Following a frantic acquisition spree, MACOM has broadened its semiconductor offerings for the optical sector.

Dan O'Shea, Analyst, Heavyreading.com

March 11, 2015

7 Min Read
MACOM Remains Laser-Focused on Semiconductors

The semiconductor industry is undergoing a transformative round of mergers and acquisitions, with major names such as Intel, Avago and NXP all taking part in a consolidation process driven by the search for economies of scale and the pursuit of hot opportunities, such as IoT and connected cars, broadband and data center efficiencies. (See More Chips Fall: NXP Buys Freescale, Intel to Acquire Lantiq and Avago Eyes Enterprise Storage With Emulex Buy.)

The semiconductor companies focused on components for optical networking equipment are not to be left out. NeoPhotonics Corp. (NYSE: NPTN), Finisar Corp. (Nasdaq: FNSR) and JDSU (Nasdaq: JDSU; Toronto: JDU) have done their share of acquisitions, and the latter two may even end up with one another before all is said and done. (See JDSU Spin-Offs Look M&A-Ready and NeoPhotonics Closes Emcore Components Buy.)

However, one optical semiconductor company that's less in the spotlight -- M/A-COM Technology Solutions Inc. (MACOM) -- also has made several acquisitions of its own, including five in the past 15 months, and has built an impressively broad arsenal of chip and laser technologies. Some of those will be on display later this month at the Optical Fiber Conference (OFC) in Los Angeles.

OFC is an event that features many optical components manufacturers, many with similar, competing propositions, but MACOM claims to have its own niche as a components vendor focused purely on semiconductors and laser technology, not transceiver modules or other components.

"In the optical value chain, you have the service providers and the system OEMs, and below that the transceiver module manufacturers, [a sector that] is quite fragmented. But when you go the next step down in the component and semiconductor space, many of the merchant providers of semiconductor components have disappeared, so we have a unique market," claims Vivek Rajgarhia, director of strategy at MACOM.

Like some other semiconductor companies, MACOM also serves the increasingly hot automotive sector, but its biggest target is networking: More than 50% of its revenue is expected to come from networking customers this year, generated from a customer list that includes Cisco Systems Inc. (Nasdaq: CSCO), Infinera Corp. (Nasdaq: INFN), Alcatel-Lucent (NYSE: ALU), Oclaro Inc. (Nasdaq: OCLR) and many others.

That solid customer base and enhanced portfolio are helping MACOM's financials, with the Lowell, Mass.-based company expecting to report revenue in the range of $120 to $124 million, up more than 10% from a year ago. (See Bit Parts: 100G Driving Revenue Growth.)

Endangered species
While semiconductors for optical networking were once the domain of the large systems vendors themselves, those businesses in most cases were spun off or sold. Companies such as Huawei and Cisco have made a point recently of pursuing their own module projects, but standalone optical semiconductor firms such as MACOM have become more of an endangered species. (See Can Silicon Photonics Add Spark to Hardware?)

MACOM saw that narrowing chip market as a broadening opportunity. "That is where we focused our investments and capabilities to build a portfolio of technologies so we can pick and choose the right technology to make the right component, whether it's optoelectronics or photonics," Rajgarhia says.

Through acquisition and in-house development, it has created an almost unrivaled pool of chip technologies -- including gallium arsenide (GaaS), gallium nitrate (GaN), silicon photonics (SiPh) and silicon germanium (SiGe).

Heavy Reading contributing analyst Simon Stanley notes: "I don't think there is any company with the same range of technologies and manufacturing capability. The biggest competition is from vertically integrated optical module manufacturers such as Finisar and JDSU that have much of this capability in-house."

Each of MACOM's acquisitions, in a chronology that goes back even longer than its recent buying binge, deepened this pool in different ways. The acquisition strategy took off in 2011 with a major assist from Silicon Valley semiconductor entrepreneur John Ocampo's GaaS Labs, which acquired MACOM from UK firm Cobham in 2009. That move steered the company towards its initial acquisitions of GaaS innovator Mimix (in 2010) and then Optomai (in 2011), the latter of which brought Rajgarhia into the company along with fabless 40G and 100G semiconductor technology for long-haul systems.

