BluGlass (ASX:BLG) acquires manufacturing facility in Silicon Valley

BluGlass Limited (ASX:BLG) Executive Chair discusses the acquisition of a semiconductor manufacturing lab in Fremont in the Silicon Valley.

Melissa Darmawan: Thanks for tuning in. I’m Melissa Darmawan for the Finance News Network. We are joined today by Executive Chair of BluGlass (ASX:BLG) James Walker. James, nice to have you back in the studio.

James Walker: Yeah, thanks, Melissa. Good to be back.

Melissa Darmawan: For those that are new to the BluGlass story, can you provide us with an overview?

James Walker: Sure. So, BluGlass is a listed technology company. We’re using our unique gallium nitride semiconductor technology to produce laser diodes.

Melissa Darmawan: You recently announced that BluGlass is set to acquire a full-suite semiconductor manufacturing lab, a first for Australia. This looks like it could be a transformational piece for the company. Firstly, congratulations. I’m sure there’s been a lot of work behind the scenes to get to this point.

James Walker: Yeah, no, it sure has. I mean, it’s a great deal for the company. So, Jim Haden, our president, based in the US, found this opportunity. We wouldn’t have found it without having a local presence in the US. It changes our business completely. So, instead of us relying on third-party manufacturers, we can now bring that in house. And there are lots of advantages by having that in house.

Melissa Darmawan: On that note, around the advantages, can you talk us through what this means for the company?

James Walker: Yeah, there are lots of advantages for this transaction. Firstly, we bring our entire manufacturing process in house. That means we reduce our reliance on third-party manufacturers and that means better products in terms of less third-party variability. It also means we can produce more products quicker, not just in number of units, but also different products. We can do faster turns because we own the equipment and we can manage how that works. Another advantage is we actually inherit a manufacturing team from day one. So, instead of building our own facility, which would have cost about US$40 million, we have this facility, which is operational, with an existing team in place.

Melissa Darmawan: Let’s talk about the existing team. They appear to be highly skilled. I presume that would be difficult to assemble from scratch.

James Walker: No, completely. So, one of the key advantages of being based in the Silicon Valley is we have access to that team which have been working on that equipment in that facility for quite some time. But we also get access to just the wider market there. The talent pool in Silicon Valley, as everyone would guess, is significant. And we’ve already been able to start to talk to new employees about coming to join us because of that location.

Melissa Darmawan: The location in Silicon Valley looks ideal. Can you tell us some other advantages, other than personnel, as a result of being located in Fremont?

James Walker: Yeah. One of the main advantages of our space being based there is we’re closer to our customers. So, we’ll have a better understanding of their needs because they’re right next door. So, a massive advantage for us. Other advantages, though, are that we can now start dealing with government contracts and maybe even defence, as well as we also open ourselves up to different investor conversations. Being based in the Silicon Valley will open the door to the type of investors and new type of investors we can talk to.

Melissa Darmawan: You’ve said that this acquisition will allow you to speed your products to market and give you greater product flexibility. Can you expand on that?

James Walker: Yeah, no, completely. So, our current capacity, working with our contract manufacturers, is we could produce about $40 million worth of revenue a year in terms of products. By this new facility, once it’s fully operational, that will turn up to about $160 million a year worth of revenue opportunities. And that’s not only because we’ve got more capacity, but we can do more turns and therefore deliver different products and more products.

Melissa Darmawan: As you look to increase productivity, laser revenue growth has tripled in the past 10 years, but it’s set to significantly jump to a projected US$25 billion dollars by 2025. How does this position BluGlass?

James Walker: So, through this acquisition, BluGlass will be one of four manufacturers in this space. So, we’ll play a key role in growing that market. Our products will be unique in terms of the wavelengths and the form flow. So, what will differentiate us from the other competitors in this space is we’ll be far more flexible about how we deliver the lasers to the end customer, which means we can be far more nimble and flexible. And we think that will have a significant impact in growing our market share.

Melissa Darmawan: Now to financials. What can you tell us about this?

James Walker: The acquisition of the fab in Silicon Valley is a US$2.5 million acquisition price. That includes the equipment in that facility. We’re also taking on the lease and we’ve also made offers to the current team to come and join us. So, we recently announced a placement for $3.4 million. We’ve currently got a rights issue open for a maximum of 7.5, and that is to fund the acquisition, but also the integration costs and the working capital as we get that facility operational.

Melissa Darmawan: How has this changed the strategy for BluGlass?

James Walker: So, Melissa, it actually hasn’t changed the strategy at all. The strategy was always to build our own manufacturing facility and bring these processes in house. That would have been a $40 million investment over the next couple of years, but because this unique opportunity has become available, we had to act now. Significant cost saving to shareholders, brings it online quicker, produces more products in a faster period of time at half the manufacturing costs. So, even though it was in our longer-term strategy, we had to act for this opportunity when it became available.

Melissa Darmawan: 2.5 mil versus 40 mil is a big advantage. Last question from me. From what I have read, the deal is set to increase your revenue generation by around 300 per cent to US$160 million. That’s a pretty exciting outcome.

James Walker: Yeah, no, we’re very excited. I mean, to increase our manufacturing capacity up to $160 million in our current market opportunity of $360 million for the three areas that we’re focused on, which is industrial, scientific and biotech, we can have a significant influence on that market just by increasing the capacity through this acquisition.

Melissa Darmawan: James Walker, Executive Chair from BluGlass, thank you for sharing your news with us today. I look forward to seeing this all unfold.

James Walker: Great. Thanks, Melissa.

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