Optical/IP Networks

TriQuint Exits Optics

It traces roots back to AT&T Corp. (NYSE: T) and got shuttled through spinoffs of Lucent Technologies Inc. (NYSE: LU) and Agere Systems Inc. (NYSE: AGR.A). After the telecom crash, it was sold to TriQuint Semiconductor Inc. (Nasdaq: TQNT) with high hopes for an optical recovery.

Now the Breinigsville, Pa.-based optoelectronics business is being handed off to a startup. Weary of continual losses and a seemingly endless wait for recovery, TriQuint is bowing out, announcing yesterday it will sell nearly all of its optoelectronics operation to CyOptics Inc. (see CyOptics Buys TriQuint Optoelectronics).

The 850,000-square-foot Breinigsville facility is not part of that sale. It's being purchased by Anthem Partners LLC, an affiliate of real estate developer MRA Group, which intends to turn the site into a research and technology center. CyOptics will take 90,000 square feet of the building as its new headquarters.

Combined, the deals are worth $32 million, TriQuint officials said. Roughly $20 million of that will be in cash. The deal also includes TriQuint taking a minority stake in CyOptics, CEO Ralph Quinsey told analysts in a conference call yesterday. More financial details will come when TriQuint reports its March-quarter earnings on April 21.

CyOptics expects to hire most of the 250 employees involved in the acquisition -- that's 100 in Pennsylvania and 150 at TriQuint's Matamoros, Mexico, manufacturing site, which is included in the sale.

TriQuint will retain one part of its optical business -- gallium arsenide (GaAs) chips, which represented 4 percent of revenues last year, a figure likely to drop this year, TriQuint officials said. But aside from those chips, which aren't built in Breinigsville or Matamoros, TriQuint is giving up on optics, retreating to the familiar turf of wireless.

The sale to CyOptics is expected to close this month, while the Anthem deal will likely close in May.

TriQuint's shares fell 3 cents (1%) to $3.04 in after-hours trading last night.

Thus ends another chapter in the life of the former Agere optical components unit, which TriQuint bought in January 2003 for $40 million. TriQuint was following the footsteps of Avanex Corp. (Nasdaq: AVNX) and Bookham Inc. (Nasdaq: BKHM; London: BHM) in acquiring a major photonics operation after the crash, the assumption being that the three would compete hotly for the No. 2 position behind JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) as the optical recovery gained steam (see TriQuint to Acquire Agere's Optics, Avanex to Buy Alcatel, Corning Units, and Bookham Buys Nortel's Components Biz).

But business never got better than lukewarm, and the companies have suffered for it. Avanex and Bookham, in particular, are facing questions about their survival as losses continue to rack up (see Components Competition Is Killing).

The Agere deal was a huge disappointment for TriQuint. Based on the $198 million revenues the optoelectronics unit drew in Agere's fiscal 2002, TriQuint initially expected optics revenues of $50 million to $75 million per year. But the first quarter's haul came in at just $8.3 million, sounding warning bells (see TriQuint Closes Agere Acquisition and TriQuint Lowers Sights).

Things never got much better. For TriQuint's most recently reported quarter, which ended in December 2004, the optics business drew roughly $11 million in revenues, or 15 percent of TriQuint's total, and was continuing to lose money. TriQuint tried the usual cost-cutting measures, such as moving more manufacturing to Matamoros. But by late 2004 they'd apparently had enough, announcing they would seek "strategic alternatives" for the optoelectronics business (see TriQuint Ponders Optics Options).

CyOptics has its share of Lucent alumni, so the optoelectronics business won't lose its bloodlines. CyOptics itself is an optical components firm that was founded during the bubble to chase the 40-Gbit/s market. Since the crash, it's stayed alive by focusing on the more practical 10- and 2.5-Gbit/s markets, a shift that earned the company a $10 million round of funding last year (see CyOptics Chasing Slower Widgets).

— Craig Matsumoto, Senior Editor, Light Reading

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