It's a buyer's market as both Agere and Nortel try to unload their opto businesses. Might Intel or JSDU bite?

August 23, 2002

4 Min Read
Opto Units: Red Tag Sale

Will Agere Systems (NYSE: AGR) and Nortel Networks Corp. (NYSE/Toronto: NT) be able to find buyers for their optical components businesses?

That's the multimillion-dollar question, but the fact that both companies are trying to sell their businesses at the same time doesn't appear to be improving their chances. In fact, one executive in the industry opined that offers for Agere's business aren't likely to top $100 million.

Analysts, including SoundView Technology Group's Kevin Slocum, reckon that Nortel will be unable to sell its components business for a variety of reasons.

"We think there is a dearth of buyers for the optical components assets floating around the market today," he wrote in a research note yesterday. "Nortel's optical components business is more likely to be dramatically downsized in the near term, and not sold."

Nortel's high-performance optical components business, or HPOCs, has been on the block since May of this year (see Nortel Falls Short in Long Haul). The division includes the former Coretek, a manufacturer of widely tunable lasers that Nortel bought in 2000 for the outlandish sum of $1.43 billion, as well as internally developed narrow tunables, pump lasers, amplifiers, and optical transponders (see Nortel Gambles $1.43 Billion On Tunable Lasers).

Rumor has it that Nortel took bids for the components business several weeks ago. According to CIBC World Markets, Bookham Technology plc (Nasdaq: BKHM; London: BHM) and Sumitomo Corp. both expressed an interest. Light Reading was unable to confirm this rumor absolutely, although several sources suggested that Bookham seemed a likely suitor for Nortel's components group. Bookham has already bought out Marconi plc's (Nasdaq/London: MONI) components operation (see Bookham Gets a Bargain).Nortel declined to comment for this article, citing its usual policy of not commenting on rumors or speculation. Bookham also declined to comment for the same reasons. Sumitomo could not be reached immediately.

In any case, no buyer has been announced, suggesting either that the bids were rejected or that the buyers changed their minds. Because between the bids being placed and the present, an industry-changing event occurred...Agere announced that it will put its optoelectronics unit on the market, and that if it doesn't get a significant offer, it will simply shut the unit down (see Lights Out for Agere's Opto Biz).

Two candidates that often come up as potential suitors for Agere's business are Intel Corp. (Nasdaq: INTC) and JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU). But those in the know say that neither company is willing to pay top dollar -- they may, in fact, only be interested in lowball offers.

"Intel is bottom-fishing," said the executive of one optical components startup. "I'm hearing the price would be under $100 million."

That executive said it seemed unlikely the sale would be worth Agere's while if it were significantly under $100 million.

At one time Agere's optoelectronics business did more than $1 billion in annual sales, but it slumped to just over $200 million for the nine months ending June 30, 2002.

Agere officials would not comment on whether specific bidders have emerged but reiterated the possibility of the unit being shut down if it doesn't receive a suitable offer.

"Agere intends to sell all or part of its optoelectronics business," says Glen Haley, an Agere spokesperson. "If no suitable buyers are found, the operation will be shut down by July of 2003.

Intel and JDSU did not respond to requests for comment on whether they were interested.

Agere's move has "put a monkey wrench" in Nortel's plans, SoundView's Slocum contends. The decision has also scared everyone in the market, who now worry that the long-haul components market may never recover, he says. "It's the fear factor. Even if they [whoever they may be] had a bid in on Nortel, now they think maybe they should look at Agere first."

Other reasons that Nortel might have a tough time selling include the fact that its components are fairly Nortel-specific, he says. Anyone locking themselves into being Nortel's supplier would be taking a considerable risk, because the vendor isn't terribly stable right now.

On top of that is that fact that there are many distressed assets floating around in the optical industry, not just those from Agere and Nortel, and few buyers of any size (see Components Overboard!). Those who are buying are being very choosy and may only want pieces of the business, not the whole thing.

Nortel's components group is already dispersing. Two of Coretek's founders have left to join new startups. Parviz Tayebati, its former CEO, has turned up as a board member of Maxima Corp. (no Website), a developer of free-space optics (see Maxima Adds Ex-Nortel Exec to Board).

Daryoosh Vakhshoori, Coretek's former VP of R&D, took four other Coretek employees away with him to form Ahura Networks (no Website). Ahura scored $12.5 million in funding from Castile Ventures and others in May 2002, coincidentally the same month that Nortel's decision to sell its components business became official.

— Pauline Rigby, Senior Editor, and R. Scott Raynovich, US Editor, Light Reading

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