Opnext Steps Up With StrataLight
Opnext is buying the 200-person startup for $172 million in cash and stock, the cash part being $30 million. StrataLight shareholders would hold 29 percent of the combined company after the deal's expected close in October or November, and StrataLight would get to nominate two directors to add to Opnext's board. (See Opnext to Buy StrataLight.)
"StrataLight's a gem. I think Opnext snatched it away from everybody else," says Needham & Co. analyst John Harmon. "They're the leader in 10 Gbit/s, and now they've bought the leader in 40 Gbit/s."
The companies' products straddle different parts of an optical connection. Opnext has focused on what's called the client side -- the short-reach transceiver modules that plug into switches or routers. Opnext also makes components such as lasers; StrataLight doesn't get down to that level.
StrataLight, while it makes some transponder modules, really concentrates on subsystems -- boxes that sit alongside a switch or router. "They add the subsystem knowhow, including the software," says Michael Chan, Opnext executive vice president.
What the companies have in common is an obsession with speed. When Opnext spun off from Hitachi Ltd. (NYSE: HIT; Paris: PHA) in 2002, its goal was to concentrate on 10 Gbit/s, then the high end of the market.
StrataLight, meanwhile, was part of an early 40-Gbit/s demonstration with Cisco in 2004, and it was included in Cisco's 100-Gbit/s trial run with Comcast announced recently. (See OpNext Completes Hitachi Transfer, StrataLight Powers Cisco's OC768, Comcast Thinks Big, and More on 100Gig.)
In addition to giving Opnext a wider 40-Gbit/s product range, the merger could speed up the research both companies are already doing on 100-Gbit/s technology, Chan says.
More mergers are expected in the components space, particularly as Finisar Corp. (Nasdaq: FNSR) and Optium Corp. (Nasdaq: OPTM) wrap up a deal that probably makes them the largest supplier in the industry. It's unclear whether other publicly-held players like Avanex Corp. (Nasdaq: AVNX) and Bookham Inc. (Nasdaq: BKHM; London: BHM) will make similar moves. (See Avanex Axes CEO Jo Major and Avanex's Major Coup.)
Speculation around the industry is that a disagreement over merger strategy could have caused the sudden firing of Jo Major, chairman and CEO of Avanex, earlier this week. (See Finisar & Optium Challenge JDSU.)
Chan notes that the Finisar/Optium deal wasn't a factor in Opnext's offer to StrataLight. But as usual in these deals -- particularly in this sector -- he notes that Opnext is "always looking around" for other merger possibilities.
— Craig Matsumoto, West Coast Editor, Light Reading