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^Eagle^ 12/5/2012 | 3:36:50 PM
re: Opnext Steps Up With StrataLight Stratalight.
rahat.hussain 12/5/2012 | 3:36:49 PM
re: Opnext Steps Up With StrataLight Mintera seems to be doing fine in the 40G space with some new customers under the belt.

Recall they raised a round recently (with JDSU as an investor), so if they manage cash well, they should be in a good position to be the next acquisition in this space.

Best bet would be for JDSU to show that they can become a market leader via this acquisition - they not only acquire the products and technology, but also a solid management team who can really help the dysfunctional JDSU team. This is in contrast to the disastrous Pico acquisition from a year or so ago (where they got neither)!

Stevery 12/5/2012 | 3:36:46 PM
re: Opnext Steps Up With StrataLight So this post is not my usual fare: I'm going to really stick my neck out. I guarantee that some of what I write will be horribly wrong. At least, I hope it will be horribly wrong.

There have been many good opinions expressed here regarding the remaining 40G companies. However, there is something important missing from the discussion:

There is a new world in the capital markets.

Stratalight took the deal because the IPO market is closed. It must have raised some eyebrows on the boards that the revenue is sizable but that they sold for a low multiple of sales. Why? Because revenue is now subordinate to profitability. More fundamentally, cash is again king.

More globally, this sea change is caused by the financial insanity of the housing market, which dwarfs the size of the the tech wreck. The result will be many more bank closings (like IndyMac on Friday) and some severe business failures. Also, if you have not seen what is going on with Fannie Mae and Freddie Mac, it might be worth reading the weekend newspapers. Even if you aren't a US taxpayer, odds are high that it affects you.

We are in rocky waters, and I believe it will be a time of both incredible opportunity and incredible heartbreak. Some predictions:

1. Major drop off in venture fundings.
2. Companies with high debt loads will die.
3. Layoffs and downward salary adjustments.
4. Profits and quality of profits will start to dominate financials.
5. A rise in personal bankruptcies from folks you would guess are well-off.

Despite having lived through the tech wreck, many in management and venture capital will be put out to pasture unless they adjust to the new environment quickly. The companies and funds that readjust first will be the ones with the best chance of survival.

By now, you probably think that I'm wearing a tinfoil hat and have a basement full of guns, spam, and other survival supplies. But I've been experiencing the capital market train wreck and thought I'd let you all know what I'm seeing.

Hmmmmmm. Guns and spam. Not a bad idea. Now where did I put my tinfoil hat?
^Eagle^ 12/5/2012 | 3:36:43 PM
re: Opnext Steps Up With StrataLight Stevery,

I agree. The financial situation has come to be the dominate force in optics. And in high tech (especially hardware based). And more to the point, BOTH macro forces (as you so concisely summed up in your post) and the financial forces around venture capital and the funding industry.

Stratalight merger should indeed be taken as a warning sign for every one. Given Stratalight's leading position in 40G. Their strong relationships with not only Cisco, but also several other T1 &T2 OEM's who use Stratalight's solution put them in a very good spot for a potential IPO. OR a much larger buyout by someone like Cisco or ALU or other system player. And the word on the street in silly valley was that Stratalight while not profitable, was making a positive gross margin and was close to profitability.

That they got sold for such a low multiple of sales, and an amount almost at par with the VC funding they raised is a real "tell" about the state of the financial markets. Means that even though they were on the cusp of profitability, with good and growing revenues they could not raise any more money from the markets (neither VC's stepping up NOR loans or other debt instruments) and were almost forced to do this in order to continue to fund operations and growth. That is really sad. Sad for all of us I think.

(note: the Stratalight parking lots are overflowing. they are up multiple shifts on some parts of the operation and even the streets around Stratalight are full of cars. I live near there and can easily see that they are doing well by all "normal" metrics. Good sales and revenue growth. Strong backlog. Positive gross margins. Growing demand. Leading market position. Full parking lots. VERY strong team.)

(makes me wonder if the rank and file will make any money at all from this merger?? Given the amount of VC funds they raised, and the selling price... wouldn't the VC's take all the $$ from this deal? And even if there are any scraps left, wouldn't the executive team take most of that?)

So, Stevery has hit the proverbial "nail on the head". What can we do to make our industry thrive? What will happen to innovation and start up life given the difficulties of finding financing... both for start up stage and for expansion / growth stage.

I strongly believe that in other, more "normal" finanical times, Stratalight should have fetched a selling price of 4-10x revenues.

I think that Stratalight along with several other companies should have gone IPO back when Optium & Opnext did it. I think that was a short window in a long trend that makes it difficult to plan an optical IPO.

So, now what happens to companies like Santur? NeoPhotonics? eGtran? others. All with good and growing revenue. ($100m plus for each of them) All with strong positions in various market sectors. All with good sales growth. But all of them not quite to full profitability and probably needing some additional financing.

Stevery is right. Cash is king. And Profitability is indeed the dominate force in our industry. Business plans need to show a small upfront amount of capital required AND a short path to profits or even getting a VC to listen (let along actually fund you) is nearly impossible right now.

Fortunately I got lucky and was fully funded (oversubscribed) in my new company, an optical COMPONENT start up. The business model was the key ingredient. Short path to profits. Not simply positive gross margins.

I think Stevery has described the macro situation very well.

One final note: as Stevery stated, a time of incredible opportunity and heartbreak. The opportunity side: LOTS of cash sitting idle. With the implosion of the mortgage market and mortgage backed securities, lots of wealth is looking for someplace (ANYPLACE) to invest that will give a good return. So, if you have a strong business plan and not simply marketing hype with powerpoint slides... and the business plan and market opportunity can be completely vetted by your investors (are there actual customers that WANT to buy the proposed product?)...then there are funds out there.

Again, LOTS of dollars on the sidelines looking for a place to invest. Stocks... hmmmm.. not too good in many metrics. Real Estate?....hmmmm.... exchange rate games?....hmmmm.... oil futures...?...hmmmm...

Billions in pension fund dollars, private wealth dollars, etc. are looking for places to invest. Loads of $$ are being "sat on" by VC's right now. They need to invest.

So, incredible opportunity along with the very serious pain and the real potential for our industry to struggle for several years to come.

cw.774 12/5/2012 | 3:36:43 PM
re: Opnext Steps Up With StrataLight Thanks for the vision Stevery. Sailboat's tin foil hat talk was starting to make my stomach ache.
^Eagle^ 12/5/2012 | 3:36:41 PM
re: Opnext Steps Up With StrataLight Stanleymellow..... you must have me confused with someone else.

I was not the one proposing tin foil hats. I merely responded to Stevery's somewhat dour comment about the state of the markets.

cw.774 12/5/2012 | 3:36:40 PM
re: Opnext Steps Up With StrataLight Sorry sailboat- I crossed credits for that one.

I get queezy whenever a smart guy who understands the finance side of the house better (than a tech nerd like me) starts talking dour like this. Your response shined.
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