Cloud and AI: Opportunities that must be grabbed

The founder of Cloud Light, Dennis Tong, talks about the company, how its sale to Lumentum came about, and the promise of cloud and AI markets for optics.

For Dennis Tong (pictured), Hong Kong is a unique place that has a perfect blend of the East and West.

Tong, the founder and CEO of optical module specialist Cloud Light, should know. The company is headquartered in Hong Kong and has R&D offices in Hong Kong and Taipei, Taiwan. Cloud Light also has manufacturing sites in Asia: in the Chinese city of Dongguan—two hours by car, north of Hong Kong—and in the Philippines.

Now, Cloud Light is part of Lumentum. The U.S. photonics firm bought the optical module maker for $750 million in November 2023.

Tie-up

Cloud Light is a volume manufacturer of optical modules. The company takes 12-inch silicon photonic wafers, tests the wafers’ dies, and packages them for use in optical modules.

Cloud Light has a long relationship with Lumentum, using the U.S. company’s continuous-wave lasers for its silicon photonic-based optical modules.

Tong says he has been in photonics for 30 years and has good friends at Lumentum. “We had opportunities to chat and exchange views as to where the industry is going, and we shared a common vision,” he says. Eventually, the talk turned to a possible merger and acquisition.

Tong says the decision to sell the company centred on how best to grow the company. Cloud Light would have continued to do well, he says, but the company could grow much faster if he and his 1,600 staff joined Lumentum.

It is also timely. “Opportunities such as cloud and AI, they don’t come along very often,” says Tong.

Wafer-in, Product-out

Cloud Light has developed a manufacturing process dubbed “wafer-in, product-out.”

Turning a photonic integrated circuit (PIC) into a packaged optical module involves many stages and players. Designers of a PIC pass it to a foundry that results in the wafer. The wafer is shipped to an outsourced semiconductor assembly and test (OSAT) that does wafer back-end tasks: testing and dicing the wafer, and polishing. The working PICs—the known good dies—are shipped to a contract manufacturer that makes the pluggable modules.

“You can see that the entire collaboration chain is fragmented,” says Tong. “With our wafer-in, product-out process, we put everything in one group.”

Cloud Light takes the wafer from the foundry and does all the steps resulting in the delivered module.

Tong says the advantage of undertaking the complete process includes improved product yield. For example, the company measures coupling loss to the PIC and its optical waveguide loss during testing, and uses the insight to improve product yield.

Cloud Light has developed its own equipment to support automation. This know-how means that its design staff can work with the process and equipment colleagues to tailor the manufacturing process for new product designs. The precise assembly of unique micro-optics is one example.

It is this expertise and capability that particularly interested Lumentum in Cloud Light.

According to Tong, accumulating expertise in the different production areas has taken years: “There is a lot of subtlety to it, and we started to set this up in 2017.”

Hyperscaler business 

Cloud Light succeeded early with a hyperscaler, making a 4x10-gigabit multimode VCSEL-based transceiver. But it soon realised market growth was coming from single-mode optical transceivers.

Its decision to pursue its wafer-in, product-out strategy stemmed from a desire to avoid becoming one of many single-mode optical transceiver makers. "We didn't think we would add any value to the market by just creating a me-too company," says Tong.

If the company was going to invest in a new platform, it would have to be scalable to support high volumes.

"It was very clear that silicon photonics was the right thing to do," says Tong. "We were one of the first, if not the first, to launch a 400-gigabit silicon photonics-based transceiver in 2019."

Cloud Light pitched its in-house scalable manufacturing approach to a hyperscaler that liked its plan, resulting in the company securing the hyperscaler as a customer.

Plans 

Since the acquisition's completion, Lumentum has given Cloud Light broad scope; there is no rush for full-blown integration, says Tong.

“Our mandate is to continue to grow the module business,” he says. “And we are open to using components from Lumentum and other suppliers.”

Lumentum’s components also offer Cloud Light the ability to create new products. “Customers are seeing us as more equipped, which opens up new, interesting opportunities,” says Tong.

Moreover, Cloud Light is not solely making modules for Lumentum. “The reality is that this is a very dynamic market, dominated by a few customers,” says Tong. “We are open to different business models as long as we can add value.”

Opportunities 

At the time of the deal, Lumentum revealed that it expected Cloud Light would add $200 million plus to its yearly income. Cloud Light’s $200 million in revenues in the previous year was almost all from 400-gigabit and higher-speed transceiver sales.

Lumentum also makes coherent optical modems, ROADMs, and 3D sensing for commercial applications. Tong says coherent modules are one obvious opportunity for Cloud Light: “If you look into the future, I think the line between cloud/ datacom and telecom will become blurred.”

Cloud and AI will drive volumes, and the silicon photonics platform will be applicable for coherent modems as well. “So, a lot of the things that we have developed will also be applicable to coherent modules in the future,” says Tong. “And it is definitely applicable if one day coherent optics makes its way into the data centre.”

Coherent optics modules will keep increasing symbol rate and use more sophisticated coding schemes, but at some point, the effective data rate per line will start to plateau. To increase bandwidth beyond that, designs will go parallel by adding more channels. “Adding more fibre or more wavelengths, then it comes back to density, and then it’s all about packaging,” says Tong.

The ability to change its automated assembly for new applications also suggests that Cloud Light’s manufacturing capability could benefit Lumentum’s other product lines, such as ROADMs and even new markets such as optical circuit switches.

Co-packaged optics 

Co-packaged optics are seen as one solution for applications where standard pluggable optics are no longer suitable.

Tong says that there are still issues before co-packaged optics are deployed at scale. One challenge is reliability; hyperscalars will not deploy the technology at scale until it has demonstrable good quality and reliability. 

“The emergence of AI and cloud may accelerate that deployment, simply because of the volumes they are using and the density issue,” says Tong. Cost and thermal issues is also something co-packaged optics can address.

Cloud Light is ready for the advent of co-packaged optics. For its 800-gigabit transceiver, it can package a bare-die digital signal processor right next to the silicon photonics optical engine. “It’s not exactly a co-packaged optics product, but it has the same capability,” he says.

Shrinking lifecycles

The lifecycle of optical module products continues to shrink. At 10 gigabits, it was a decade-plus; for 100 gigabits, it was five to six years; at 400 gigabits, it has been more like three or four years. "Now, with AI, it is more like two to three years," says Tong.

To be successful, it is all about time-to-market and time-to-scale.

“You need to be able to ramp up very quickly to the type of volumes and the type of quality that the customer is asking for,” says Tong. “There's no time for you to get ready; you must be ready.”