Light Reading

Oclaro & Opnext Strive for Scale

Craig Matsumoto
News Analysis
Craig Matsumoto
3/27/2012
50%
50%

A primary motivation for Oclaro Inc. (Nasdaq: OCLR) and Opnext Inc. (Nasdaq: OPXT) to merge, a move they announced late Monday, is to create a company big enough to stand a long-term chance of supplying major customers.

That should sound familiar, because it's the rationale that was behind the 2009 merger of Avanex and Bookham that created Oclaro.

That was a long-awaited event that many people worried would drown both companies, considering each had had trouble cutting costs and making any profits. Oclaro and Opnext are both expected to report losses for the next few quarters, but the companies apparently believe their combined scale is necessary.

Oclaro and Opnext overlap in relatively few product areas, so it's not a case of saving money by making massive cuts. Rather, the deal is about setting up prospects for the future, says analyst Karen Liu of Ovum Ltd.

"I don't think they were endangered" before announcing the merger, she says. "But I think the ability to grow was limited."

A wider scope would also give equipment vendors a better reason to consider Oclaro/Opnext a critical supplier.

"When we merged Bookham and Avanex, we became a Tier 1 supplier to our customers," Oclaro CEO Alain Couder said on Monday afternoon's conference call with analysts. "Now it's going to be even more [so], because we are going to have all the core technology needed" for future developments, he said.

The deal would also put the combined company on a more level footing with Finisar Corp. (Nasdaq: FNSR) and JDSU (Nasdaq: JDSU; Toronto: JDU), in terms of revenues.

Table 1: Optical Components Revenues

Company Revenues, past four reported quarters (in millions)
Finisar $949.6
JDSU $755.2
Oclaro+Opnext $744.7
Oclaro alone $417.2
Opnext alone $327.5
Source: Yahoo Finance, Seeking Alpha


A point worth noting at this juncture: Oclaro and Opnext, combined, would have overtaken JDSU by now in terms of annual revenues, were it not for the 2011 floods in Thailand, Oclaro Chief Marketing Officer Yves LeMaitre tells Light Reading. Opnext's production at contract manufacturer Fabrinet Co. Ltd. (NYSE:FN) was hurt more than most by that natural disaster. (See Optical Industry Adjusting After Thai Floods.)

Indirectly, the combined company would be going on the offense against smaller suppliers, blocking them from joining the Tier 1 club.

"The customer will only work with the smaller guy if they cannot get what they want from the top three," LeMaitre says. "There are companies -- I don't want to give names -- with one cool product or two cool products, and they're really struggling to get to the next level. With this merger, we make it almost impossible."

One area where Oclaro and Opnext would save some money is in development of 40Gbit/s and 100Gbit/s modules -- something both companies were working on. (See Oclaro Joins Opnext at 100G.)

Both companies also plan to move test and assembly to lower-cost venues. Oclaro has been moving those functions to a contract manufacturer in Malaysia, taking them out of Oclaro-owned facilities in Zurich and in Shenzhen, China. Similarly, the Opnext test and assembly facilities in Japan and California could be moved to a more cost-efficient location in the Asia/Pacific region. (See Oclaro Preps Malaysian Move.)

The combined company would hang onto its five semiconductor fabs, though, he said. That points to the trend of vertical integration that's been happening in optics, with all of the remaining large companies owning fabs. In particular, the opportunities to reduce costs in optical modules are likely to come from inventions at the chip level, Couder said.

— Craig Matsumoto, Managing Editor, Light Reading

(17)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Page 1 / 2   >   >>
gtchavan
50%
50%
gtchavan,
User Rank: Light Beer
12/5/2012 | 5:38:05 PM
re: Oclaro & Opnext Strive for Scale
At least from their own perspective optical sector is undervalued.
Chhilar
50%
50%
Chhilar,
User Rank: Light Beer
12/5/2012 | 5:38:03 PM
re: Oclaro & Opnext Strive for Scale


 "There are companies -- I don't want to give names -- with one cool product or two cool products, and they're really struggling to get to the next level. With this merger, we make it almost impossible."


 


The merger makes it impossible for some of their customers to get to the next level?  That doesn't sound like a positive thing at all.

Pete Baldwin
50%
50%
Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:38:02 PM
re: Oclaro & Opnext Strive for Scale


RGru -- sorry for leaving that unclear; he's talking about his competitors, not his customers.

