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Optical components

JDSU Selling Shenzhen Facility

JDSU (Nasdaq: JDSU; Toronto: JDU) is, indeed, divesting its Shenzhen, China, manufacturing facility, announcing early this morning that the operation is being sold to Sanmina Corp. (Nasdaq: SANM).

Sanmina-SCI is picking up, not only the Shenzhen facility, but the roughly 2,000 employes involved in manufacturing there. The deal is expected to close within a month. (See JDSU, Sanmina-SCI Team.)

Light Reading reported earlier this week that a Shenzhen sale was imminent, although speculation was pointing more to Fabrinet Co. Ltd. (NYSE:FN) , the Thailand-based contract manufacturer that builds optical components. (See JDSU Preps Fab Sales.)

It's all part of JDSU's latest round of cost-cutting, as announced in November. Then-CEO Kevin Kennedy said the company aimed to cut "several" manufacturing sites. (See Kennedy Bids JDSU Adieu .)

Sanmina-SCI will continue building JDSU's parts in the Shenzhen facility, so, in theory, everything will keep running as before. "This isn't a situation where the customers are going to have to requalify the product. It's the same equipment and the same people," says Craig Iwata, JDSU's senior director of marketing and business operations.

Terms aren't being disclosed. Initial rumors in December placed a low-sounding $2 million price on a would-be deal; Iwata won't comment on that. (See JDSU: Selling Out?)

The sale is part of JDSU's plan to ease certain fixed costs. By contracting out the test and assembly of its optics, JDSU can change its capacity -- and its costs -- at will, raising or lowering production depending on market demand, Iwata says.

The potential downside of that strategy comes when demand is extremely high, because contract manufacturers' dance cards fill up. But, given the low earnings forecasts handed out by Bookham Inc. (Nasdaq: BKHM; London: BHM), Oplink Communications Inc. (Nasdaq: OPLK), and, just this morning, Opnext Inc. (Nasdaq: OPXT), high demand doesn't look as if it's going to be an issue any time soon. (See Earnings Adventures, Bookham, Avanex Tie the Knot, Oplink Reports Q2, and Opnext Reports Q3.)

The deal isn't exclusive, so Sanmina-SCI can shop its services out to other optical components companies.

Sanmina-SCI officials weren't immediately available for comment, but the deal would appear to be an attempt to get more deeply into optical components manufacturing. Fabrinet had built up a good enough business there to consider an IPO, back in the days when companies besides OpenTable tried to go public. (See IPO Alert: Fabrinet.)

JDSU is not abandoning manufacturing, Iwata says. Nor is it abandoning Shenzhen: Corporate offices and an R&D team, totaling about 150 people, will remain there and will eventually move into a JDSU-owned facility in the same area.

JDSU is separately rumored to be selling off its Louisville, Colo., fab, home to acquired Vertical Cavity Surface Emitting Lasers (VCSELs) vendor Picolight. Iwata isn't commenting on that either.

— Craig Matsumoto, West Coast Editor, Light Reading

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