. And we started in the middle of July, we were fully permitted, and we’re able to start using that facility to make lasers. And we started by doing short loop iterations and within six weeks, we started our first full processing of laser diodes. So that agility is what it brings to us. And we have the ability now to get really quick feedback because we have a lot more metrics, in-line metrics is what we call them. So you don’t have to make a full laser. You can do measurements on the wafers and determine what do you do next on your next one to make it better. So when you’re developing, that the feedback loop is really important.

Marc: Right: And in terms of ramping up sales, can you tell us a little bit about how fast that might go? And then from that, at what point you could potentially start to switch off contract manufacturing? Because that will do wonders for your margins over time?

Jim: Oh, absolutely, it will. So let’s see, that’s…looking at the…a little bit how fast we could ramp up or what it brings to us. The first thing we did an analysis of was, how does it match what we already have here in Silverwater. And we looked at the capacity that we had at our contract manufacturers because they also have other customers. And so what they thought they got a lot to us, well, this fab brought about a factor of 4X of that. And, you know, it’s uniquely sized, that it about matches the capacity that we have right now in Silverwater. There’s probably room to growth in both places, but right now, they seem to be pretty well-matched, and it’s about a factor of four of what we thought we had before. And so that is a, I guess, maybe the first part of your question, second, how fast could we ramp? Well, if things go well, and so far, they look like they’re going well, we will be able to start processing wafers at a much more frequent capacity or rate than we were able to before. And so we’ve started our second lot of full laser devices already and already planning our third lot. So we’re moving more quickly. And you also asked, then when would we transition away from the CMs to improve our margin. And the plan is to transition out of the CMs, not be depending on them at all for production within this fiscal year. So by the middle of next calendar year…

Marc: Okay, that’s pretty quick.

Jim: It is pretty quick. And the team in California is chomping at the bit to move even faster than that. But that’s our plan right now is by the end of the fiscal year.

Marc: And in terms of capacity, starting to…talking dollars, what sort of the maximum dollar amount once you are fully ramped? What can the facility do basically?

Jim: Well, we think that looking at sort of the average selling price we might get with the number of wafers we could do, which we think it’d be about 10,000 wafers per year, we think we could turn that into about $160 million. We don’t know how long it will take to get to $160 million a year in revenue, but that’s what we think BluGlass could do with the investments we’ve done. We have most of the equipment in place, we may need a few specialty pieces along the way, but that’s it.

Marc: So you got some runway then.

Jim: Yeah, we have some runway.

Marc: So there’s a couple of players in the industry already, obviously, the laser diode space that are established, that got revenues. So basically, you guys are the new kid on the block to some extent.

Jim: Yes.

Marc: How do you plan to compete with these players?

Jim: Well, it’s interesting. Competing with and against, it’s a tricky thing, right? Because I sometimes think about, you hear about the 600 or 800 pound gorilla. And I like to think of visuals. So if you’re going to be competing with a gorilla, what would you do to stay alive? You might wanna stay away from the gorilla, right?

Marc: That would help BluGlass.

Jim: Yeah, so what we’d like to do is we wanna find niches where we can play where the gorilla is not stomping around. And there’s a lot of opportunity there because we have a little different philosophy that we’re putting forward. We’re going to be a low to medium volume with a higher mix. And so what the large competitors are doing is they’re going low mix, high volume. And so those two different business plans don’t necessarily mix. So we don’t have to go fight them for every last cent and, you know, get into price wars with them. We can provide different form factors, different wavelengths, and different specifications to products that are easier for our customers to use. And when they’re easier to use, they don’t have to spend as much money on their side of the product development, so they’re willing to pay us more. So we’re going for the lower volume higher ASP.

Marc: Yeah, okay. And so we did a big report on BluGlass a little while ago.

Jim: Yes. Thank you for that.

Marc: Yeah, no worries. I think it’s really interesting, this space because if you look at the individual sort of target markets, there’s a lot of growth. I think, on average, it’s something like 23% average growth through 2025 or something. So that’s a very interesting market to target. But even within those individual sort of verticals, there must be pockets of even high growth net. What will be the most interesting ones from where you’re sitting at the moment?

Jim: There’s a kind combination of growth and capability and then serviceability, right? And who is servicing it? So we are looking at a strategy where we have a certain performance. We know the customers that are feeling underserved by the big guys. And so that I think the faster growth for us will be going into the underserved markets that are not a lot of competition. And so we can grow faster, and the GaN industry is actually going faster for two reasons. One, it is consuming existing markets that are being served by IR, infrared lasers. And the reason it’s doing that is we have some very nice properties of our lasers. So we can consume that market by providing better processes for the customers, usually at less power and less cost overall because of less power. The second is applications are being enabled by the visible…sometimes UV and visible wavelengths. And so those are new applications that weren’t served before. And there’s like quantum computing type of things. They have shown feasibility but they do it through what’s called a solid-state external pumping cavity laser. It’s a complicated device where you have a laser or a crystal and so forth, and they double it to get the wavelength. And it’s just too big to be in a little, really small compacting that you might need for AR, VR, or for autonomous vehicles before. So they’ve shown feasibility with different kinds of devices, but our devices will enable that because they’re gonna be semiconductor, solid state, and small.

Marc: Okay. Just turning the attention to you for a second, you joined BluGlass a little while ago, you have a very impressive resume. Where do you think your past experience in this industry fits best with BluGlass, where it is now as a company?

Jim: Well, my past experience ranges from, you know, research when I was in grad school, and just after grad school to device development, laser design, then I moved into operations, operations management, where I was able to manage the groups and help define strategies for companies and integrate work out deals with different partners and so forth. So the breadth of that career has all been in lasers. And so I think what it does is it positions me because I’ve been part of small companies and large companies now, companies that grew from small to large, like STL, or Spectra, Dow Labs it was…once was called. And so that kind of experience, I could relate to the scientists or engineers to this, you know, CFO, to the board, and also to investors, you know? So I’ve dealt with that breadth. And so I think I bring some of that to the table. And I like lasers. I like what would I do, so then…

Marc: You have to like it, right?

Jim: You have to like it, yeah.

Marc: Exactly. All right. One last question. So you’ve got your near-term challenges, obviously, in ramping up the facility or facilities, I should say. Longer term, say, three to five years, what are BluGlass’ longer-term aspirations in this space?

Jim: I think I touched on it a little bit, but I could elaborate. So we talked about trying to make products that are easier to use for our customers. So the long term will be to continue to leverage our internal expertise. And we’re going to move in the direction of taking that expertise and making products that are usable to our lasers that…to our customers and lasers that are easily integrated into their components without a lot of cost, and so they’re even willing to pay us more for it. And so that’s a big part of our strategy. And in doing that, we’re going to leverage our existing IP, we have 93 patents. We’re gonna continue to do that, we’re gonna continue to invest. We talked about that UCSB. There’s UCSB and other partners that are going to come in and help us, and we’re gonna work with them to collaborate to make even better devices. Basically, what we can do best internally we’ll do, and then we’ll find the expertise outside of BluGlass when we need to as well.

Marc: All right, excellent. Jim Haden, thank you very much for your time.

Jim: All right. Thank you.