Can Europe’s tech sector catch up? 

0:11Hello and welcome to The Entrepreneurs on Monocle Radio, the show all about inspiring people, innovative companies and fresh ideas in global business. Today's programme is all about innovations in computing and the next big leaps in technology. First, we'll head to Milan to discuss advancements and opportunities in the European tech sector. Europe needs a big shake-up and you can only do that after you realise how far beyond you are. At the same time, you should be rational about the current state of affairs and be an optimist that things can be changed. And later, we'll catch up with friend of the show, Carl Pei, to hear about the latest news at nothing.

0:52We're still very small. I think last year we got to 0.2 % of the global smartphone market share. But at the same time, in terms of innovation, it's been way easier for us to navigate than bigger companies. This is The Entrepreneurs with me, Tom Edwards.

1:13you're listening to the entrepreneurs andrea rocchetto is the ceo and co-founder of ethos a northern italy-based company developing energy-efficient photonic chips that use light instead of electricity for data processing unlike traditional chip makers ethos focuses on glass-based technology, which is considered more energy efficient than silicon chips, particularly for the high demands of artificial intelligence and quantum computing. And it looks like the tech world is taking notice. The company recently secured some 8 million euros in funding and opened the first glass-based quantum photonic circuit facility in Milan's Innovation District.

1:54Andrea, stop by Midori House to tell me exactly how it all works. So Ethos is a chip manufacturing company, and our chips don't have electricity flowing through, but light. So our chips are photonic chips, because light is made of little particles called photons. And the goal of our company is to make the most energy-efficient photonic chips that are around. But let's just drill into the, I guess, the challenge and the opportunity. Because like a lot of these things, if there's obvious efficiencies, what's the downside? cost complexity of construction, appetite for change often not there. Give us a sense of what the big picture challenges are and how you and your co-founder and colleagues are helping to unlock that opportunity.

2:41Yeah. So the list of challenges is long. So first, the type of technology that we use for tonics is widely used in the telecom space. So the internet connection that is bringing internet to your house or your office is using optical fibers and light. So there, photonics, it's stable, widely used, industrial scale. In the computing industry instead, it's still making inroads. So there is that big challenge to kind of introduce in a very conservative space a new technology. Then EFOS has further challenges because all our competitors use a technology based on silicon. So they make their chips on silicon substrates.

3:24While at EFOS, we do that using glass, which is a different material that has certain advantages that will give you the energy efficiency. But we need to introduce a new material and scale manufacturing capacity. So these are significant challenges, but there are also powerful tailwinds these days for building new infrastructure, new manufacturing capabilities. And talk to me a bit about, I guess, you know, lay listeners will know about the sort of the quest for additional computes or looking at through the AI prism or whatever it is. We've seen certain chip makers, you know, cresting and tumbling, often in reaction to political or geopolitical volatility.

4:02How do you then, I don't know, calibrate your expectations for how transformational this can be? Is that the objective ultimately to look at change on that kind of scale, a complete radical transformation of what the expectations of this whole sector are? Or do you need to be a little bit more granular and focused, at least during the early stages? We are very much focused and we see ourselves as part of a broader transformation of our computational infrastructure. So I think mostly due to these new AI technologies that are coming around, there is a need to enormously expand our computational capabilities.

4:42And this means just building more and more infrastructure. So there are these interesting stats that say that by 2029, the end of this decade, almost 10 % of the U.S. energy output will be spent on powering data centers. and we need new solutions for making these data centers faster and more energy efficient. And what we do at EFOS is very much part of the broader set of solutions. And it's a complex problem like climate change. There's not just one silver bullet that will solve it all. And we do a part of that bigger pie. And that's interesting. I think this sustainability narrative, we've been a bit we.

5:21The world has been a little bit slow understanding the energy consumption, the water consumption, whatever it might be that goes into these big data centers. What's the specific there? More efficient, but what's the sustainability angle? Is that part of the powerful narrative that you're building? Is there a real advantage in that in terms of going down this sort of photonic route instead of the more conventional one? So roughly speaking, in a data center, about 10 % of the energy is used for networking and about 40 % is used for cooling. So around 50%, it's not really used to do the actual computation.

5:57And of this 50%, one can try to reduce this 50 % using new ways to move information around in a way that dissipates less heat. And light is just such a great way for moving information around, for routing signal. And so the goal of the company is trying to reduce this overall footprint of data movement. And for example, Google has been experimenting a lot in their data centers with similar technologies, and they have publicly shown that you can get a reduction of about 40 % of these energy costs using photonics. So there is a very tangible and real advantage. Let's talk a bit about geography, because I think our listeners will detect your accent.

