Light pulses delivered over fibre-optic networks have to be converted into electrical signals at switching equipment. This causes a bottleneck, slowing down data transfer speeds and hindering network performance.

The problem led to hundreds of millions of euros being invested in various start-ups in 1999 and 2000, and prompted established giants such as Alcatel and Nortel to beef up their in-house divisions. Each vendor has been seeking to develop so-called 'all-optical' products – in which switching equipment can re-route optical pulses without first having to convert them into electrical signals.

But Dag Neumeuer, founder of MergeOptics, says there is no need to wait years for a breakthrough. Neumeuer, a former general manager of semiconductor maker Infineon's optics division, says network performance can be improved significantly by simply refining present-day manufacturing techniques.

MergeOptics has designed highly efficient 10-gigabit Ethernet components that still use electricity to switch fibre optic light. The efficiencies are gained in the manufacturing process. This enables the company to manufacture its electro-optical components faster and cheaper than its rivals. Neumeuer believes that the market for conventional gear "still has a lot of life" before all-optical components become a commercial reality.

The company holds patents on its specialised manufacturing methods and outsources each stage of the process to established foundries. This model will enable the company to scale-up fast, says Neumeuer, which may be just as well: he says the company is already struggling to fulfil orders for prototypes from Cisco Systems, Alcatel and other clients, which want to incorporate MergeOptics' components into their own products.

To date, MergeOptics has attracted €5.5 million in two rounds of funding from its German venture capital backers, Earlybird and Target Partners. It has opened a subsidiary in California for business development and application engineering.

Like many optical component start-ups, MergeOptics has also been able to generate revenues through selling more mundane equipment, such as laser diodes – the components that transmit the lasers for optical fibre networks. These products have brought in a "couple of hundred thousand euros", says Neumeuer. Sales of the 10-gigabit Ethernet components were due to begin in May 2002.