Optical components

Fiberxon Mulls IPO

Who says the components world is all doom and gloom? Officials at transceiver firm Fiberxon Inc. say business is strong enough for their company to consider going public early next year.

"We're ready to go to an IPO with 2006 revenue projections," CEO Li Hsu says.

That's in contrast to the glum financial situation of Avanex Corp. (Nasdaq: AVNX), Bookham Inc. (Nasdaq: BKHM; London: BHM), and JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) -- a picture that isn't getting better at the moment (see Avanex Cuts Revenue Forecast). But to Fiberxon and other small players at the OFC/NFOEC 2005 tradeshow last week, the market is looking bright, partly because the newer companies aren't burdened with the expensive infrastructure of the larger players.

Fiberxon sells transceivers to the datacom and telecom markets, in the latter case reaching speeds up to OC48 (2.5 Gbit/s) with an OC192 (10 Gbit/s) generation en route, Hsu says. The product-line makup is a lot like that of Finisar Corp. (Nasdaq: FNSR), he says.

Fiberxon has been profitable for nine quarters running, with revenues that tripled last year, Hsu says. The key has been that Fiberxon operates in China, keeping costs down, and has avoided building up infrastructure. "To make money you have to have a low operating cost," he says. "There's not enough barrier [to entry] to justify high operating costs in the U.S. and Europe."

Table 1: Fiberxon Revenues
2005* 2004 2003 2002
$60M $38M $13M $4M
* Projected
Source: Fiberxon

Fiberxon doesn't build its own components. Rather, the company buys the pieces and makes its money by putting engineering expertise into the finished modules. So, while the company operates in low-cost China, Fiberxon isn't hiring cheap assembly workers; half the company's 350 people are engineers.

Aside from cost, the model works because Fiberxon can crank out new designs quickly, Hsu says. The company was asked in March 2004 to develop a GE-PON (Gigabit Ethernet Passive Optical Network) transceiver in three months. Fiberxon took about 30 engineers, moved them to a skunkworks location in Shenzhen, away from the distractions of home, and had them hammer away at the part, working 15-hour days without weekends.

Having worked in the U.S. for 20 years, Hsu consciously modeled Fiberxon after a U.S. startup, down to incorporating the company in the United States -- a factor that might make the company a more comfortable play for U.S. bankers. "The whole company is modeled after a Silicon Valley company," down to the stock options in each employee's pocket, Hsu says.

Fiberxon isn't the only tranceiver company claiming good revenues. Privately held Opnext Inc. is rumored to be pulling down $100 million per year, although officials there won't confirm or comment, nor will they hint whether Opnext is profitable.

Unlike Fiberxon, Opnext owns a fab, but the company has added a line of DVD lasers to keep the production lines busy. That's given Opnext a brighter outlook than publicly held firms that are burdened with fab expenses -- although because Opnext is private, it's difficult to tell what shape their spending is in (see Components Competition Is Killing).

"It sounds so simplistic, but that's the main thing -- you have to keep up volumes," says Michael Chan, executive vice president of Opnext.

Fiberxon, too, may have to tangle with fab issues someday. "We have very little fixed cost, and that model worked so far," says Hsu. "But as we grow bigger, I think the business justifies picking up some of the pieces of vertical integration."

— Craig Matsumoto, Senior Editor, Light Reading

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deauxfaux 12/5/2012 | 3:23:35 AM
re: Fiberxon Mulls IPO Fiberxon is nothing more than a bunch of guys that UT Starcomm put in business. Without Bill and UT, they wouldn't have any meaningful business.

As it is, they have no intellectual property of real value, and they were recently rebuffed by Sand Hill Road when they went out to raise money.

NASDAQ-Never. Hong Kong Exchange-Who cares
deauxfaux 12/5/2012 | 3:23:32 AM
re: Fiberxon Mulls IPO Steve

You are certainly correct about the way that the marketplace works today. You'll get no argument from me on that point.

But IPO multiples ain't what they used to be, and most institutional investors aren't interested in buying into a low-barrier-to-entry business with crummy margins. If Mgt thinks that this is going to be some "Son of Google" IPO than they are utter and complete fools
Steve0616 12/5/2012 | 3:23:32 AM
re: Fiberxon Mulls IPO The real 'stupidity' lies in the heavily manipulated marketplace at this point. The box makers or (CSCO by itself) will qualify an outfit like this to extract concessions from their other vendors. After all, what else do you need besides an MSA, a low ball price, and a website these days to enter this field? And, if they somehow managed a successful IPO launch, these guys know, as do everyone else, they would make more on that than a lifetime of hustling optics. If its not that, then its ego. So why not just go for it?
deauxfaux 12/5/2012 | 3:23:31 AM
re: Fiberxon Mulls IPO I agree with Dark that they have taken share away from FNSR & Agilent. But they really act more like a captive operation of UTS than anything else and haven't developed much on their own.

I will give them credit for staying profitable, but I wouldn't give them a nickel for a share of their stock. The world is full of weak businesses that are public companies.
DarkWriting 12/5/2012 | 3:23:31 AM
re: Fiberxon Mulls IPO Agree with most of what has been said so far but these guys have leap-frogged quite a few transceiver companies in the last two years. I wouldn't underestimate them.


PS. I have no relationship with this company.
Steve0616 12/5/2012 | 3:23:30 AM
re: Fiberxon Mulls IPO re: haven't developed much on their own...

Isn't that the asian model? Enter a mature and proven commodized market with low cost, low margined manufacturing prowness and chisel away at the top tier players. Eventually, the low cost producer will survives, so odds and history are in their favor. A favorable IPO is gravy and may allow them to acquire IP as the weak are weeded out.
Steve0616 12/5/2012 | 3:23:29 AM
re: Fiberxon Mulls IPO
Indeed, you are correct...at this point. But at best, only two of those four above qualifiers currently exist even for the established players, and this swings the door wide open for the Fiberxons of the world. And, they are likely to continue to capture share since the market's current state is unlikely to change in the forseeable picture. So I will concede that their talk of an IPO is at best premature now, but within a year or two, their presence may have improved dramatically.
deauxfaux 12/5/2012 | 3:23:29 AM
re: Fiberxon Mulls IPO No arguments with your point about their strategy, just their probable market value.

To get a favorable IPO, the institutional investors (who buy the vast majority of shares) want to see a top tier management team, strong gross margins, high growth, and barriers to entry. Today, Wall Street views the optical component business with the same interest as an outbreak of Bird Flu and isn't inclined to buy the shares of a glorified contract manufacturer with no IP.

There is no way that they can make it out on NASDAQ, they are destined for the HKX "pink sheet."
deauxfaux 12/5/2012 | 3:23:17 AM
re: Fiberxon Mulls IPO AVNX and BKHM would never be able to go public today. They were in the right place at the right time during the bubble.
lightdim 12/5/2012 | 3:23:17 AM
re: Fiberxon Mulls IPO Give me a break. NASDAQ is full of trash companies that wasted several billion dollars in their lifetime, and have no strategy of ever making a penny. Shall we start with Bxxx? and Axxx.

>There is no way that they can make it out on NASDAQ, they are destined for the HKX "pink sheet."
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