Photonics firm Enablence eyes plan to build $150M chip fabrication plant in Ottawa-Gatineau

Photonics stock image

A Kanata-based photonics company that has struggled to gain traction for nearly two decades says it is on the verge of a market breakthrough and is scouting potential sites in the National Capital Region to build a $150-million chip fabrication plant that would employ more than 100 people.

Enablence Technologies, which trades on the TSX Venture Exchange, says it is in the process of raising capital to finance a 50,000-square-foot facility that would produce up to 7,500 optical chip wafers a month – more than 10 times the capacity of its current production plant in Fremont, Calif.

The firm now has about 50 employees, including seven at its head office and research and development hub on March Road. 

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But company officials say its head count is poised to grow dramatically in the years ahead as new applications in the medical technology and automotive sectors drive demand for its optical photonics components.   

“The optics industry is on the verge of exploding,” CEO Todd Haugen, a longtime Microsoft executive who took over the top job at Enablence 14 months ago, told Techopia this week. “There are so many new use cases for it.”

Enablence chief financial officer Paul Rowland says the Ottawa region is a natural choice for a new facility as the company, which now assembles its chips in China, looks to consolidate design, production and assembly on this side of the Pacific.

“When we started looking at where in North America it would make sense for us to build a plant, we felt strongly that Ottawa was one of our top choices – primarily because of the access to (engineering) talent, which is absolutely critical in our line of work.”

Rowland says the firm is checking out existing industrial properties in the region as well as projects that are under construction, particularly in the west end. But he said it’s “tricky” to find a building that could be readily converted into a “clean room” suitable for chip production and assembly. 

Enablence is also looking at buying vacant land where it could potentially build its own facility, Rowland said, including sites on both sides of the Ottawa River. 

He said the firm is still “several months away” from making any announcements, but is “very encouraged about our ability to be able to do something” in Ottawa-Gatineau.

“There are a lot of moving parts,” Rowland said. “It’s a bit early to say, ‘This is where we’re going to put our stake in the ground.’”

If Enablence does go ahead with a project here, the federal government will likely be a major partner. 

The feds, like their counterparts in the United States, have made no secret of their desire to kickstart a domestic semiconductor industry. In 2022, the Canadian government announced it was setting aside $150 million for targeted investments in the sector and earmarked $90 million for the Canadian Photonics Fabrication Centre on Montreal Road, which provides engineering, prototyping and manufacturing of circuits and other electronics.

Enablence is now in talks with Canadian officials about securing tens of millions of dollars in federal funding for a new chip fabrication plant. Rowland said the firm is aiming to have a deal finalized within the next 12 months and hopes to launch construction of the facility – which would likely take at least three years to build and certify – by next summer.

“They’re very interested in the project, but they need it de-risked a little bit,” Haugen said of officials from Innovation, Science and Economic Development Canada.

A new production facility would mark a huge leap forward for Enablence, which has failed to capture a broad market after nearly two decades in business. 

Founded in 2006, Enablence produces optical chip components used in data centres that serve tech giants such as Apple, Google and Meta, the parent company of Facebook. 

Over the years, the company has cycled through a series of C-suite leaders in the hope of hitting on a formula for success, but to little avail. 

Enablence, which keeps its books in U.S. dollars, generated revenues of about $2 million in 2022, down from $2.5 million the year before.

In the first three months of 2023, sales of its optical chips fell 16 per cent year-over-year, with the company citing “economic headwinds experienced by the end users” of its products for the decline.

In the same period, however, revenues from new R&D contracts for customers rose 158 per cent – giving officials a reason to believe the seeds of future success are already being planted.

Haugen argues that Enablence was late to the party when it came to carving out a niche in data centres and never really had a chance to become a dominant player in that space.

“If we had started this company in 1993, we would have caught the datacoms wave, and we would have been a leader in datacoms,” he said. “But we were a little behind.”

Now, however, the CEO says Enablence is on the cutting edge of technology that will fuel the coming autonomous vehicle revolution and power next-generation medical devices that will be small enough to hold in your hand while scanning for conditions such as macular degeneration in a patient’s eye.

The firm is poised to go all in on the “advanced vision” market – for example, focusing on chips that will help manufacturers produce faster, more accurate Lidar systems that use lasers and reflected light to allow self-driving vehicles to detect cars, pedestrians and other objects.

Haugen says its optical circuits used in fibre-optics systems bleed less energy in the form of light than other similar products. The firm has ramped up its R&D spending in recent years, and the CEO says its engineers have “discovered some new properties of glass and light” that have resulted in chips that are one-third smaller than those of their closest competitors and just as powerful.

“We’re able to miniaturize to a much higher level than the competition and deliver the same kind of performance,” Haugen explained.

“We’re in front of the market. We’re narrowly focused on exactly what we’re great at. We are the leader in terms of design in the automotive Lidar space for optical chips today, and I don’t plan on relinquishing that advantage.”

Haugen says automotive industry experts predict that up to 90 per cent of all new vehicles will include some form of Lidar by 2032. If Enablence holds on to its early advantage, it should be in the driver’s seat when that time comes, he adds. 

The firm is currently exploring deals to provide its chips to six of the eight largest automotive equipment manufacturers and hopes to open talks with the other two soon, Haugen said. Since he joined the company last spring, Enablence’s sales pipeline has ballooned from $4 million to more than $80 million.

“We won’t close all those, but the funnel is huge,” he said.

A 30-year tech veteran, Haugen has been around long enough to know Enablence is carrying a lot of baggage from past failures that won’t easily be stored away. But he’s confident the company can finally flip the script and become the National Capital Region’s next homegrown success story.

“Our designers are building the smallest, most integrated Lidar on a chip anywhere in the world,” he said. “Why is it going to be different this time? It’s the maturity of the market, it’s the maturity of the leadership, it’s the focus on excellence and execution. It’s all of that stuff.”

Rowland, who joined Enablence 16 months ago, is equally bullish on its future.

“It’s the overnight success story (that’s) just about 20 years in the making,” he said.

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