6:47Andrea, you're obviously an Italian, and you've got the world's first glass-based quantum chip factory in Milano, I believe. One of these big narratives on a global level is, particularly currently coming out of the US, ah, Europe, dead zone, there's no innovation. People aren't pushing the envelope here. But look, right here in Northern Italy, we've got this amazing hub of innovation. You must be very proud of that. But also, is that an unhelpful narrative, this idea that, you know, Europe doesn't deliver the unicorns and innovation in tech is all driven from the US? You're completely disproving that.

7:17But is that a frustration? Is it a problem? Do you even agree with any of that? Are you proud of being this kind of epicenter in northern Italy? Maybe an unlikely place, I don't know. Tell me a bit about how you see fitting into that global picture. So first, I think that the negative narrative is both unhelpful and helpful. The helpful part is that Europe has really lost a lot in terms of competitiveness in technology. And for as long as Europeans keep telling themselves, oh, it's all fine, we just need a bit more money. and some better regulations, it just will continue to under-deliver. So Europe needs a big shake-up, and you can only do that after you realize how far beyond you are.

8:02At the same time, you should be kind of rational about the current state of affairs and be an optimist that things can be changed. I think our view at IFAS is that change will come from working with the United States. That's why the company really pushed hard to get U.S. investors to link itself to the U.S. innovation ecosystem. I think you learn from the best. You don't try to reinvent the wheel. So I reject the notion that, yeah, we can now compete with the U.S. and China just with our own forces. Just let's try to learn from the best and take a more global perspective on technology development.

8:43I like that. A rational optimism with a global perspective. That's a good ethos, I think, which I like. A bit of a tongue twister. Let's talk about applications, because I think you've got lots of your big capital Venkat partners, other kind of industry leaders who are interested in working with you. Really interested in this idea of sort of the defense space, which I know is really exciting. Talk to us a little bit about why there's such an opportunity and how that's kind of manifesting itself in terms of the actual application of the technologies that you're developing. Yeah. So especially in the United States, the history of technology and the history of defense are very much intertwined.

9:20And Silicon Valley was started as a U.S. Defense Department project in many different ways. But it's not something often with immediate application. So the Defense Department, again, in the U.S., has had a very long-term view of the importance of technology. Sometimes it's just useful to back almost basic science, what DARPA does in the US, with the view that at some point this basic science will turn into a technology that will be able to solve battlefield problems. And I think there is now a resurgence, even in Europe and more broadly NATO that is one of our backers, that this link between basic science, technology transfer and defense applications is very strong.

10:01These organizations are trying to back projects that don't have any immediate defense applications like our technology. I mean, we build infrastructure for computing systems and for communication systems. So we're not building rockets. But there is an appreciation that ultimately chips will end in defense systems and weapon systems. And we need to get better at that. And we need to have the different communities talking to each other. because especially in the first two decades of the 2000s, there was a strong decoupling between Silicon Valley and Washington, something that was not the case in the early days.

10:39There is a strong will to bring the communities together, but it's certainly underway with the new administration. Let's talk a little bit about cooperation because it's interesting. You mentioned, you know, sort of NATO. We know there's lots of scrutiny, criticism, again, coming from across the pond, but also within the kind of the bloc more broadly, particularly within Europe, about the challenges of managing competing interests and expectations and investment. At Monocle, we're really interested, obviously, in diplomacy done well, in building multilateral relationships and this kind of thing.

11:08What's your take, Andrea, on how well integrated the conversations that you have are? By which I mean, obviously, you've got partners like NATO, the EU. But if we're looking at public, private, if we divide it by geography, we know the profound importance of these kind of technologies in driving progress broadly technologically societally do you feel there is a sufficient alignment the conversations you have people want to work together and collaborate and find these these fixes they want to integrate great tech solutions but is there a sufficient appetite to do that on a truly sort of multilateral level or are people still a little bit insular is that is that sometimes difficult to bring the different stakeholders along at different paces.

11:52How do you feel those conversations go? So our sense is that it's becoming harder to collaborate. And with certain countries, it's now impossible. So I think about China, for example, a company like ours would find impossible to work with a Chinese entity. But even across the pond, there are certain type of grants that are becoming more harder to access if you're not an American or vice versa, a European company. So we see increasing barriers in technology and scientific development. And in certain areas, this is certainly damaging. So we work also in quantum computing. And quantum computing with respect to all those data center applications is a much less developed space.

12:37There's a lot of science and basic technology engineering to be done. And this benefits a lot from international collaborations. So putting barriers there is really damaging. But yeah, that's the new reality and we're all trying to adjust. So you're a leader of business. You have to be a bit of a sort of diplomat as well, I guess, at times. Just on that quantum computing point, tell me a little bit about the work you and your colleagues do and how that drives change. It's maybe not the sexiest conversation, but it's about, I guess, speed and efficiency, but also data, you know, stability in data transfer.

