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Optical components

ADC Tunes Out

ADC Telecommunications Inc. (Nasdaq: ADCT) is one of the oldest vendors in the tunable laser business, thanks to its purchase of pioneering startup Altitun back in May 2000 (see ADC Scores a Coup on Tunable Lasers). But today ADC confirmed that it will close its division in Järfälla, Sweden, the original home of Altitun, citing lack of demand for its tunable lasers. Employees learned of the decision last week.

On the plus side, this doesn't mean that ADC is getting out of the tunable laser business altogether. Manufacturing operations from Järfälla will be transferred to ADC's other tunable laser manufacturing site in Minnesota, the company says.

On the minus side, most of the 150 or so Järfälla employees will lose their jobs. ADC hasn't reached "a final resolution" on what will happen, but it is likely that only a few employees will be offered the option of transferring their positions to Minnesota.

"The market for tunables isn't there," says Rob Clark, ADC's director of public relations. "Clearly, demand doesn't warrant two facilities worldwide, so we've got to scale back."

Those close to the layoffs say it is a hefty blow for Sweden's industry. "This is like dropping a bomb in telecom-Sweden," says an optoelectronics worker, who asked not to be named. It is the second shutdown notice in one week: Ericsson Microelectronics has just been sold to German Infineon Technologies AG (NYSE/Frankfurt: IFX), and its Swedish optocomponents fab is also to be closed (see Infineon Buys Ericsson Microelectronics).

However, for ADC, the move seems necessary to put the company back on track towards profitability. Its goal is to break even at $300 million per quarter in sales, which analysts, including Rick Schafer of CIBC World Markets, don't believe will happen until 2004. "We applaud the effort to cut costs," he wrote in a recent research note. "But gross margins must jump from 2Q's 25% to about 38% and operating expenditure must fall to $155 million from 2Q's $157 million to be profitable at that run rate."

ADC joins a growing list of vendors that have found the tunable laser market to be less robust than they had hoped it would be. Startup Bandwidth9 Inc. laid off 60 percent of its staff recently, saying that demand for tunable lasers hasn't materialized (see Bandwidth9 Behind Schedule?). And the manufacturing plant at well funded startup Agility Communications Inc. is reportedly a "ghost town" -- although company management denies that it has made cutbacks or is facing significant problems.

Only a few vendors -- notably, Fujitsu Network Communications Inc. (FNC) -- say they are seeing any significant sales of tunable lasers. In Fujitsu's case, it is helped by the fact that it has a captive components division, which supplies lasers exclusively to its systems group. And the systems group has decided to exorcise fixed-wavelength lasers and only ship equipment carrying tunables.

ADC refuses to comment on exactly how many tunable lasers it's shipping right now. "ADC has never broken out our products or divisions by revenues," says Clark, the implication being that it's not going to start now. "I think our action shows what our position is."

— Pauline Rigby, Senior Editor, Light Reading
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rabbit650na 12/4/2012 | 10:09:36 PM
re: ADC Tunes Out kp9988, I don't work for Agility, but I did a few days of consulting for them nearly 3 yrs ago. Followed them ever since. Wasn't smart enough to get any shares. But then I wasn't smart enough to buy very many shares of any telcom stock back then - and that turned out to be a blessing!
kp9988 12/4/2012 | 10:10:26 PM
re: ADC Tunes Out rabbit650na, you must work for Agility, right?

rabbit650na 12/4/2012 | 10:10:29 PM
re: ADC Tunes Out Thanks for pointing out that relevant article, which I read the day it was posted. Two interesting points on this.

1.) At the time this was posted I thought it was strange that Nortel was so concerned about Agility's announcement of Telcordia Qual. Big company vs small company - why bother? Now that it's well known that Nortel is shopping it's component groups around, it's clear that Nortel may have made such a big deal out of their announcement because they needed to hype the Coretek product. In fact, my sources inside Nortel confirm that that was the major reason they put their announcement out.

2.) On Telcordia 468 not covering tunables. I read the Agility press release carefully and they clearly made the point that they had to go beyond 468, with other tests, to have a "qualified product". I assume Nortel did the same. My sources at systems companies say that they are not bothered by the fact that there is no complete Telcordia document that covers tunables right now. The fact is, I'm told, that it took nearly a decade of work on InP based DFB's and other lasers to understand enough of the degradation mechanisms, reliability failure symptoms, and acceleration methods needed to "certify" that a product would last 25 years. With so many different "new" technologies used for widely tunables, there hasn't been enough time and effort put in to understanding the failure modes for all these new technologies.

How do you "certify" with testing done in 5,000 hours, that a MEMS or external cavity laser will work with a FIT rate of less than 100 over 20 years? It took a decade or more to figure that out for InP DFB's. And that was in times when component and system houses had very large numbers of device and reliability engineers working on reliability. Today they don't have that luxury.

My friends at the systems houses say that they are most comfortable with the reliability analysis of tunables that are nearest to DFB's in manufacturing and packaging processes. That includes the Agility laser widely tunable, the Agere narrowly tunable, and the Fujitsu narrowly tunable. Everything else is too risky.

lame_duck 12/4/2012 | 10:10:31 PM
re: ADC Tunes Out While you are at it, can someone let me know how much a gallon of gas costs? Do I have to pay a premium over diesel?
Peter Heywood 12/4/2012 | 10:10:35 PM
re: ADC Tunes Out On tunable lasers being Telcordia qualified - you should read this story:

http://www.lightreading.com/do...

Agility and Nortel/Coretek both claim to have qualified lasers but in fact, Telcordia's standard, GR-468-CORE, isn't sufficient for qualifying tunable lasers.
rabbit650na 12/4/2012 | 10:10:37 PM
re: ADC Tunes Out ADC is dropping out of the tunable biz, but it's not because there's no market, it's because they can't match the launched power and tuning range of the other tunable vendors!

I have friends at the system vendors who have tested their parts, and they can't match the 20mW launched power provided by other vendors like iolon, agility, coretek, etc. ADC had trouble making 3 mW. No way can they compete!

The consolidation continues!!! It's a good thing!

BTW, I hear that agility is the only widely tunable company that REALLY has Telcordia qual on their laser.

Don't know what's going on in their manufacturing plant, but it wouldn't surprise me if they have let some people go to scale back their capability now that they have their automated factory complete and qualified. Don't need a lot of people to operate an automated facility once it's qualified!

BobbyMax 12/4/2012 | 10:10:43 PM
re: ADC Tunes Out There are are about 8-10 tunable laser companies. Most of the tunable laser companies are VC created companies. I think most of them will gradually close down as there is not much demand for the tunable laser products.
rclanin 12/4/2012 | 10:10:44 PM
re: ADC Tunes Out Anyone out there have any idea what kind of premium tunable lasers sell for as compared to fixed wavelength alternatives? 20%, 40%, more? I'm especially curious at 10 Gbps.
Einstein2 12/4/2012 | 10:10:45 PM
re: ADC Tunes Out anyone know what cash they were burning every quarter?
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