Optical components

Optical Exits

6:00 PM -- Oclaro Inc. (Nasdaq: OCLR) CEO Alain Couder says he got approached by six smaller-company CEOs during OFC/NFOEC. Oclaro had just picked up Xtellus at the time. (See Why Oclaro Picked Xtellus.)

That's not all that new, but then again, it seems the promise of 100 Gbit/s has kicked extra kinetic energy into the deal search. The announcement of Cisco Systems Inc. (Nasdaq: CSCO) buying CoreOptics Inc. should generate even more steam.

Couder makes the easy prediction that more deals will be happening -- easy, considering that despite the steady, low-level flow of deals, there's still a generation of components companies waiting for their chances. "Many of the venture capitalists that have been invested in these companies are seven or eight years into them, so they need an exit," he says.

The other exit is to go public, of course, but most components companies are too focused on a specific product to be good IPO fodder -- CoreOptics being a prime example.

Santur Corp. wanted to give it a shot a long time ago. (See Santur Raises $26.5M, Talks IPO.) Apparently, it's no fun. From a discussion we had in March, here's what CEO Paul Meissner had to say about his experience on IPO tours:

"Most people say, 'We buy stocks in this industry to trade them, not in order to hold them.' They don't see the inherent value in the industry; they see things going up and down... We need investors. They've got to believe in this, and if their view of the industry is that it's profitless prosperity, we're not going to get those investors."

Even so, O-Net Communications (ShenZhen) Ltd. went public in Hong Kong, and NeoPhotonics Corp. (NYSE: NPTN) wants to try in the US. (See Optical Firm Preps Hong Kong IPO and NeoPhotonics Readies Its IPO.) It's going to be interesting to see if they can overcome that "profitless prosperity" problem.

— Craig Matsumoto, West Coast Editor, Light Reading

Pete Baldwin 12/5/2012 | 4:34:26 PM
re: Optical Exits

Dividends?  They can do that?


Stevery 12/5/2012 | 4:34:26 PM
re: Optical Exits

About two years ago, I wrote this:

4. Profits and quality of profits will start to dominate financials.

Now, "profitless prosperity" is oxymoronic, but the IPO flippers are one step away from recognizing that there's nobody left to purchase crappy shares after the lockup.  That's a healthy thing, imho, because then they will start looking for honest-to-god cash flow and even (heaven forefend!) dividends.

Pete Baldwin 12/5/2012 | 4:34:25 PM
re: Optical Exits

More seriously: I appreciated that post from a couple of years ago, and it was worth a re-read.  Unprofitable or barely-profitable optical companies seem like a tough item to sell to investors.

Stevery 12/5/2012 | 4:34:24 PM
re: Optical Exits

There were a lot of good comments in that thread.

BTW:  That article puts opnext's purchase of Stratalight at $172M, 30 of which was cash.  Opnext's stock price was about 5.30 when that deal was done, and about 2.15 when Coreoptics was done.  (from Yahoo's interactive graph, numbers are rough). 

So adjusting for the stock price, stratalight was $30M + ($142M * 2.15/5.30)  or about $87M, near the coreoptics number.  (God I hope the stratalight guys got out of opxt stock.)

Steve0616 12/5/2012 | 4:34:21 PM
re: Optical Exits

It a tough sell even to insiders!

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