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CyOptics Snaps Up Cenix Shards

Light Reading
News Analysis
Light Reading
2/24/2003

Oh, how the mighty have fallen. Taking advantage of the bargain-basement deals available in optical networking, CyOptics Inc. is enhancing its manufacturing prowess by purchasing the Allentown, Pa., facility of once-hot startup Cenix Inc. (see CyOptics Acquires Cenix Factory).

CyOptics gains volume manufacturing technology at a time when "volume manufacturing" is a laughable concept for photonics. But the deal is no joke -- CyOptics CEO John Pilitsis sees this as his chance to bring his company closer to the successful business models of the semiconductor industry.

"A lot of people are still looking at this industry as a technology boutique. We're trying to use this disruption and this chaos to put some things together and try to establish an IC-like [integrated-circuit-like] business model," he says.

Terms of the deal were not disclosed, although Pilitsis hinted that the facility went for pennies on the dollar.

The deal is most remarkable in that it marks the end of Cenix, a startup with the highest pedigree. Masterminded by optical investment mogul Vinod Khosla of Kleiner Perkins Caufield & Byers, Cenix had all the makings of a startup star, including Khosla (and Kleiner's) backing and an investment from Cisco Systems Inc. (Nasdaq: CSCO) (see Cenix Backed by Cisco, Kleiner Perkins and KP, Cisco Double Down on Cenix).

Cenix started as an optical-transponder vendor that developed its own automated manufacturing technology, including packaging. It was staffed with refugees from nearby Agere Systems (NYSE: AGR/A). But the company was hatched with the vision of volume production at the peak of the optical bubble. It started winding down last year and finally shut down in January, with rumors swirling that the Allentown facility had found a potential buyer (see Headcount: Tossers and Happy Birthday).

Cenix's Irvine, Calif., facility is not part of the purchase. It's the automated packaging technology that Pilitsis wanted, as it's crucial to his expansion plans.

CyOptics hit the scene in 2000, using indium phosphide (InP) to build modulators for 40-Gbit/s lasers (see CyOptics Targets 40 Gbit/s DWDM Components and CyOptics Claims Modulator Milestone). The company's since downshifted to 10-Gbit/s parts, and it's also branched into the business of hybrid electroabsorption modulated lasers (EMLs), using light sources purchased from JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) (see CyOptics Intros 10-Gbit/s EML).

Much of CyOptics' business is tied to transponders, where customers are looking for more integration and lower costs. CyOptics lacks the electronics expertise to crack the ranks of transponder makers such as JDSU or Agilent Technologies Inc. (NYSE: A), but Pilitsis does want to include more of the optical side than just EMLs.

"We're looking at our InP technology as a photonic-engine integrator, the way some people use CMOS [a manufacturing process for silicon chips] to do what people call system-on-a-chip," he says.

Cenix's packaging capability is a key step towards that goal, according to Pilitsis, since it makes up more than half of a product's cost.

"It especially makes sense if you can get it at the price we bought this at," he says. "[Cenix] did a lot of Cadillac building. They built as though they were going to have lots of volumes, and they got stuck with the infrastructure.".

In fact, more deals like this one are on the way, because plenty of complex technology is available on the cheap. "It's just like a sale at Macy's. When you see something that's on sale, you just gotta buy it," says Drew Lanza, general partner of venture firm Morgenthaler, which has a couple of similar deals cooking.

So what distinguishes a real bargain from a white elephant? A purchase makes sense if a company is expanding horizontally -- that is, to broaden its product portfolio, Lanza says. That's because the large OEMs are looking to trim their roster of suppliers.

"When you talk to Cisco or Lucent, it is really hard to get qualified as a vendor. They specifically encourage our portfolio companies to merge," he says.

What doesn't work is if a firm is chasing vertical integration -- for example, acquiring a service that could otherwise be outsourced. "You end up picking up a lot of cost, which doesn't make sense," says Lanza.

Pilitsis says CyOptics is likewise capitalizing on the sale of Agere's optical components business, hiring some of the employees whose salaries TriQuint Semiconductor Inc. (Nasdaq: TQNT) wasn't willing to pick up (see TriQuint to Acquire Agere's Optics). — Craig Matsumoto, Senior Editor, Light Reading

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Hybrid
Hybrid
12/5/2012 | 12:35:08 AM
re: CyOptics Snaps Up Cenix Shards
This was a pretty ambitious and dramatic move by Cyoptics, and an expensive publicity stunt. In the fullness of time we will establish wether this was a stroke of genius (buying assetts for expansion when others are selling and shrinking) or a fatal move toward the inevitable demise of Cyoptics-like businesses.