4mTx
50%
50%
4mTx,
User Rank: Light Beer
12/5/2012 | 5:38:00 PM
re: Oclaro & Opnext Strive for Scale


Apart from the big question of profitabilty of the merged entity, what do you think they are going to call themselves? Any ideas Craig :)?

Balet
50%
50%
Balet,
User Rank: Light Beer
12/5/2012 | 5:37:59 PM
re: Oclaro & Opnext Strive for Scale


I wonder which smaller competitors would they block?


Finisar, JDSU, Opnclaro - who else is left, who might embark on so broad area of optical components across the board?


There are plenty of 1-2 product's companies for their market; then ever slow NEL...Then, whole China...


Anybody else?

Balet
50%
50%
Balet,
User Rank: Light Beer
12/5/2012 | 5:37:58 PM
re: Oclaro & Opnext Strive for Scale


Craig,


Thanks. Then, you can add Enablence too?


IMHO, Emcore and Neo fell into the same traps of having predominately Chinese engineers and manufacturing. Everything must be "cheap", innovation levels are low. Using high quality materials? "They are not cheap!".


I believe the strength of the top three component makers comes from investing into new technologies and products and keeping enough designers in the western world.

Pete Baldwin
50%
50%
Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:37:58 PM
re: Oclaro & Opnext Strive for Scale


Balet -- I think it's the onesey-twosey companies he was referring to. Maybe also the next-tier players, like Emcore and even NeoPhotonics.

Pete Baldwin
50%
50%
Pete Baldwin,
User Rank: Light Beer
12/5/2012 | 5:37:58 PM
re: Oclaro & Opnext Strive for Scale


> Apart from the big question of profitabilty of the merged entity, what do you think they are going to call themselves?


I like Balet's idea of Opnclaro. :)


Realistically, I think they'll just stick with "Oclaro." It's really an acquisition, just one where the acquired party retains a very strong voice in the merged company.


(Actually, Bookham/Avanex was also an acquisition, but I think they wanted to change the branding to shed the bad times of the preceding 7 or 8 years. Just a guess.)


Chhilar
50%
50%
Chhilar,
User Rank: Light Beer
12/5/2012 | 5:37:57 PM
re: Oclaro & Opnext Strive for Scale


Thank you for the clarification.  That makes sense now.

redface
50%
50%
redface,
User Rank: Light Beer
12/5/2012 | 5:37:55 PM
re: Oclaro & Opnext Strive for Scale


"Anybody else?"


 


How about Coadna, Optoplex, Bayspec, Dicon Fiberoptics, Capella, Lightwaves 2020, AC Photonics, etc.  There are still quite a number of smaller players other than the big three.

Page 1 / 2   >   >>
Flash Poll
From The Founder
Last week I dropped in on "Hotlanta," Georgia to moderate Light Reading's inaugural DroneComm conference – a unique colloquium investigating the potential for drone communications to disrupt the world's telecom ecosystem. As you will see, it was a day of exploration and epiphany...
Between the CEOs
Affirmed Networks CEO: Digging Into NFV

5|28|15   |   40:26   |   (2) comments


Hassan Ahmed, CEO of Affirmed Networks, is making some big claims for his NFV startup. I sat down with him at the Light Reading HQ in New York City to get the skinny on what this Acton, Mass.-based startup is up to.
LRTV Documentaries
Cable Eyeing SDN for Headend, Home Uses

5|26|15   |   05:57   |   (1) comment


CableLabs is looking at virtualizing CMTS and CCAP devices in the headend, as well as in-home devices, says CableLabs' Karthik Sundaresan.
LRTV Documentaries
Verizon's Emmons: SDN Key to Cost-Effective Scaling

5|22|15   |   03:53   |   (0) comments


For Verizon and other network operators to ramp up available bandwidth cost effectively, they need to move to SDN and agree on how to do that.
LRTV Documentaries
Lack of Universal SDN a Challenge

5|21|15   |   04:51   |   (3) comments


Heavy Reading Analyst Sterling Perrin talks about how uncertainty about SDN standards and approaches may be slowing deployment.
LRTV Custom TV
Steve Vogelsang Interview: Carrier SDN

5|20|15   |   05:02   |   (0) comments


Sterling Perrin speaks to Steve Vogelsang, Alcatel-Lucent CTO for IP Routing & Transport business, about the new Carrier SDN-enabling Network Services Platform and the operator challenges it solves.
LRTV Custom TV
Carrier SDN: On-Demand Networks for an On-Demand World

