(FORTUNE Magazine) – OPTICAL-CHIP MAKER HQ: Fremont, Calif. FOUNDED: 1998 SALES: N.A. EMPLOYEES: 100 STOCK: Privately held ADDRESS: www.genoa.com

Three years ago, optical-chip company Genoa faced some rather weighty odds. According to Andrew Anker, a partner at August Capital, a VC firm that funded the startup, naysayers proclaimed, "What Genoa is trying to do breaks the laws of physics." But Genoa's founders, Sol DiJaili and Jeff Walker, both former engineers at Lawrence Livermore National Labs, disagreed.

Score one for the scientists.

But first some background. In an optical network (in which data are transmitted as pulses of light along hairlike glass strands), devices known as amplifiers beef up signals and propel them on their way. Current optical amplifiers are bulky (about the size of a VHS tape) and can cost up to $50,000 each. That limits their use to hubs that transmit data traveling over long-haul networks. In metropolitan areas, providers try to avoid using this costly gear, which is a problem as demand for bandwidth explodes.

What Genoa has done is turn a tiny semiconductor chip into an optical amplifier--the total package is about the size of a sugar cube. Right now, there are optical amplifiers that size on the market, but they can only handle one wavelength of light at a time; if multiple beams were to pass through, the data would become garbled. Genoa's chip, about 100 times smaller than the VHS clones, is the first of its size that can handle many beams at once, which greatly expands the capacity of the network. When it hits the market, the chip promises to be up to ten times more cost-effective than its competitors.

The company plans to ship small quantities of the chips by the end of this year, with more coming in 2002. It will target optical-networking manufacturers like Cisco, Nortel, and Ciena.

Genoa may face copycats, but it has several patents on its chip and a long head start. Even former naysayers are impressed.

--Lee Clifford