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The Israeli start-up company CyOptics this week completed the construction of a plant in Yokneam for the manufacture of active components (chips) for optical communication, with an investment of $10 million. The plant, with laboratory and office space totaling 1,000 square meters (11,000 square feet), was designed for the production of components for long-range fiber optical communication infrastructure.

CyOptics was established in early 1999 and has 80 employees. In 2000, the company raised $73 million in several rounds of capital raising. The last round was held in October 2000 and netted $57 million, according to a company value of $250 million after the money. Investors in CyOptics include the JVP and Eurofund venture capital funds, France Telecom and communications equipment manufacturers Cisco, Intel and Corning.

There are only a few optical communications chip plants in Israel, the most prominent of which is the one built by Lambda Crossing in Caesarea in 2001. CyOptics' new plant will be the first one in Israel to fabricate optical communications components using a process based on the chemical compound indium phosphide.

Dror Motovilov, CEO of CyOptics in Israel, told Ha'aretz that indium phosphide has special properties that facilitate the conduction of light waves. The new plant will make the optical components on a base of indium phosphide wafers two inches in diameter, in a process similar to that used in fabricating computer chips on silicon wafers.

At the end of the fabrication process the chips are put into casings that also contain wireless communications systems, and these will be marketed as components inside optical communications systems that are made by the communications equipment manufacturers. The opening of the plant marks the transition from single unit production, handled until now at a plant belonging to the state-owned Rafael Armament Development Authority, to mass production of up to 1,000 chips per month.

Under CyOptics' original business plan, the company was going to focus on the development of chips that operate at speeds of 40-80 Gigabits per second (Gbps). Due to the slowdown in the communications market, however, the company changed its focus and the high-speed technologies are still in the research stage. CyOptics is focusing instead on the market's needs, which are for chips that transfer optical signals at 10Gbps.

Motovilov says that this speed is more suitable for the company's potential clients - the communications systems manufacturers - because it allows them to integrate advanced optical systems within the existing infrastructure.

"There is a drop in the world demand for information transfer on communications infrastructure," he explained. "We have pulled back by about two years from our original plans to manufacture chips that operate at 40Gbps."

CyOptics new goal is to supply thousands of chips to equipment manufacturers by the third quarter of 2002 and then to start selling in the subcontracting market. Nevertheless, Motovilov says that it is impossible to predict the future demands of the market. CyOptics has so far sold about 100 of the chips it developed.