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ONI Systems Buys Finisar Folly

Light Reading
News Analysis
Light Reading
2/13/2001
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Tired of selling against its customers, Finisar Corp. (Nasdaq: FNSR) said today it would sell its Opticity optical access product line to ONI Systems Inc. (Nasdaq: ONIS) for $20 million in stock and $30 million in cash. ONI will pay $5 million in cash up front and will pay the remainder when certain guidelines are met, both companies said (see ONI Buys Piece of Finisar ).

"The Opticity product put us in the awkward position of competing with our customers," says Stephen Workman, Finisar's CFO. "This deal gets us out of that predicament." More to the point, Finisar had but one salesperson to support the product worldwide, says ONI CEO Hugh Martin.

The Opticity product was Finisar's first -- and, apparently, its last -- move into the systems business. It's an access box designed to sit at the customer's premises, allowing for delivery of high-bandwidth optical services to the network's edge.

Finisar designed the box for sending data around cities on dark fiber, without ever using public networks. To that end, the product has Fibre Channel and gigabit Ethernet capabilities, but no Sonet capabilities, something Finisar will add as part of its agreement with ONI (see Finisar Boosts Its Telecom Prospects).

Once inside ONI, the Opticity product will be renamed Online2500 and is expected to be generally available in Q2 of this year, with volume delivery expected in Q3. Finisar will also continue to supply ONI certain components for its newly acquired product.

ONI's product line now consists of the Online11000, which connects regional and metro networks; the Online9000, which provides links between central offices; the Online7000, a smaller version of the 9000 that's used to link central offices to buildings; and now the Online2500, which will be ONI's first optical access product and will compete with the likes of Adva AG Optical Networking (Neuer Markt: ADV) and Sorrento Networks Corp. (Nasdaq: FIBR).

Analysts at Epoch Partners predict Opticity will generate about $14 million in sales during 2001.

For its part, Finisar will continue to work on producing subsystems for LANs (local area networks), MANs (metropolitan area networks), and cable TV (television) networks.

In late afternoon trading today, Finisar shares dropped $3.73 (16.6%) to 18.77, the stock's lowest point in 52 weeks. ONI shares were off $0.75 (1.78%) to 41.44.

With the addition of the Finisar products, ONI has raised its revenue forecast for fiscal year 2001 to a range of $225-$235 million from $210-$220 million (see ONI Beats Estimates, Boosts Guidance).

In the end, Finisar seems relieved that it's found a home for its problematic progeny. "The lesson here was that despite the fact that something is a great technical idea, we shouldn't necessarily do it," Workman said.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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west270
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west270,
User Rank: Light Beer
12/4/2012 | 8:54:10 PM
re: ONI Systems Buys Finisar Folly
What's the verdict on this move by FNSR? Does this help or is this a capitulation on their part. They sure are getting hammered in the market, so I must assume that this is not a good thing (some rocket scientist I am). Any opinions or explanations other than LR's spin?
JorgeB
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JorgeB,
User Rank: Light Beer
12/4/2012 | 8:54:04 PM
re: ONI Systems Buys Finisar Folly
We looked at this product about a year ago. It was honestly a poorly designed architecture - clearly not a leading product. I have heard from some of my ops guys that the product was going to be shot. I am surprised ONI is buying it - don't think they understand that the product is a has-been, and will need to be completely overhauled.

Probably a marketing move to counter the full-solution guys?
lightreading
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lightreading,
User Rank: Light Beer
12/4/2012 | 8:53:58 PM
re: ONI Systems Buys Finisar Folly
I agree with JorgeB. Great for FNSR, not so great for ONI. FNSR had schizophrenia being in both the components and systems businesses. As far as ONI goes, I mean, what kind of "product" can they really be getting for $50M? That's no 2500 product line - they paid $50M for a fibre channel mux card.
west270
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west270,
User Rank: Light Beer
12/4/2012 | 8:53:48 PM
re: ONI Systems Buys Finisar Folly
Why would ONI pay so much? What are we missing here? If this was such a good thing for FNSR, how come they are in such bad favor over at wall street?
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