13:12So tell us a little bit about, again, how the nuts and bolts of what you do can deliver those progressive changes. Yeah. So context here. So we have had for now about 70, 80 years computers that use, I mean, transistors, electricity to function. and quantum computing is a new type of computational paradigm that tries to harness the unique properties of quantum systems that are like atoms or protons, electrons, so the very, very small stuff. And if you use these weird effects of quantum mechanics, you can build a new type of computing machines that for selected problems, not all of them, can give you dramatic advantages in terms of the time it takes to find a solution to your problem.

14:01What is interesting for us is that the same technology, so these photonic chips that are going to be used in data centers, can be used to build some parts of a quantum computer. Quantum computers are not yet with us. There is a huge global effort to develop them with lots of different players from Amazon, Google, lots of startups, governments. But we're not yet there in terms of the dream machines. We have working prototypes that are doing interesting stuff, interesting science, but they're not yet delivering commercial applications at scale. So it's something which is more in the medium long term.

14:40So even for our companies, it's something that gets you very excited because it's pretty much the same chips we build in one domain, also work in the other. But it's more long term. Well, let's look at long term. And in a sense, you know, I always find it difficult to comprehend how leaders of businesses and companies and concerns who are in this space can plan and can master the day to day, given how accelerated the pace of technological advances in so many of these areas. Again, it's sort of a facile question to a degree, Andrew, but I'll ask you anyway. How do you manage with that level of uncertainty, right?

15:15Whether it's huge leaps forwards or impediments we can't know until we get there. presumably your investors and supporters and collaborators say, well, you know, where are we going to be in 2030, 2040, 2050? How do you do that? We're kind of writing that future as we get to it. So how do you put a business plan together? How does it work? So my sense that is that the uncertainty is there. We simply don't know what's going to happen in 10 years. Even five years is extremely hard to predict. So at least what we're trying to do is just find an idea that we really believe in and just try to follow that with conviction.

15:51And then if we get signal that this idea is not right, we change it. And you try to do that with speed, with talent around you. So you assemble a team of talented engineers. And so it's this constant dance where you kind of find a target that is ambitious enough and reasonable enough. If you go faster and then get there, if it works, good, keep going. Otherwise, you change. And if you manage to kind of attract enough capital, enough customers along the way, you win. Otherwise, well, you build another company. That was Andrea Arrucchetto, the CEO and co-founder of eFOS. And you can find out more about what Andrea and his colleagues do at eFOS.io.

16:35or by picking up the April issue of Monocle magazine on all good newsstands now.

16:51You're listening to The Entrepreneurs. Carl Pays, the co-founder and CEO of Nothing, a telecoms company regular listeners to this programme will surely be familiar with. Since we last spoke to Carl on the show in 2023, nothing has seen significant growth, doubling the size of its business and gaining momentum. I caught up with Carl at the recent World Government's Summit in Dubai to hear the latest news. Carl began by telling me the direction of travel for nothing and what he sees as the next big breakthrough in computing. On one hand, we see these large language models getting better and better and also cheaper and cheaper.

17:27And recently with open source models, they're really catching up to those commercial models. So when these big models get better and better, that means the smaller models will also get better and better because the small models are distilled from the big models. So that's one trend that's happening. The second trend is that the compute on a smartphone gets more and more powerful every year. And for the last couple of years, there's increasingly more compute available for AI tasks. So on the chipset, we call it the MPU, neural processing unit. So with models getting smaller and being able to fit into a smartphone, and the models also getting better, that means in a couple of years, everybody will have AGI level intelligence on every single smartphone.

18:14So for us, as the only startup in this industry, what we're trying to think about every day is how do we leverage this really big change that's happening very soon to really leapfrog the bigger companies of our industry. Hopefully similar to what happened with Nokia and BlackBerry when the smartphone came out. Talk to me about the sort of glacial pressures that act from without on a business like yours. As you said, you have a positive disruptive influence. Being a little bit smaller, I guess you have greater dexterity to pivot and change. Since we last spoke, how has managing those pressures been?

18:52Whether that's from competitors, whether that's from regulatory authorities, whether it's just trying to harness all of the new technologies that are available? How has the pressure kind of treated treating you? Yeah, it's been good. We've developed really positively last year. We're still very small. I think last year, we got to 0.2 % of the global smartphone market share. But we're growing, we more than doubled the size of our business last year. I remember this conversation with one investor last year. And it's somebody that I pitched the idea to when we just started four years ago and he kind of stopped responding to me at that time so i met him again last year and he said hey when you spoke to us earlier we thought there was a 95 chance you would fail so we had an internal discussion and we didn't think it was a good idea but now we we kind of want to say sorry because you've crossed some of the most difficult hurdles and we see your future being very positive so however we can help in the future let us know so i think you know last year we really put ourselves on the map.