The acquisition binge really took off after the company's IPO in March 2012. Once established as a listed company, MACOM acquired Mindspeed's SiGe semiconductor business in December 2013, and throughout 2014 added GaN developer Nitronex, SiPh design services company Photonic Controls and etched facet laser developer BinOptics. (On the non-optical front, it also bought RF and microwave firm IKE Micro in 2014.) (See MACOM to Buy Mindspeed for $272M, Bit Parts: 100G Driving Revenue Growth and Bit Parts: Cisco Funding Up for Grabs.)

The SiGe technology from Mindspeed will be key to data center and metro optical forays, shorter-range applications than those targeted with the solutions derived from the Optomai deal. The Nitronex deal was disruptive, Rajgarhia says, because it contributes GaN on silicon technology, less expensive than putting GaN on silicon carbide. The Photonic Controls deal brought SiPh in house just as the market started to take off.

"The boundary between photonics and the electronics in optical is getting fuzzy and really converging," Rajgarhia says. "In the last year or so, silicon photonics technology has been moving more into the commercial foundries."

Next page: Transformative deal

Transformative deal
But the most transformative deal might be the most recent one. The acquisition of BinOptics took MACOM into the laser business, while at the same time taking one of the few remaining pure-play laser suppliers off the market. "There was a scarcity of merchant suppliers of lasers," notes Rajgarhia. Before MACOM acquired BinOptics, Avago acquired CyOptics, while other previous consolidating deals effectively shrank the market. "The companies that wanted to source lasers for [SiPh] semiconductors really had no one left."

However, the most significant aspect of the BinOptics deal had more to do with technology. The company's etched facet technology allows MACOM to better control the placement of the laser on the chip, enabling a more efficient manufacturing and testing process. The vendor already is leveraging that innovation by having BinOptics team up with the folks from Photonic Controls. "One of the key challenges is not only making the chip, but integrating it with the rest of the components and especially the laser," Rajgarhia says. "The BinOptics team is in Ithaca, NY, and the Photonics Controls team is just 40 minutes away in Corning, NY, so they are working together on the PIC."

Heavy Reading's Stanley says, "The etched facet laser technology from BinOptics is unique and does give them advantages over the competition, as they can significantly reduce manufacturing costs by performing wafer-scale testing and other techniques."

MACOM has not announced any further acquisitions since November 2014, though Rajgarhia is coy about whether or not the company's acquisition team has locked away the check book or is just giving it a rest. Rajgarhia says MACOM has 400G technology under development, so it won't necessarily be driven by the eventual 400G evolution to acquire those capabilities. "Of course we will continue to look at what makes best sense for our customers," he adds. "We are still an acquisitive company, but we're focused on current and adjacent markets."

However, other new technology and market evolutions will continue to put pressure on MACOM to decide quickly either to develop technology in house or buy it. Though its semiconductor arsenal is wide and deep, the industry won't stand still to let MACOM rest on its laurels.

"The company's broad array of semiconductor technologies is a competitive advantage in markets that need the performance of these materials," Stanley says. "The competition is significantly less than other market areas until a competitor develops a CMOS solution that meets the required specs. To guard against this, MACOM needs to keep developing solutions for the next generation of speeds, and not rely on existing devices as cash cows."

One thing MACOM won't do is stray too far from its identity as a semiconductor company. "We are very sensitive about underscoring the fact that we are not a module manufacturer," Rajgarhia says. "We're not producing transceivers. Everyone else is doing that. Making modules and boxes is what our customers do, not us."

— Dan O'Shea, Managing Editor, Light Reading

About the Author(s)

Dan O'Shea

Analyst, Heavyreading.com

You want Dans? We got 'em! This one, "Fancy" Dan O'Shea, has been covering the telecom industry for 20 years, writing about virtually every technology segment and winning several ASBPE awards in the process. He previously served as editor-in-chief of Telephony magazine, and was the founding editor of FierceTelecom. Grrrr! Most recently, this sleep-deprived father of two young children has been a Chicago-based freelance writer, and continues to pontificate on non-telecom topics such as fantasy sports, craft beer, baseball and other subjects that pay very little but go down well at parties. In his spare time he claims to be reading Ulysses (yeah, right), owns fantasy sports teams that almost never win, and indulges in some fieldwork with those craft beers. So basically, it's time to boost those bar budgets, folks!

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