Ever since Ericsson AB (Nasdaq: ERICY) decided to stop making optical systems, the clock has been ticking for its optical components division. Last week, the company finally signed a deal to sell the business to Northlight Optronics AB (no Website), a new company formed by a consortium of investors and individuals (see Ericsson Sells Optoelectronics Biz).

Northlight will acquire pretty much everything associated with Ericsson Optoelectronics, including products and intellectual property, the remaining 48 staff (at one time the business had more than 300 employees), and the manufacturing operations in Kista, Sweden.

"It's a ready-made business", says Keith Halsey, senior opto advisor at U.K. venture capital firm European Digital Partners Ltd. (EDP), who is now Northlight's CEO.

EDP led the buyout consortium, which also included Finnish venture capital firm CapMan Capital Management Oy and several individuals: Robert Green, former VP of business development with Bookham Technology plc (Nasdaq: BKHM; London: BHM); David Darby, ex-CTO of Lyte Optronics Inc., a laser manufacturer that was sold to AXT Inc.; and Tom Mellkvist, previously CFO of ADC Telecommunications Inc. (Nasdaq: ADCT) (formerly Altitun AB). Green is Northlight's COO; Darby, the CTO; Mellkvist, the CFO.

Financial details of the transaction were not disclosed. Ericsson did state, however, that it retains a 9.9 percent stake in Northlight. Investors have also given the new company a cash injection (see VCs Fund Northlight Optronics).

The sale of Ericsson Optoelectronics has been on the cards for some time. The division was focused on the internal requirements of the mother company, and when Ericsson decided to quit the optical systems business, its number one customer disappeared (see Is Ericsson Exiting Optical? and Ericsson to Sell Marconi DWDM).

As a result, Ericsson lagged behind others in terms of components market share last year. In fact, a recent market report didn't even place Ericsson in the top twelve (see Could Components Rebound in 2003?).

Right now, however, small is beautiful, at least in the eyes of the Northlight management team. The business is sized correctly for the current market, says Green, and will be able to move into a cash-generating position very quickly. Many of Northlight's competitors, such as Bookham, which bought the components operations of Nortel Networks Corp. (NYSE/Toronto: NT), have to go through painful and costly downsizing.

Green also points to the fact that Ericsson's opto business has been in existence for more than twenty years. "It represents a mature manufacturer from the point of view of having a stabilized manufacturing process," he says. "A lot of companies that started up have not been able to get refinancing because they… cannot get products to manufacturability." Northlight is already past this hurdle.

Northlight's main product areas will be chips, modules for transmission up to 10 Gbit/s, and Erbium Doped-Fiber Amplifiers (EDFAs). The company plans to unveil its wares at the upcoming OFC Conference.

— Pauline Rigby, Senior Editor, Light Reading