Oplink Communications Inc. (Nasdaq: OPLK), announced on Thursday that it has signed an agreement to acquire EZconn Corp., an unfortunately-named manufacturer of cable and photonics components used in broadband access gear.

Under the terms of the proposed agreement, expected to close in January 2005, Oplink will pay $30 million ($9 million cash, $21 million in stock) for all of the outstanding shares and selected assets of the Chinese company. Oplink will also assume $12 million of EZconn’s debt and will maintain its current operations in Taipei, Taiwan, and in China, which together employ more than 400 workers.

San Jose, Calif.-based Oplink, an optical components maker, will use the acquisition to extend its product offerings in the telecom and datacom sectors as well as broadening its reach in the cable equipment industry by taking advantage of EZconn’s manufacturing expertise in the cable and FTTx (Fiber-to-the- Home/ Curb/ Node/ Premises/ Supposition, etc.) arena.

But EZconn's secret weapon is its "Complain Flow Chart," which shows the customer that there is accountability, if not syntax, all the way up the food chain: "Devoting our 100% ti each of our customer. Always our honors to bulid up the partnership with customers."

“This proposed acquisition will enhance our ODM/OEM [Original Design Manufacturer/Original Equipment Manufacturer] business model as it provides us the ability to strengthen our market position and cost leadership into the broadband services market,” says Oplink president and CEO Joseph Liu, in a company statement.

"The acquisition would more than double Oplink’s revenues, add profits, and give it new customers and exposure to FTTP, and the company is getting the business for less than 1x sales and not letting go of a large amount of cash," writes Needham & Co. analyst John Harmon.

"We like the acquisition and see it as evidence of the company’s intention to expand beyond its niche status and deploy its $186 million cash hoard."

EZconn offers experience in precision machining, packaging, automation, and manufacturing efficiency in the active and passive components market. The company has been mass producing RF and electrical components as well as fiber optic components for more than 30 years.

The timing for Oplink to increase its revenues via acquisition couldn't be better. The company announced a revenue increase of 22 percent when it revealed its financial results for the first quarter of 2005 this week. But its stock dropped because it missed analysts' revenue expectations of $10.2 million, thanks to a shortfall from one large customer.

For the quarter ended Oct. 3, the company reported a net loss of $874,000, or a penny a share, on revenues of $8.9 million. The company predicts it will rake in about $9 million in revenues next quarter, with the earnings per share about the same as the first quarter. The company closed the quarter with $186 million in cash and generated $291,000 in cash from operations.

For the 12 months ended June 30, 2004, EZconn reported revenue of approximately $48 million, and the company was profitable.

On Friday, Oplink stock dropped $0.08 (4.30%) to $1.78 in late afternoon trading.

— Chris Somerville, special to Light Reading