IQT Research Note: Is New Investment In D-Wave The Beginning Of A Quantum Computing Boom?

In April 2017, D-Wave closed its first $30 million investment in convertible notes and then received a conditional commitment from Public Sector Pension Investment Board (PSP Investments) for an additional $20 million. The conditions for this second $20 million have now been met and this new money will now flow to D-Wave Systems.  In addition, it is public knowledge that the company is talking to other investors – including Softbank – about raising hundreds of millions of dollars later in 2018.  D-Wave is working on a 5,000-qubit system and the further investment will go to financing D-Wave’s new product, which will supposedly appear in 2019.

This is all good news for D-Wave.  But what does this mean for the Inside Quantum Technology business as a whole?  This question is all the more poignant because – for now anyway – D-Wave doesn’t even offer a real quantum computer.  Instead, D-Wave’s products are “quantum annealers,” good at solving optimization problems but not general-purpose computers in the way that even a good laptop is.  The point here is that at the present time general-purpose Inside  Quantum Technology is a scarce resource, despite promises from Google, Microsoft, Rigetti and others.  IBM has a cloud-based quantum computing service, but it is quite limited in the number of qubits it can process.

IQT Research believes that some guidance on where we may now be headed with all this can be found by examining the early days of the broadband/optical networking “revolution” that began in the mid-to-late 1980’s and ultimately crashed big time at the turn of the century.  It was well understood at the time that to put the broadband business into high gear, a key enabler would be a standardized high-bandwidth packet switch.  Unfortunately, no one then had been able to build anything like that.

The StrataCom story:  Enter an almost forgotten company called StrataCom, which was founded in 1986.  StrataCom was the first company to produce a broadband switch.  It was mostly a proprietary system, but was good enough to get the broadband revolution underway at a time when nothing close to a “real” broadband packet switch was available.  For a time, it seemed that hardly a month went by without some telephone company announcing that it was buying some StrataCom switches to get it into the broadband business.  There were no other competing switches available back then and when such standardized switches finally appeared, StrataCom still had the brand name, experience and number of installations to carry it forward for a while.

IQT Research believes that the parallels between D-Wave today and StrataCom from 25 years ago are too tempting to ignore for the purpose of analysis.  Both companies have/had “technically inferior” products compared to what the market was supposed to use at a time when nothing else was suitable.  Both companies attracted strong investment – StrataCom successfully went public in 1992 and then was acquired by Cisco in 1996 for $4 billion.

But what does the StrataCom story tell us about where the Inside Quantum Technology business is headed and D-Wave in particular.  We can’t know for certain, of course, but a few thoughts occur to us.

Potential for Quantum Computing boom and bust:  StrataCom helped launch the broadband revolution that is so much part of our lives today.  But its acquisition by Cisco helped set the very high prices that were being paid for network equipment companies back in those days.  Ultimately, everything about broadband overshot market needs and the stock prices in the broadband sector collapsed big time after 2000.  Perhaps, we should see what happened as a prophecy and a warning for quantum computing in the next decade.

Pioneer helps technology transition to a standardized form:  Under Cisco leadership, StrataCom’s engineers helped Cisco move more rapidly to a standardized form of broadband called asynchronous transfer mode (ATM).  As such StrataCom wasn’t just an historical pioneer, but also provided part of the technological seeding for broadband.

This may be even more the case with D-Wave.  Although what’s next for D-Wave will be more quantum annealing (but with more densely-connected qubits that can represent more complex problems), D-Wave may ultimately help carry the world forward to “true” quantum computers.  According to one report we have read, D-Wave is dreaming up significant changes in its architecture which might result in its system becoming a general-purpose computer.

Leveraging pioneer to become dominant player: Cisco began as a manufacturer of equipment for the data center.  It was the acquisition of StrataCom that began its journey to becoming one of the largest and most successful suppliers of equipment for telephone companies.

Could something like this happen to D-Wave too?  Under this scenario, D-Wave might go public, but then get swallowed up by a large computing firm wanting to cash in on what might by then be a quantum computing  boom.  We can only speculate on who the acquirer might be.  Possibilities that spring to mind here are Cray, Dell, Fujitsu, all supercomputer firms that have yet to have a quantum computing hand to play.