19:52We still operate at a big disadvantage when it comes to the cost of goods sold. Because if you think about us being like 0.2 % market share and Samsung being 20 % market share, the pricing that we can get on the product is just still very different. So we have to keep growing, have to keep increasing the volume so we have more purchasing power. But at the same time, in terms of innovation, it's been way easier for us to navigate than bigger companies. In fact, a lot of our suppliers, they come to us for new ideas that we could work on together because working with the traditional smartphone companies is just going to be very slow.

20:32And then from a consumer perspective, we're able to take way more risk. So we talked about AGI on every phone in a couple of years. How does that look like? How does it feel like? For us, we can be super opinionated about it. For instance, theoretically, we can say, hey, let's make the phone come alive. let's take this inanimate object this tool and give it life and give it a personality and make it your best friend and your best friend is not just an intern they're waiting for you to give it orders your best friend will proactively come to you at times have a conversation with you sometimes when you order it to do something your friend is not going to just oblige it's going to push back on you like okay that's from a technical perspective maybe not super hard to do but the bigger companies will not dare to take a route like this because they have too many users it's going to be too jarring, too confusing to a lot of their users.

21:23But I think within AI, technology is increasingly becoming commoditized. So the hard problem is increasingly not the technology anymore, because there's just so much money invested on the tech side and so many smart people working on that problem. It's going to become a commodity. The next big problem to solve is the user experience. What is the user experience that's going to really resonate with users at scale. I think a lot about the iPod. It was my first Apple product. I really loved that product. And back in the days of the iPod, there was also consensus that hard drives in MP3 players would be a really great thing.

22:02You had the Creative, you had iRiver, you had Apple, you had a bunch of companies all building this type of product. But ultimately, only one company created the de facto standard for the industry, which was Apple. We had the best design, best user experience with a click wheel. They had the best hardware software integration with iTunes for music management. They had the best business model. You could buy a song for a dollar instead of buying the entire album. They had the best overall experience. So similarly today, everybody knows that there's going to be a new operating system powered by all the advancements we see in AI.

22:37But who can build that product market fit? I don't know. It might not be the big companies. Watch this space, right? Well, just at that point, and again, we unpacked this a little bit when we last spoke car but what's the sweet spot for you in terms of that growth of the business as you said you you have to grow you have to be ambitious and quite aggressive because you need to get some of these economies of of scale but then at the same time you want to keep that flexibility and dexterity and to be able to flex the muscles that give you the advantage in storytelling and personalization and so forth so whether it's a conversation with you know investors or around the boardroom table.

23:13How do you calibrate what that growth story needs to look like to balance up those different priorities? I think we're quite far away from facing that problem, given that we're 0.2 % of the market. I think once we get to like 10-15%, that will be a very hard balance between having a very stable core business that's profitable, and also trying to invent the future. It's not a top of mind problem right now. But when the time comes, I think we need to structure the company in a different way than how it's traditionally been done. If you look at Apple, under Tim Cook, they built a very good culture for optimization, taking great ideas and really maximizing the profits from those ideas.

23:57But if your company is a monoculture, that means your company can only do that thing, optimize. So when we get big enough to have to balance optimization with innovation, I think we need to create two different company cultures within the same company, or else I just don't see how it's going to work. Yeah, that's really interesting. If we look more broadly at the idea of a diversity of views driving progress and innovation and actually offsetting the risk, the jeopardy of other volatility, smart leaders know it's critical. And I think that's really interesting that you look at this idea of two models.

24:33How does that work then? Because they'll have different needs and focus. Are they completely spun off from one another? and ultimately, presumably, somebody still leading the business, right, who has overall oversight? Or are you going to cross that bridge when you come to it, when you are 10 % of the market? Yeah, it's more of a cross that bridge when it comes. But I do think an innovation-driven organization needs to have its own culture compared to an optimization company. I think there's many different ways of setting it up. You can have a holding company. You can have different departments with different KPIs and cultures.

25:06It just requires some new thinking. Yeah, that's interesting. And in terms of culture, if we talk about corporate culture, you know, what does that mean to you, Kyle? Because I read a thing last week, I mentioned this to somebody else, this idea that what the culture is, is the lowest standard that is acceptable, right? Which is a bit of maybe a sort of negative reading. But if we talk broadly, what is the culture of nothing that you've built? I think culture is basically how we show up as a team, how we work, how we collaborate, how we make decisions, what our roadmap is, what our dreams are.

25:41I think it's that, right? So I think we have a very unique position in the world, being the only startup within this space with so many changes on the horizon. We're one of the only companies that can capitalize on all these changes. so what that means in terms of our culture is that we have to be very ambitious we're not here to create a medium-sized sme you know we're here to become the next generational tech company and it's not going to be for everybody some people are going to love being in this environment some people are going to hate it some people you know in the uk probably better if they work at edf than a company like us.