Telecom Workers Take Control

Some determined telecom rats have refused to be sucked down with the foundering mother ship. Many employees of failed companies have struck out on their own -- either starting their own businesses or buying the assets of their former employers.

It's a phenomenon that's more common than you might think. One example that recently came to light is the former sales team from ADC Telecommunications Inc. (Nasdaq: ADCT), which established itself as Photonic Sales International last month, at the instigation of Paul LaFond, ADC's former VP of worldwide photonic sales.

LaFond says he didn't want to see the talent of his team go to waste. "It took years to build and grow a world-class photonic sales team at ADC," he contends. "I was reluctant to dismantle it even with ADC’s decision to exit the photonics business."

LaFond also spotted a new business opportunity resulting from the current downturn in the market, he says. Small startups, as well as some bigger vendors that have downsized, can't afford to maintain full-time, worldwide sales teams. Enter Photonic Sales, which aims to offer the clout of a larger sales team than a startup could afford by itself.

It's too early to say if Photonic Sales will be successful, but there are plenty of other examples where the gambit appears to be paying off. And in many cases, there is more at stake -- the new management has had to buy the rights to continue providing a service or product.

Take Sifam Fibre Optics Ltd. for instance. Sifam, a U.K. manufacturer of fused-fiber components, was acquired by JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) in 1999. But it got closed down last summer as JDSU undertook a massive streamlining and restructuring program to stem its financial losses (see JDSU's Rationalization Process).

One hundred and fifty jobs were lost -- but not forever. With financing from U.K. bank HSBC plc, a group of nine Sifam executives put together a £2.5 million (US$4.0 million) package to save the company, which was relaunched under its old name in October 2002. JDSU retained a 19.9 percent stake.

The new Sifam started out with 32 people and now employs 43, according to reports in local papers. "The business ethos was to start small-scale," managing director Paul Ellis told the Herald Express. "It's easier to grow than it is to shrink. The forecast was very prudent, but we've exceeded that and the next quarter is looking comfortable as well."

In another part of the U.K., a similar tale has unfolded at JDS Uniphase's former site in Witney, Oxfordshire. JDS acquired this location in 1996 when it bought GCA Fiberoptics Ltd., a firm that did fiber-pigtailing of active devices for telecommunications.

"The site became the effective headquarters of JDS Uniphase in Europe," says Antoine Michaud, VP of marketing for Afonics Fibreoptics Ltd., as GCS became known after its restart. "But it was shut down in 2001, just three months after completion of the new building."

Nine ex-managers, along with the nearby University of Oxford, scraped together the capital to relaunch the business. No venture capitalists were involved, says Michaud -- despite the fact that the boom time for investing in optical hadn't yet come to a close.

GCS, now Afonics, reopened its doors in December 2001 and is now profitable, according to Michaud. The company has approximately 40 employees, and recently announced a deal through which it packages Vertical Cavity Surface Emitting Lasers (VCSELs) for Honeywell International Inc. (NYSE: HON) (see Afonics Repackages Honeywell Kit).

One factor appears crucial to the execution of a successful management buyout -- speed. "When we restarted as Afonics, production had never actually stopped," says Michaud. That allowed the company to retain many of its existing customers and the staff needed to keep the company operational.

Of course, not all buyouts succeed. A case in point is Coretek, the tunable laser manufacturer that was acquired by Nortel Networks Corp. (NYSE/Toronto: NT) for $1.43 billion. When Nortel sold its photonics business to Bookham Technology plc (Nasdaq: BKHM; London: BHM), Coretek wasn't included in the deal. Rumor has it that Coretek founder Parviz Tayebati did put together a team to try and buy back the business, but he didn't succeed -- possibly because Nortel struck a deal with Bookham to keep it out of the hands of competitors (see Coretek Is Closed).

— Pauline Rigby, Senior Editor, Light Reading