CyOptics Tries On Triquint

Having completed the $23.5 million acquisition of TriQuint Semiconductor Inc.'s (Nasdaq: TQNT) optoelectronics operations, startup CyOptics Inc. says it's undaunted about joining the big players in the optical components game.

The six-year-old startup, founded to build 40-Gbit/s modulators, sees the deal as a chance to step into a bigger market, despite the tough track record of previous big-deal acquisitions in optics.

"We're better positioned in terms of a broad product portfolio," says Ed Coringrato, CyOptics CEO. (Prior CEO John Pilitsis stepped down on Jan. 1 in an "honest-to-goodness retirement," Coringrato says.)

The deal closed April 29, as CyOptics announced on Wednesday. TriQuint has a separate sale still pending, handing the Breinigsville, Pa., site to a developer that plans to build a research park (see TriQuint Exits Optics).

In addition to the products, CyOptics -- based in Pennsylvania and headed by former Lucent Technologies Inc. (NYSE: LU) employees including Coringrato -- was interested in inheriting the business for its history. TriQuint had acquired its optoelectronics organization from Agere Systems Inc. (NYSE: AGR.A), meaning the organization traces its roots back to Bell Labs and AT&T Corp. (NYSE: T).

"What they get out of it, in addition to the obvious, is brand name," says Lawrence Gasman, an analyst with Communications Industry Researchers Inc. (CIR). "I don't want to sound too nostalgic, but AT&T technology -- that counts for something."

Purchasing TriQuint's $30 million-a-year optoelectronics business is a big step for a startup that, according to one industry source, has just $4 million in yearly revenues. And the risks are obvious, given the brutal track record of optical components acquisitions.

Avanex Corp. (Nasdaq: AVNX) and Bookham Inc. (Nasdaq: BKHM; London: BHM) each acquired their way into being broad-based suppliers, with Bookham grabbing Nortel Networks Ltd.'s (NYSE/Toronto: NT) components group in 2002 and Avanex buying Alcatel Optronics and most of Corning Inc.'s (NYSE: GLW) components business in 2003 (see Bookham Buys Nortel's Components Biz, Avanex to Buy Alcatel, Corning Units, and Avanex Deal Reshapes Sector).

Both were making a run at grabbing the No. 2 spot behind unquestioned market leader JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU). But that dogfight hasn't been so glamorous, as Avanex and Bookham have been mired in losses (see Components Competition Is Killing and Avanex Does a French Trim).

TriQuint was in the same boat after paying $40 million for Agere's optoelectronics group in January 2003 (see TriQuint to Acquire Agere's Optics). TriQuint expected sales to reach $50 million to $75 million per year, but the optoelectronics division never even reached $10 million in a quarter. "From what I saw of them, they were pretty unrealistic about what they were buying," Gasman says.

Realizing optics would never be the business it expected, TriQuint called it quits.

But TriQuint did mange to bring the unit to the cusp of profitability after one last round of cuts in November (see TriQuint to Cut 200). TriQuint's 10-Q form filed Wednesday with the SEC says that for the quarter ended March 31, the optoelectronics business lost $98,000 on revenues of $7.4 million, compared with a $2.6 million loss on revenues of $10.2 million for the same quarter a year ago.

That makes CyOptics' job a bit easier. "A lot of the restructuring was already done," Coringrato says.

The 10-Q also breaks down details of the sale. CyOptics' payment included $13.5 million cash, a $5.5 million promissory note, and preferred stock representing 10 percent of CyOptics' voting shares.

CyOptics's press release says the TriQuint deal was worth $23.5 million, which gives those voting shares a value of $4.5 million.

Coringrato believes his company can escape the optical whirlpool of losses. "It's an industry we think is in a growth mode again."

Industry scuttlebutt is that Agere lost customers during the long process of trying to sell the optics division, but Coringrato claims TriQuint got things stabilized. "It was a good customer base, a Tier 1 customer base," he notes. "The customer traction they had was very good."

One advantage CyOptics has is that it doesn't seem to have TriQuint-like expectations. Gasman says optics can still be a strong business if a company goes in with the right attitude -- to wit: "It's all about cutting costs."