5|20|15   |   20:52   |   (0) comments


Steve Vogelsang, Alcatel-Lucent CTO for IP Routing & Transport business, talks about requirements and benefits of Carrier SDN during the keynote address at the Light Reading Carrier SDN event May 2015.
LRTV Documentaries
The Security Challenge of SDN

5|19|15   |   02:52   |   (0) comments


CenturyLink VP James Feger discusses concerns that virtualization could create new vulnerabilities unless network operators build in safeguards.
LRTV Custom TV
NFV Elasticity – Highly Available VNF Scale-Out Architectures for the Mobile Edge

5|18|15   |   5:50   |   (0) comments


Peter Marek and Paul Stevens from Advantech Networks and Communications Group talk about their NFV Elasticity initiative and the company's latest platforms for deploying virtual network functions at the edge of the network. Packetarium XL and the new Versatile Server Module: 'designed to reach parts of the network that other servers cannot reach.'
LRTV Huawei Video Resource Center
Bay Area Spark Meetup 2015

5|14|15   |   3:54   |   (0) comments


Developed in 2009, Apache Spark is a powerful open source processing engine built around speed, ease of use and sophisticated analytics. This spring, Huawei hosted a meetup for Spark developers and data scientists in Santa Clara, California. Light Reading spoke with organizers and attendees about Huawei's code contributions and long-term commitment to Spark.
LRTV Custom TV
The Transport SDN Buzz

5|12|15   |   06:01   |   (1) comment


Sterling Perrin, senior analyst at Heavy Reading, speaks with Peter Ashwood-Smith of Huawei and Guru Parulkar of ON.Lab about the evolution of transport SDN and the integration of technologies.
LRTV Custom TV
Next-Generation CCAP: Cisco cBR-8 Evolved CCAP

5|5|15   |   04:49   |   (0) comments


John Chapman, Cisco's CTO of Cable Access Business Unit and Cisco Fellow, explained the innovation design of Cisco's cBR-8, the industry's first Evolved CCAP, including DOCSIS 3.1 design from ground-up, distributed CCAP with Remote PHY and path to virtualization. Cisco's cBR-8 Evolved CCAP is the platform that will last through the transitions.
LRTV Custom TV
Meeting the Demands of Bandwidth & Service Group Growth

5|1|15   |   5:35   |   (0) comments


Jorge Salinger, Comcast's Vice President of Access Architecture, explains how DOCSIS 3.1 and multi-service CCAP can meet the demands of the bandwidth and service group growth.
Upcoming Live Events
June 8, 2015, Chicago, IL
June 9, 2015, Chicago, IL
June 9-10, 2015, Chicago, IL
June 10, 2015, Chicago, IL
September 29-30, 2015, The Westin Grand Müchen, Munich, Germany
October 6, 2015, The Westin Peachtree Plaza, Atlanta, GA
October 6, 2015, Westin Peachtree Plaza, Atlanta, GA
All Upcoming Live Events
Infographics
Procera has gathered facts, stats and customer experience feedback from a survey of 540 users from across the globe.
Hot Topics
Charter Seals Deals for TWC, Bright House
Mari Silbey, Senior Editor, Cable/Video, 5/26/2015
Eurobites: Alcatel-Lucent Trials 400G in Czech Republic
Paul Rainford, Assistant Editor, Europe, 5/26/2015
Will Carriers Follow Facebook's Networking Lead?
Mitch Wagner, West Coast Bureau Chief, Light Reading, 5/28/2015
Charter Plans Business Services, Wireless Push
Alan Breznick, Cable/Video Practice Leader, 5/27/2015
Facebook Reinvents Data Center Networking
Mitch Wagner, West Coast Bureau Chief, Light Reading, 5/26/2015
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
On May 29th 1 PM ET, Steve Saunders, founder and CEO of Light Reading, will be drilling into the "pains and gains" of NFV with Saar Gillai, SVP & GM for NFV at Hewlett-Packard Co. (NYSE: HPQ) (HP). He has defined a four-step NFV model describing a sequence of technology innovation. It's a must-read doc for any network architect looking to get to grips with their NFV migration strategy. Join us for the interview, and the chance to ask Saar your NFV questions directly!
Hassan Ahmed, CEO of Affirmed Networks, is making some big claims for his NFV startup. I sat down with him at the Light Reading HQ in New York City to get the skinny on what this Acton, Mass.-based startup is up to.
Cats with Phones