Intel Corp. (Nasdaq: INTC) says it is getting into the business of designing and manufacturing integrated passive components for optical systems makers (see Intel Gets Photonic).

The company has opened a 70,000-square-foot facility in south San Jose, Calif., that it designed for photonic component manufacturing using 8-inch silicon wafers. There it will produce and integrate Bragg grating filters, waveguides, and other components "from wafers and die to subassemblies and finished photonic modules."

This is a surprising announcement for two reasons. First, large passive component makers, such as Agere Systems (NYSE: AGR) and JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), as well as smaller ones like Zenastra, have lost huge chunks of business in the past year due to the overall slowdown in carrier spending on telecom systems (see Agere's Musical Chairs and Zenastra Photonics: RIP). Second, Intel is not in the habit of preannouncing products individually or in groups -- but it is, in a broad sense, doing so here.

Point number one doesn't worry Rama Shukla, GM of Intel Photonics. "This is a great time for us to get into this business, because, while many of the systems vendors have gotten into trouble financially, they are looking for ways to cut costs and they're seeking reliable, long-term suppliers who have the ability to invest in research and development."

It also helps that, while JDSU and others in this space were losing business, Intel benefitted simply by not being in the market.

Regarding point number two, Intel is declaring that it's entering a new business and broadening its horizons. However, much of what it will build for its systems vendor customers and other component manufacturers will be made-to-order integrated modules, not stand-alone, off-the-shelf products. This somewhat dilutes the danger of Intel saying too much too soon.

"I don't think Intel has an internal business plan [for this unit] that seeks to sell a lot in the next year," says Jeremey Donovan, an analyst at Gartner/Dataquest. "The fact that this is going to be a hard year for the industry is not necessarily a bad thing for Intel yet."

This is just the latest move in Intel's steady march into the telecommunications business. First, it became a player in producing communications integrated circuits. Next, it made a series of acquisitions to establish itself in the optoelectronic components arena. Now it has formed a photonics unit where it hopes to take advantage of the technology and expertise it gained when acquiring Templex Technology Inc., a Fiber Bragg Gratings (FBGs) specialist (see Intel Snaps Up Templex ).

Shukla says Intel has also gained a great deal of knowledge in the area through its various investments in optical component startups, such as K2Optronics Inc., Gemfire Corp., and WaveSplitter Technologies Inc. Shukla, however, denies that Intel's portfolio companies will get special treatment when they're shopping to outsource photonic component manufacturing: "I wouldn't say they'd get a better deal. I would say they have a better opportunity."

Intel will not yet name its customers for this new business unit. Shukla says it has about 100 people working full-time in the group in various engineering and marketing roles.

At the Optical Fiber Communication Conference and Exhibit (OFC), Intel Photonics will display some examples of the kinds of custom devices it can make for customers.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.comFor more information on OFC 2002, please visit: www.nottheofc.com