CyOptics picks up about 200 employees in the deal, bringing its total to 260. Some layoffs were involved, as usual, but "not as many people as you would think," Coringrato says. "The companies on both sides were really running lean." CyOptics will move its manufacturing from an Israel fab -- which is being kept for R&D work -- to TriQuint's Breinigsville and Matamoros, Mexico, facilities.

That migration will take time and money. To help, CyOptics closed a $24 million cash-and-debt financing round from investors including EuroFund Partners, Jerusalem Venture Partners, Sprout Group, and TowerBrook Capital Partners (a new firm founded by former executives of Soros Private Equity Partners). (See CyOptics Raises $24M .) The round, announced Wednesday is CyOptics' sixth, putting the company at a total of $111 million raised since 1999.

— Craig Matsumoto, Senior Editor, Light Reading

deauxfaux 12/5/2012 | 3:15:18 AM
re: CyOptics Tries On Triquint The logic

The Cyoptics business was Pilitsis' misguided (market wise for sure) attempt at penetrating 40G. That didn't work.

Sooooo, they added the wreckage of Axsun, because they had the "greatest packaging technology in the world"; well, at least according to JP. Now they would really fly. Well, that didn't work either.

Sooooo, Pilitsis added the wreckage of Cenix, and his old buddies from the MRC days at LU, because they really had the greatest robotics and packaging technology in the world. Now the business would really take off. Well, that didn't work either.

Sooooo, Pilitsis retired, his old buddy Corigrato was "tapped" to take over, and he decides that they should buy the wreckage of LU/Agere/TQS, which has few Access and no FTTX products to speak of. Well, I guess the business is really ready to take off now.

Knowing that this is a very bad joke, I've been waiting for the punch-line that never really comes. Is anyone laughing, or did I just not get it?
redface 12/5/2012 | 3:15:17 AM
re: CyOptics Tries On Triquint *** "What they get out of it, in addition to the obvious, is brand name," says Lawrence Gasman, an analyst with Communications Industry Researchers Inc. (CIR). "I don't want to sound too nostalgic, but AT&T technology -- that counts for something." ***

During the last tech bubble, a lot of people left Lucent and joined startup companies. They carried with them "Lucent Bell Labs", a golden name to many. It was a name associated with so many legendary inventions. At the time Bell Labs dominated technical conferences and committees.

The great reputation of Bell Labs must be properly understood. For decades, Bell Labs was the de facto national research lab supported by a monopoly called AT&T. It employed many many people and had tremendous research funding, so of course great inventions came out. However, these great inventions were the combined effort of a great many people, of whom some were brilliant.

Over time, however, the true nature of average Bell Labs people began to emerge, one that is very different from the myth. They typically have average intelligence and technical capabilities, narrow-minded in attitude and knowledge because of large company culture, good at empty talks and politics, and cocky as hell because they think they were from Bell Labs. In summary, they were no match for west coast entrepreneurship.

Today, at least to me, Bell Labs carries a tarnished and dubious reputation. There are some brilliant people coming out of Bell Labs, but the expectation value of average Bell Labs folks is below average. It is a result of being in that slow moving, bureaucratic dinosaur called Lucent.
cjanson 12/5/2012 | 3:15:02 AM
re: CyOptics Tries On Triquint A bit harsh and snooty redface. Most of your criticism is true of any big company culture.

Like it or not the Bell Labs name still holds strong branding value. That was Larry Gasman's point. I dont think that's true of Blah-BlahNetworks or the majority share of "west coast entrepreneurship" case studies.
SIVROCX 12/5/2012 | 3:15:01 AM
re: CyOptics Tries On Triquint I am very dubious that CyOptics will make it with any of the previous folks that can trace their Family Tree to Bell. Their attitude of everything must be gold plated to meet an objective and therefore be reflected in the selling price will be the one thing that requires close attention. Bell folks were smart enough, just misguided and that carried over to Agere as well. Good luck CyOPtics, but I have my doubts unless you focus on cost, cost, cost, so you can have the very best price, price, price. Then if you have done you work right, maybe you can make some money, money, money. +£
deauxfaux 12/5/2012 | 3:14:59 AM
re: CyOptics Tries On Triquint I think that the technologists were very capable people, but the management was/is abysmal. ATT/LU legacy marketing guys were the worst in the business
Sign In