Is This Company Beyond Repair?

I am circling around Midas Way in Sunnyvale, California, hunting down a morning appointment amid the look-alike sandstone bunkers. Midas Way -- the name reeks of Silicon Valley circa 1999, all bright eyes and geek braggadocio. Only now, some telling new signs ornament the neighborhood. "For lease/sublet." "Space available." So much for the Valley's golden touch. Here's the address where I think I'm supposed to be -- but it doesn't look promising. Above the door, where you'd expect to see a brassy company logo, there's a blank concrete facade. Inside, ducts, cables, and pieces of furniture pock the dark, bare space. Taped to one window, a sheet of paper bears a hand-drawn arrow pointing to a modest side entrance.

And there, in inch-high stick-on letters, the kind you'd buy at Staples, is the name of the ostensibly world-class technology outfit housed inside this building: "Novalux, Inc."

You could make the case that Novalux shouldn't even exist today. That it does is partly the consequence of astoundingly good timing. On September 26, 2000, it accepted $109 million in capital from A-list backers such as Morgan Stanley Dean Witter Venture Partners and Crescendo Ventures, a deal that valued the revenueless company at $500 million. It turned away another $240 million from funds that were begging to invest.

Novalux was that hot. Its founder, an awkward former MIT professor named Aram Mooradian, had come up with a semiconductor-based laser that promised high power at relatively low cost -- an innovation that seemed remarkably well suited for, among other things, propelling information long distances over optical telecommunications networks. And at that moment, telecom carriers were building out their networks like crazy.

But then they stopped building. The day after Novalux's funding closed, the stocks of telecom-equipment makers dropped on an analyst's forecast of lower orders to come. Over the next few months, Corning, Lucent, Nortel -- and, ultimately, Cisco Systems -- admitted that their business was, in fact, drying up. The companies that Novalux had expected would lift it into orbit were caught in one of the most dramatic free falls in business history. And Novalux's prospects fell with them.

Novalux had expected to fill its offices with 350 employees by now. It had hoped to be nearing a public offering. Instead, following a round of layoffs in October 2001, it is down to 95 workers. The IPO is a fragile fancy; so, for that matter, is access to more venture funding. Novalux still has $45 million in the bank. It has Mooradian's laser and at least $25 million worth of fabrication facilities. It has a management team assembled from the likes of Advanced Micro Devices, Corning, and Intel. It has a way with PR. And for all that, it hangs in limbo.

There are two sorts of stories in Silicon Valley these days. In one, a company that never should have been inflicted on the world flies high and then crashes, betrayed by strategic hubris, executive ignorance, and the flimsiness of its business model. In the other, a serious outfit does most things right -- and gets bludgeoned anyway. That's Novalux. Its marketplace is a wasteland. There's no more money on the way.

Salvation, if there is salvation, lies in resilience. Change quickly and often, work your tail off, and hope. Hope that business comes back in time for you to stay alive. But even to have the right to hope, Novalux has had to fix everything -- to rethink its technology, its strategy, its operations, and its executive team. It's done all that it can. Will that be enough?

The Promise: "We have a totally unique technology"

Back at Midas Way, the office cubicles at Novalux are silent and surreally plain. This is a company of researchers and engineers, and they're not really into decorating. What they're into can be found in the back building: two new, $2.8 million epitaxial reactors. These are machines that coat gallium-arsenide semiconductor wafers with the layers of metals and chemicals that will yield high-powered laser beams. With these reactors, Novalux can manufacture many, many more lasers than it will sell for years.

"This company has huge capability," Mooradian says. "This is a dream." Specifically, it is Mooradian's dream. Here is a guy who has spent the past 42 years thinking about lasers and little else. He hangs out with other laser guys; he talks wistfully of vacations spent on remote Italian hilltops, pondering the future of ... lasers. He still mourns the failure of an earlier laser startup. He is 64 years old, but there is a waiflike quality to him, as if he hasn't fully acknowledged the machinations of whatever world lies beyond his cozy scientific orb.