JDSU and SDL: The Saga Continues
The request was expected, but now the big question is: What will it take to get the merger pushed through (see JDSU, SDL Face Further Grilling)? JDSU might have to give up its pump laser chip manufacturing facility in Zurich, Switzerland, in order to get approval, according to a report published by the risk arbitrage research division of Bear Stearns and Co. Inc. earlier this week.
The main issue centers around the production of high-powered 980-nanometer terrestrial pump laser chips, according to researchers at Bear Stearns. Combined, the two companies would supply roughly 80 percent of the market for 980nm chips -- which are used in a variety of optical networking equipment -- potentially giving the combined entity the power to manipulate the market and set pricing. Currently, the closest competitor in producing 980nm wafers is Corning Inc. (NYSE: GLW), according to the report.
But the industry is changing rapidly, and component vendors like Alcatel SA (NYSE: ALA), Corning, Furukawa Electric Co. Ltd., Lucent Technologies Inc. (NYSE:LU), and Nortel Networks Corp. (NYSE, TSE: NT) are ramping up production quickly to fill their own supply needs. In addition, there are a whole slew of smaller players trying to get into the market. Things could look very different within the year, in terms of market share numbers.
The concept of a combined powerhouse has raised concerns from system vendors worried about fulfilling their supply needs. Nortel, one of the largest consumers of optical components, has publicly expressed its trepidation regarding long-term supply agreements.
“Nortel is talking to JDSU, and we have shared our concerns about the proposed merger. Our main focus is making sure we are able to get what we need to service our customers,” says a Nortel spokesperson.
Who would be interested in buying the pump laser division? Bear Stearns has speculated that big players such as Alcatel, Corning, Lucent, or Nortel would be perfect candidates. The selloff of the JDSU chip manufacturing division would most certainly create a significant second supplier of the 980nm chips. But, “should the DOJ mandate Zurich’s sale, it would also require the buyer to guarantee chip allotments to the merchant market and not just use the chips in its own optical systems,” says the Bear Stearns report.
JDSU’s stock gained slightly today, closing at $125, while SDL share prices fell $9 dollars to end at $402.
-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com