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Optical/IP

Components Overboard!

A couple of years ago, everyone wanted to get into the optical components business. Now vendors can't exit it fast enough.

Witness a string of announcements today, all involving large companies throwing components divisions overboard:

  • ADC Telecommunications Inc. (Nasdaq: ADCT) said it will exit optical components by the end of its next financial quarter, ending on October 31, 2002 . The company hopes to sell its businesses in pump lasers, tunable lasers, and passives by that time, and it has retained Lehman Brothers to market those businesses aggressively. If it can't sell them, the subsidiaries will simply be shut down (see ADC Selling Components Biz).

  • JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) announced the planned sale of its Cronos MEMS (micro-electro-mechanical system) foundry -- originally purchased with stock worth $549 million -- to French MEMS specialist Memscap S.A. (Euronext: MEMS). The proposed stock deal should be worth about US$9.3 million (see Memscap to Buy JDSU's Cronos).

  • The U.K.'s Bookham Technology PLC (Nasdaq: BKHM; London: BHM) announced that it is selling its majority holding in Measurement Microsystems A-Z Inc., a developer of digital signal processing solutions, back to the company's former management (see Bookham Divests Interest in MM and Bookham to Acquire Signaling Startup).

This latest news is just the tip of the iceberg. There are plenty of other recent examples of vendors fleeing the components business: In May, New Focus Inc. (Nasdaq: NUFO) sold its passive components group to Finisar Corp. (Nasdaq: FNSR) and its tunable laser division to Intel Corp. (Nasdaq: INTC), thus returning its focus to test and measurement (see Intel Buys New Focus Laser Division).

Clearly, optical components is one of the toughest markets to be in right now. For one thing, demand is down: "There is still a tremendous amount of oversupply," says Rob Clark, public relations spokesman for ADC, referring to the excess components inventory that is still being worked through by many of the company's customers.

Indeed, it looks as if inventories are a key problem industrywide. A recent report from Optical Oracle, Light Reading's paid subscription service, notes that for leading public component suppliers, the ratio of inventory levels to the cost of goods sold -- a useful measure of true inventory levels that takes changing prices into account -- started rising again in the last few quarters (see Components Crunch Time). This is the opposite of what the industry needs.

The trend among optical vendors to jettison components subsidiaries started before the recent downturn, as some big companies perceived that a components division could realize more value as a standalone entity. This was the case when Lucent Technologies Inc. (NYSE: LU) decided to spin off Agere Systems (NYSE: AGR). Now, though, market pressures have systems vendors desperate to cut costs, ready to sell the units outright to the highest bidder.

The big question is, if everybody is selling, who is buying? The market is literally flooded with components opportunities right now, and even the king of consolidators -- JDS Uniphase -- has started throwing things out, as today's announcement shows.

It could be especially tough for companies that already have experienced problems with their components businesses. ADC's tunable laser division in Sweden had already been put on notice of possible sale or closure prior to this week, for instance (see ADC Tunes Out). Rumor has it that the subsidiary's tunable lasers weren't making the shortlists at systems houses.

At least one analyst thinks ADC shouldn't have gotten into components in the first place. "I'm glad to see they've come to their senses," quips James Jungjohann of CIBC World Markets.

He says ADC's sizeable connector business could generate the most interest. Word has it that Amphenol Interconnect Products Corp. is looking to buy something in this line, he says. Corning Inc. (NYSE: GLW), however, is also reported to be trying to sell its connector business and could beat ADC to a potential deal with Amphenol.

"Everything is up for sale," says Jungjohann, "I wouldn't put [ADC] on top of anyone's list."

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

Editor's Note: Light Reading is not affiliated with Oracle Corporation.
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OptixCal 12/4/2012 | 10:01:08 PM
re: Components Overboard! Maybe all of us unemployed optical components folks that are struggling to find meaningful employment can get together, pool our money and buy up all these desparte components companies? We can call ourselves Components-R-US, put Bernie Ebbers in charge of the new company, hire Arthur Anderson to do our accounting and have Merrill Lynch take us public! Wow what a plan! then we can sell all this stuff to Enron at 10 cents on the dolar, declare bankruptcy and join the rest of the rest of the corrupt corporate world in this new bbusiness of trying to destroy the US economy. I'm surprised no one has thought of this before.
lastmile 12/4/2012 | 10:01:06 PM
re: Components Overboard! OC,
By the time you find meaningful employment in the optical industry, there will be no Arthur Anderson. No Merrill Lynch. No Enron. Bernie Ebbers will be in jail.
In the meanwhile the entire industry would have declared bankruptcy.
If you are talented and hard working you will find a great job in a different field and you will be happy.
LightSeeking 12/4/2012 | 10:01:06 PM
re: Components Overboard! OptixCal,

Thanks for the laugh :-D
Fortunecookie 12/4/2012 | 10:01:04 PM
re: Components Overboard! The article talked a lot of "sales". Well, even at the peak time, M$A was even more frequent. Remember, every "sale" has a "buyer". So what is the point?

The only evidence than could convince me that companies are trying to exit the optical component business, which is probably true but not really elaborated in the article, is that many companies just shut down their business.
Bongiorno 12/4/2012 | 10:01:02 PM
re: Components Overboard! Nortel Optical Components,Corning and now ADC all up for sale. Who will buy and what, ADC doesn't have much of interest, low pwer tunable lasers and pumps that are not high power. Corning has it's amplifiers but aren't selling many + lasertron for pumps and also Lithium Niobate modulators in Italy.
Nortel again pumps (Zurich) tunable (ex cortek)
and amplifiers but whever buys will have a garanteed supply contract with Nortel
At the moment garanteed sales are everything.
Touch 12/4/2012 | 10:00:53 PM
re: Components Overboard! Let us not forget that Cronos was/is a MEMS FOUNDRY. JDSU bought Cronos after seeing all those cool slides (and movies.. wow!) at OFC showing the Lucent and ATT Labs MEMS-based optical switches.

Optical switches were going to be the greatest thing since sliced bread. So JDSU bought a MEMS foundry.

At that time, Cronos did not (and perhaps still does not) make a solid "component". They can make lots of clever little MEMS thingamajigs, (VOAs with moving parts.. wow!) Cool, but JDSU belatedly realized that buying a foundry is not the same thing as buying a company that knows how to yield a product.

Cronos was just another goofy aquisition by JDSU. The fact that they were acquired for $500M "back then" and are now being sold for around $10M kind of says it all.
lastmile 12/4/2012 | 10:00:53 PM
re: Components Overboard! Lets not have LR or the analysts telling us who has the best chance of survival.
How about 5 names that will make it past 2004.
My guess is:
1.JDSU
2.AGERE
Sorry I am unable to guess the other three!
jamesbond 12/4/2012 | 10:00:52 PM
re: Components Overboard! 1.JDSU
2.AGERE

-----------------------

I am not so sure about either of them in the
long run. How long is long? I don't know.

equipment -

Nortel
Cisco (if it survives the SEC rule)
Tellabs
Siemens
Advanced Fiber

semi's -

Intel
AMD
Infeneon
Motorola
Broadcom

PMCS, AMCC, & Agere - not so sure, maybe somebody
will gobble them up.

benson 12/4/2012 | 10:00:52 PM
re: Components Overboard! Lastmile;

Have you forgotten the Japanese companies? Alot of them did not participate in the foolishness of the bubble.

Benson
LightBeating 12/4/2012 | 10:00:52 PM
re: Components Overboard! lastmile,

Corning ? , Avanex ?, Intel ?

LB
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