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Optical components

Opnext Steps Up With StrataLight

Opnext Inc. (Nasdaq: OPXT) announced today that it's buying StrataLight Communications , one of the prominent players in 40-Gbit/s subsystems and an early voice in 100 Gbit/s as well.

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

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Pete Baldwin 12/5/2012 | 3:37:08 PM
re: Opnext Steps Up With StrataLight So, what do you folks think? Seems like a good move on both sides.

Who's next?
venturecapital 12/5/2012 | 3:37:07 PM
re: Opnext Steps Up With StrataLight How about CoreOptics? They seem to be on a strong sales growth with deployments at AT&T and Deutsche Telekom.
redface 12/5/2012 | 3:37:07 PM
re: Opnext Steps Up With StrataLight Craig,

It looks like Stratalight is being very reasonable with this valuation. They have been in business for quite a while now and the investors probably want a bird in the hand instead of bird in the woods, hence this "non-stratosphere" valuation.



deer_in_the_light 12/5/2012 | 3:37:07 PM
re: Opnext Steps Up With StrataLight The Stratalight valuation is extremely low. Based on the investors presentation today, sales in 2008 should be around $135M with decent profitability. Such a company could easily commend a 250-300M valuation. The reason for the heavy discount is probably the fact that, despite a dominant position today, Stratalight is quite exposed to losing share in the 40G market, including at key customers such as NSN and Ciena.
Therefore what could appear at first glance as a "firesale" might be a reasonable deal after all.
Look at what happened to Santur that had a virtual monopoly of the tunable laser market with fantastic margins and is now relegated to being "one of the pack" and keeps losing market share and requires cash infusion every year. Santur investors must kick themselves for not taking the deals they could have had in 2005 and 2006.

I was expecting a bit more from Shri who did so well in his last sale to Intel but this is not bad at all. I think Opnext got the short-end of the stick on this one.




Pete Baldwin 12/5/2012 | 3:37:02 PM
re: Opnext Steps Up With StrataLight StrataLight raised $103M since 2000, according to the presentation Opnext gave.
janidb 12/5/2012 | 3:37:02 PM
re: Opnext Steps Up With StrataLight Anyone knows how much VCs had invested in stratalight?
AutoDog 12/5/2012 | 3:37:01 PM
re: Opnext Steps Up With StrataLight This announcement leaves Mintera as the last of the 40G startups. Given that they have thrown in the towel on subsytems and significant 40G MSA module revenues are 12-18 months away (at best), what's their exit strategy?

- Additional vulture-capital finacing?
- Fire sale (to JDSU)?

How do investors possibly get their money back on this straggler?

-AD
^Eagle^ 12/5/2012 | 3:37:00 PM
re: Opnext Steps Up With StrataLight actually, Mintera is not the last of the 40G start ups. Only the last well known one (well hyped). There are others. For instance, CoreOptics in Germany. I suspect we would all be surprised at how well Core is doing.

and how about U2T....

Those are the first "public" ones that come to mind. By "public" I mean those that are announced and are not in stealth mode.

I know of at least 3 stealthy companies working in this space.

But, I agree with your overall thrust regards Mintera. They still have not found their legs. Who else besides JDSU would like to own them? I would think that Finisar / Optium would be interested in Mintera, however, I think Optium filled that niche with the purchase of Kailight along with the 40G assets that Finisar had previously purchased from Big Bear.

Probably a fire sale to JDSU.

or there are those dark horses: NeoPhotonics, eGtran, Luminent / MRV....they could all decide to make a move toward 40G modules.

or long shot possibility: Emcore.

sailboat


pavlovsdog 12/5/2012 | 3:36:52 PM
re: Opnext Steps Up With StrataLight Was the Comcast / Cisco test of 100G really done with Stratalight help? Or with Nortel?

deer_in_the_light 12/5/2012 | 3:36:52 PM
re: Opnext Steps Up With StrataLight Mintera's future : good question, they have compromised their exit options with the JDSU agreement. No optical component/module supplier (Finisar, Emcore, Avanex, Bookham, ... Opnext) will get anywhere near them. JDSU will not buy them until they are accretive which is at best 18 months away. IPO is not in the cards either.

Mintera could potentially be acquired by one of the system companies although with the multiple transponder manufacturers designing 40G 300-pin MSA products, there is no need to bring the technology inside.

IDK...future seems difficult for Mintera, they will probably survive but I dont see a good deal coming for investors or employees.

Agree with sailboat, CoreOptics has much more potential and much deeper technology applicable both at 10 and 40G.

eGtran ??? let's be serious here, they tried to do 10G transponders and failed. They simply dont have the skills and capabilities to play at that level.

NeoPhotonics and Luminent, I would be surprised as their core business is PON/FTTH and they have not disclosed any disruptive 40G technology, let's see what announcements come out in the next few months.


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