Agere Systems (NYSE: AGR/A) dropped a bit of a bombshell this morning when it announced plans to sell a substantial portion of its optical components business to TriQuint Semiconductor Inc. (Nasdaq: TQNT) for $40 million in cash (see TriQuint Buys Agere's Opto Biz). The transaction is expected to close in January 2003, subject to approval.

The price tag is more sad evidence of how little the market for optical components is worth these days. Agere, which has been one of the top three players in the market for optical modules and components, announced back in August that it would either sell or close down its activity in this area in order to focus on the more lucrative business of advanced integrated circuits (see Lights Out for Agere's Opto Biz).

"Wow!" says Jay Liebowitz, president of consultantcy Liebowitz Strategies. "On the surface it definitely seems like TriQuint got a great deal."

He says that most folk were expecting a deal closer in size to Bookham Technology plc's (Nasdaq: BKHM; London: BHM) recent purchase of Nortel Networks Corp.'s (NYSE/Toronto: NT) optical components groups, which sold for a total consideration of $111.6 million (see Bookham Buys Nortel's Components Biz).

In the past, the sizes of Agere and Nortel's components businesses were roughly comparable. Indeed, some analysts placed Agere ahead in terms of past revenues, while some put Nortel in the lead, depending on how Nortel's internal sales were measured.

Liebowitz points out, however, that future revenues are more important to the acquiring companies than past performance. TriQuint is projecting that Agere's opto groups will contribute $50 million to $75 million to its revenues over the next fiscal year. Bookham, on the other hand, is expecting to bring in at least an extra $80 million over the next four quarters, from selling components back to Nortel alone.

Furthermore, the Agere sale involved only two sites -- manufacturing in Breinigsville, Pa., and assembly and test in Matamoros, Mexico -- while the Nortel sale involved multiple sites in both the U.S. and Europe. Around 300 Agere employees will transfer to TriQuint; the Nortel sale involved 1,300.

The TriQuint transaction excludes Agere's cable television transmission systems components business, for which the company will continue to seek a buyer.

TriQuint's executives are all cock-a-hoop. "I am delighted that we have been able to reach agreement with Agere to acquire this business," crowed Ralph G. Quinsey, TriQuint's president and CEO in a prepared statement. "It's a natural fit for TriQuint as we have been involved in the design and production of integrated circuits and products for the optical networking business for over 15 years, and it is a core part of our company."

Wall Street seems, so far, to consider it a good deal for each party. Both Agere's and TriQuint's stock climbed in morning trading.

"They [Agere] may not have got a great deal. But it speaks volumes about their ability to execute on what they said they were going to do," comments Liebowitz, noting that only two months had passed since Agere announced its intention to quit the optical business.

The acquisition news played a key part in Agere's earnings call, which took place this morning. For the fiscal year 2002, which ended on September 30, Agere reported an operating loss of $1.8 billion, compared to a $4.6 billion loss a year ago. This reduction was achieved on lower revenues of $2.2 billion for fiscal 2002, compared to revenues of $4.1 billion a year ago.

Thanks to the restructuring initiatives, Agere now expects to break even on revenues of $450 million at the end of 2003.

— Pauline Rigby, Senior Editor, Light Reading
www.lightreading.com