Andrew Nelson: The breakthrough that brought us the web

While developing fibre-optic communications for BT in the 1980s, Dr Andrew Nelson spotted a massive busines opportunity. He set up on his own making compound semi-conductors - and now his business turns over £72m a year.

During the early 1980s Dr Andrew Nelson helped develop fibre-optic communications for BT. It "was one of the breakthroughs that made the internet possible". It also gave him an idea for a new business.

At BT he was responsible for building the "compound semi-conductors used in the lasers and detectors at either end of a fibre-optic cable". He realised that "even though BT had developed the technology it was obvious that they wouldn't manufacture it because they are service providers". That meant "massive opportunities" as telecom companies around the world began using the "ground-breaking technology".

He teamed up with Michael Scott, an industry peer from Plessey Communications, and began working on a business plan. The "main challenge was finance". In the late 1980s "there were lots of good technologies and ideas competing for not much money". Worse, potential backers "couldn't see which way the telecom industry was going".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

When they finally found a backer Shell Ventures "it was thanks to Margaret Thatcher really. She had persuaded the oil companies who had done well out of the North Sea to give something back." They set up in south Wales "the perfect location. Cardiff University specialised in semi-conductors and the local authorities did all they could to help us." By 1988 the factory was ready and Epitaxial Products International started producing components for the nascent fibre-optic industry. "We started very small with only ten employees and annual sales of a couple of hundred thousand."

The firm made a loss for the first three years, but sales "rocketed" as the telecommunication industry began to adopt fibre-optics. "First telecom firms started laying massive amounts of cable then the internet began to gain traction." Yet the boom also brought its problems. "Big players opened up large facilities and began to mass-produce components." Luckily, Epitaxial was helped by its customers. "They wanted to keep a diverse base of suppliers so they gave us a share of their orders that allowed us to grow."

However, by 1996 Shell Ventures wanted out. "The situation had changed for the oil companies. They were having a tough time and didn't want to own a share in a semi-conductor firm." Nelson and Scott raised "the couple of million" needed to buy Shell Venture's stake. It proved to be a good decision. By 1999 sales hit £50m as demand for fibre-optics grew. Still under pressure from larger competitors, Nelson merged with an American company with a "similar set up". The firm, IQE, listed in 2000. The timing "couldn't have been worse". A year later, "the dotcom bubble burst". Sales dropped by 90%.

Nelson responded by finding new applications for his components. IQE sought a foothold in wireless communications and then solar technology. But just as both areas took off, IQE yet again faced stiff competition this time from Asia. So far, "it doesn't affect us that much because labour costs are a small part of our business". Last year sales reached £72m. The future looks bright: "compound semi-conductors are on the verge of being a massive industry".

James graduated from Keele University with a BA (Hons) in English literature and history, and has a NCTJ certificate in journalism.


After working as a freelance journalist in various Latin American countries, and a spell at ITV, James wrote for Television Business International and covered the European equity markets for the London bureau. 


James has travelled extensively in emerging markets, reporting for international energy magazines such as Oil and Gas Investor, and institutional publications such as the Commonwealth Business Environment Report. 


He is currently the managing editor of LatAm INVESTOR, the UK's only Latin American finance magazine.