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Optical components

Intel Intros Photonics Unit

Intel Corp. (Nasdaq: INTC) says it is getting into the business of designing and manufacturing integrated passive components for optical systems makers (see Intel Gets Photonic).

The company has opened a 70,000-square-foot facility in south San Jose, Calif., that it designed for photonic component manufacturing using 8-inch silicon wafers. There it will produce and integrate Bragg grating filters, waveguides, and other components "from wafers and die to subassemblies and finished photonic modules."

This is a surprising announcement for two reasons. First, large passive component makers, such as Agere Systems (NYSE: AGR) and JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), as well as smaller ones like Zenastra, have lost huge chunks of business in the past year due to the overall slowdown in carrier spending on telecom systems (see Agere's Musical Chairs and Zenastra Photonics: RIP). Second, Intel is not in the habit of preannouncing products individually or in groups -- but it is, in a broad sense, doing so here.

Point number one doesn't worry Rama Shukla, GM of Intel Photonics. "This is a great time for us to get into this business, because, while many of the systems vendors have gotten into trouble financially, they are looking for ways to cut costs and they're seeking reliable, long-term suppliers who have the ability to invest in research and development."

It also helps that, while JDSU and others in this space were losing business, Intel benefitted simply by not being in the market.

Regarding point number two, Intel is declaring that it's entering a new business and broadening its horizons. However, much of what it will build for its systems vendor customers and other component manufacturers will be made-to-order integrated modules, not stand-alone, off-the-shelf products. This somewhat dilutes the danger of Intel saying too much too soon.

"I don't think Intel has an internal business plan [for this unit] that seeks to sell a lot in the next year," says Jeremey Donovan, an analyst at Gartner/Dataquest. "The fact that this is going to be a hard year for the industry is not necessarily a bad thing for Intel yet."

This is just the latest move in Intel's steady march into the telecommunications business. First, it became a player in producing communications integrated circuits. Next, it made a series of acquisitions to establish itself in the optoelectronic components arena. Now it has formed a photonics unit where it hopes to take advantage of the technology and expertise it gained when acquiring Templex Technology Inc., a Fiber Bragg Gratings (FBGs) specialist (see Intel Snaps Up Templex ).

Shukla says Intel has also gained a great deal of knowledge in the area through its various investments in optical component startups, such as K2Optronics Inc., Gemfire Corp., and WaveSplitter Technologies Inc. Shukla, however, denies that Intel's portfolio companies will get special treatment when they're shopping to outsource photonic component manufacturing: "I wouldn't say they'd get a better deal. I would say they have a better opportunity."

Intel will not yet name its customers for this new business unit. Shukla says it has about 100 people working full-time in the group in various engineering and marketing roles.

At the Optical Fiber Communication Conference and Exhibit (OFC), Intel Photonics will display some examples of the kinds of custom devices it can make for customers.

— Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com For more information on OFC 2002, please visit: www.nottheofc.com

dwdm2 12/4/2012 | 10:50:58 PM
re: Intel Intros Photonics Unit Needless to say that this is a smart move on Intel's part; unlike many others (without mentioning any names) who declared lucrative capabilities and then were not able to deliver. No wonder INTC is doing better!

Just my two cents,

AR
microfab 12/4/2012 | 10:50:57 PM
re: Intel Intros Photonics Unit Their GM is well known in Intel as having a great track record. Watch out JDSU !!!
alcaseltzer 12/4/2012 | 10:50:46 PM
re: Intel Intros Photonics Unit Is this a case of smart-money picking the bottom?
johnlu8848 12/4/2012 | 10:50:45 PM
re: Intel Intros Photonics Unit Component market is still an unexplored field to certain degree, there are many technologies are introduced into the field. The key to be successful in entering into the market is the manufacture processes that can either use the existing semiconductor facilities, or the processes have to be simple enough. Intel has the expertise in chip manufacturing, if she can capitalize this advantage in making optical components, she will be able to beat most of the competitors.

This is my two cents.

JL
dwdm2 12/4/2012 | 10:50:36 PM
re: Intel Intros Photonics Unit JL: Intel has the expertise in chip manufacturing, if she can capitalize this advantage in making optical components, she will be able to beat most of the competitors.
--------

This is the expectation! But let me play a bit of devil's adv. Having expertise in chip manufatuering would not necessarily translate into expert/good optical components. Optical space is significantly different that ICs.

But the thing to note here is Intel's strategy to enter the ON market. Instead of hurrying to announce attractive/lucrative products (and then not being able to meet the expection like many!), they are taking their time, entering the market prudently. At the same time they are capitalizing on their reputation as "good chip maker."

This is almost like Microsoft's strategy of coming from behind with Internet Explorer and taking over competitor's.

The common mistake with many optical startups is that they promised big (under VC pressure?), but failed to deliver or satisfy customer.

Intel is a big company, but if you consider their optical unit alone, it is comparable with many companies, perhaps much smaller than established optical/fiberoptics companies.

But coming from behind if they turns out to be successful, then the industry has something to learn from them!

Regards,

AR
sridude 12/4/2012 | 10:50:30 PM
re: Intel Intros Photonics Unit Intel's manufacturing expertise is centered on CMOS. Their success in CMOS has to do with their superb control of their manufacturing processes, which has not been duplicated by anyone in any field. Their manufacturing model involved "copy exact" duplication of tools and processes across multiple fabs to achieve uniform results. This manufacturing model comes with a culture that is not particularly well suited to the radical innovations needed to get optical component manufacturing out of the 70's.

Intel may be able to get past its culture, and actually drive serious innovation in optical manufacturing processes, but I'm not holding my breath.

- sd
zhadum 12/4/2012 | 10:49:45 PM
re: Intel Intros Photonics Unit Could you please tell us about the GM's background and what he knows about the optical business ?
glb 12/4/2012 | 10:49:42 PM
re: Intel Intros Photonics Unit It is just another SIP in Grove-speak. Do you lob-toss a growth-curve, or do you re-engineer your company and grow even bigger, with a critical change at the Strategic Inflection Point on the growth curve before the otherwise decline (a la LU, JDSU, NT, etc.)?

The SIP was actually about 18 months ago, with the acquisition of Cognet, Giga, and the others, in preparation for this very move. It is no surprise at all. Now is the perfect time to announce, just after the market bottom, where presumably there is only "up" for a well-financed company!
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