Applied Materials Sees Optical Writing On Wall

The optical networking sector continues to tantalize venture capitalists. They're ready to back young high-tech companies that are racing to create next-generation optical products. VCs are betting those products become as pervasive in communications networks as integrated circuits are today.

Recently, high-tech components maker Applied Materials Inc. joined the frenzy when it formed its first VC fund, Applied Materials Ventures, to provide seed money and first-round investments to optical communications startups.

The San Francisco company intends to invest $1 million or $2 million in initial funding to promising optical startups, says veteran venture capitalist Julien Nguyen, managing director of the fund. Applied Materials would pump in money in later rounds that would top off when a recipient's total reaches $5 million, Nguyen says.

Applied Materials makes components for silicon integrated circuits, and its backing of promising optical components startups is intended to give it an edge in manufacturing optical communications components, Nguyen says.

Thus far, Applied Materials has invested in three startups, all in stealth mode. It would name only one of them--closely held Zepton Networks. Zepton received $86 million in two rounds of funding from VCs that also included Kleiner Perkins Caufield and Byers.