Transceiver Vendor Plans IPO
OCPI, a wholly owned subsidary of Japanese component powerhouse Furukawa Electric Co. Ltd., issued a preliminary prospectus for a $115 million IPO this week, the latest in a wave of components players looking to cash in on Wall Street.
OCPI makes opto-electronic transceivers, which are used in short-range applications such as switches and DWDM gear underlying citywide and regional gigabit Ethernet, Fibre Channel, and Sonet networks. The IPO underwriters include UBS Warburg LLC, J.P. Morgan & Co. (Nasdaq: JPM), U.S. Bancorp Piper Jaffray, and Wit Soundview (Nasdaq: WITC). The offering would need the approval of the Securities and Exchange Commission (SEC) before it could trade on American markets.
The IPO bid is the latest in a wave of activity among transceiver companies. In July, MRV Communications Inc. (Nasdaq: MRVC) announced that its optical transceiver subsidiary Luminent Inc. was filing for an IPO (see Luminent IPO and MRV Communications (Nasdaq: MRVC)). Then, in August, Finisar Corp. (Nasdaq: FNSR) broke into the optical telecom market by unveiling a series of short-reach OC48/SDH STM-I16 transceivers, then made a bid to buy Sensors Unlimited Inc., a maker of specialized DWDM components (see Finisar Boosts Its Telecom Prospects).
Projections for the short-range transceiver niche are bullish. Investment bank Epoch Partners, for instance, estimates that the market for fiber-optic transceivers will grow 100 percent over the next couple of years.
Analysts say OCPI has a good chance of competing against the likes of Finisar and Luminent, among others. For one thing, it's profitable. In 1999, its net income was $7 million on revenue of $36 million. For another, it is reported to have some key advantages.
"OCPI has strong manufacturing capabilities," says Alan Bezoza, equity research analyst with CIBC World Markets. He notes that the company also is known for its competence in producing electromagnetic interference (EMI) shielding in its transceivers, which helps assure signal quality.
OCPI also has some signficant customers, including Alcatel SA (NYSE: ALA), Cisco Systems Inc. (Nasdaq: CSCO), Lucent Technologies Inc. (NYSE: LU), and Nortel Networks Corp. (NYSE/TSE: NT).
On the downside, OCPI, like Finisar and Luminent, is entering a super-competitive market at a crucial time. Also, OCPI, like Finisar, is facing patent litigation from Methode Electronics Inc. (Nasdaq: METHA) and Stratos Lightwave LLC (Nasdaq: STLW), which is a subsidiary of Methode that also makes fiber-optic transceivers. In its S-1, OCPI acknowledges the costs and outcome of this lawsuit could put future profitability at risk.
Analysts also warn not to place too much signficance on OCPI's parent. Furukawa, considered among the top five optical component makers worldwide, also owns 17.5 percent of common and exchangeable shares of JDS Uniphase Inc. (Nasdaq: JDSU; TSE: JDU). It will probably not benefit much from the IPO. "This is not going to be a major part of Furukawa's business, although it may add a bit to its profitability," says Toru Nagai, executive director at Morgan Stanley Dean Witter.
-- Mary Jander, senior editor, Light Reading http://www.lightreading.com