Friday, September 04, 2015

POET Technologies Has No Poetry

POET Technologies has been sitting on my radar screen for a few months. I had to let it percolate to figure out where it fits because it used to be known as Opel Technologies. Their main technology claim is that some integrated circuit with optics will extend Moore's Law. I am not convinced this is the path of least resistance for computing. All of the guru talks I have attended at many tech conferences attest to quantum computing as the next step. Anything that's not quantum can add marginal capabilities but will not be a quantum leap.

The company website's investor relations page talks a lot about several directors but little about management's background. I am not in the habit of giving managers the benefit of the doubt once their company migrates to manufacturing. POET's Yahoo Finance page shows the management team receiving very large compensation packages with no recent revenue.

Photonic integrated circuits (ICs) have been around for a while. Search the IEEE Xplore archive for the article "Optical Integrated Circuits: A Personal Perspective" for a discussion of the difficulties in moving the photonic Moore's Law curve. POET's tech uses gallium arsenide, but a simple Google search of "optical integrated circuits gallium arsenide" reveals articles dating from the 1980s on the promise of such technology. Basic descriptions of gallium arsenide (GaAs) indicate its value as a substrate material in ICs but it is not amenable to the same economies of scale that favor silicon. Light Science and Applications offers a selection of articles on photonic ICs, several of which describe competitors to GaAs tech.

You'd think that something with such a long development history would show some marketable results by now. I had to examine POET's unaudited financial statements and MDA for the six months ended June 30, 2015. They had over $15M in cash on hand with a burn rate of about $1M per month, so they should be around for at least another year. The tough pill to swallow for investors is the negative retained earnings of almost -$79M. All of that capital went to develop a 30-year old tech that has yet to match the performance of silicon in ICs. I did not see anything in the MDA describing a detailed strategy for generating revenue. Rearranging royalties and obtaining SBIR grants are no substitute for revenue.

I am hard-pressed to understand this company's rationale for existence. The IC market is broad but it is not at all clear how POET will capture any revenue once it irons out the kinks in its production process and has a viable chip to sell. I prefer not to bother with long-shots in circuits, especially when quantum computing offers so much more potential.

Full disclosure: No position in POET Technologies (tickers PTK.V and POETF) at this time.