Cyoptics is a InP chip ocmpany, with a newish modulator at 10G (nothing to hold one's breath about), and an older 40G modulator (way, way ahead of it's time) that is also pretty average.

They are not vertically integrated, and this deal doesn't help them with a source of lasers, but brings important electronics expertise in house (if they got people). Outsourcing even high power lasers is indeed not a problem these days. But then agian, neither is hybrin integrated packaging. There are quite a few packaging houses out there vying for htis type of business, and Cyoptics is now a competitor in that space.

Cenix assetts might be valuable if prevailing market conditions dictated expansion, but to what end in 2003? Their most valuable assetts where the know-how of the likes of Olson, Andrekson, Ku, Woomer, and Bock. I am curious about where they will end up -those guys are talented and destined to make the company that picks them up very successful some day.

I only hope for Cyoptic's sake that they have the cash to cover the operating expenses of an expanded and now heavily burdened photonics business. I would rate the acquisition of even heavily discounted assetts amongst their lowest priorities. They woould have been better of improving the performance of their chips to the level Oki or the BT Labs attained, and quitely hibernating through the Photonics nuclear winter. Hire the people - leave the equipment.

Survival is the name of the game here, isn't it?
Dr.Q
Dr.Q
12/5/2012 | 12:35:08 AM
re: CyOptics Snaps Up Cenix Shards
John Pilitsis is no stranger to Cenix. The founders (Dixon, Olssen, Bock, Coringrato, Kim) worked for him when he was head of Lucent Optoelectronics division (later Agere, now Triquint). (Dixon, Olssen, Bock & Coringrato reported directly to Pilitsis.)

The article does not mention whether any of the Cenix people are being absorbed into Cyoptics. Cenix had a lot of very talented people.

ajar
ajar
12/5/2012 | 12:35:05 AM
re: CyOptics Snaps Up Cenix Shards
I find any aquisition hard to believe in these economic times, however John P is very good at raising money and is a great story teller. He obviusly hasn't lost his touch.

I have to wish the employees of Cenix, good luck. I am not sure of the current Cenix management style, but am familiar with John's. He will bring in his people and will develop very agressive plans with unrealistic due dates and expect the employees to somehow meet them.

There is nothing wrong with being agressive and setting goals, but when the deadlines are not met, look out.......heads will roll.

Anyone else have similar experiences with John and his people???

Good Luck....

ajar
romance
romance
12/5/2012 | 12:35:02 AM
re: CyOptics Snaps Up Cenix Shards
I don't understand why everyone didn't see the demise of Cenix from the inception of the company. Basically, the executive team from Cenix “borrowed” the intellectual property of Agere Systems’ automated manufacturing platform and setup shop. With none of the core technology in-house, Cenix has the same problem that Cyoptics has --- they rely on other companies (mostly potential competitors) for the major requirements of their platforms. Without JDSU’s strange grab for any business possible, Cyoptics would have closed its doors already. And in the unlikely event that Cyoptics does become a major player, JDSU will simply destroy their product offering by eliminating their laser supply.

In terms of the deal between Cenix and Cyoptics, I learned from a reliable source that it was merely a paper transaction. The same investors have a large stake in both organizations and simply transferred the relevant intellectual property. Everything else was left in place to wipe out any financial obligations from Cenix.

Rather than contemplate the fates of either of these companies, I would like to pose a much more interesting question. Would the optoelectronics division of Agere Systems have survived this current downturn if the talented people at companies like Cenix would not have left? Or would have the extra overhead of more management made the descent even faster? Food for thought…
Hybrid
Hybrid
12/5/2012 | 12:33:55 AM
re: CyOptics Snaps Up Cenix Shards
Seriously, JDSU are not the only laser supplier in the world. Almost every major Japanese laser manufacture out there are giveing laser die away in a market which couldn't buy less than a gold butterfly packaged laser less than two years ago.

I'm not sure that JDSU are in shape to destroy anything right now. They're looking like a ripe acquisition target in a market that is willing to wait for them to become much, much cheaper.

Nothing short of a sound product strategy would have saved Agere from it's demise, and that sort of talent did not rise to the surface at Agere. That's why it sought greener pastures. I fear that Triquint got the dregs.

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