Optical components

The Asian Invasion

As the telecom downturn continues, the exodus to Asia plods on. A flurry of recent news shows that component suppliers are still moving large chunks of manufacturing overseas.

Last week, Dowslake Microsystems, a startup specializing in optical subsystems, announced the replacement of its Ottawa manufacturing facility with a new plant in China (see Dowslake Opens Production in China).

Today, Agilent Technologies Inc. (NYSE: A) announced the opening of two new R&D and manufacturing facilities in Malaysia (see Agilent Opens in Malaysia); and Oplink Communications Inc. (Nasdaq: OPLK) touted the expansion of its manufacturing efforts in China (see Oplink Goes for Outsourcing).

Clearly, it's still fashionable to cut operating costs by moving to cheaper labor and facilities in the Far East. It's also a trend that has many risks, arising from a horde of differences in currency, culture, and politics, as well as the looser constraints on intellectual property in countries like China (see US to China: Do You Copy?).

The risks aren't proving much of a hindrance when it comes to bottom-line concerns, like survival. "Cost has become critical to success in the components space... You need to have at least a 35 percent price advantage over an incumbent competitor to break into a new account. So manufacture in a low-cost area becomes very attractive, if not inevitable," writes Lawrence Gasman, president of Communications Industry Researchers Inc., in an email today.

For Dowslake Micro, cost cutting was the impetus for opening a 14,000-square-foot facility in Shanghai. Dowslake already has customers in the U.S., Japan, China, and Europe and has been shipping for revenue since the second quarter 2002, according to Dan Yang, the China-born founder of Dowslake, who sold her first amplifier company to JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) (see Dan Yang's Next Big POP?). "This year we are fighting for break-even," writes Yang in an email. Hence the move: "The reason why we moved manufacturing to China is for the lower operating cost." [Ed. note: Well, duh!]

Dowslake is moving only its manufacturing to China and will maintain its headquarters, with R&D, marketing, and finance, in Santa Clara, Calif. Yang says the number of employees will reach about 15 stateside and 30 in Shanghai when hiring is complete.

For its part, Oplink, which also makes optical subsystems, is seeking to "leverage... optical expertise and low cost manufacturing facilities in China, offering OEMs the opportunity to maintain the high-quality production of integrated optical solutions at a lower cost," according to its press statement.

Agilent says the Asian market itself is a reason it's added 550,000 square feet of new facilities in Malaysia, bringing the company's total presence there to 1.2 million square feet on 63 acres. The company's press statement says "Nearly 40 percent of Agilent's total orders and revenue originate in the Asia Pacific market."

Agilent's counting on more of the same business, as orders elsewhere continue to weaken (see Agilent Reports a Loss). A company spokeswoman says 40 percent of Agilent's manufacturing is now done in the Asia/Pacific region; 40 percent in North America; and 20 percent in Europe. These figures will change over the next year, with 50 percent of manufacturing taking place in Asia/Pacific. The company says there won't be corresponding shutdowns of capacity elsewhere, but no information's available on what the percentages will be in the West.

But has it really been worth it for component vendors to make the move East? So far, it looks as if the jury's out. Agilent's recent financials show ongoing losses. Despite its efforts, Oplink continues to show lackluster financials (see Oplink Reports Q2) and keeps struggling for its own identity in a risky market (see Oplink 'Restructures' Half Its Staff, Oplink Changes Chiefs, and Avanex and Oplink: Wedding's Off). The real condition of Dowslake, still a privately held startup, is an open question.

One key problem is that the industry's woes lie in lack of demand, not the cost of supplies. In fact, in a demand-constrained environment, lower prices merely present the second edge of the sword.

Jay Liebowitz, founder and president of consultancy Liebowitz Strategies, points out that companies that have moved the manufacture of simpler passive components to China aren't showing any growth, yet they're dropping prices at the same time: "Passives prices have fallen 85 to 90 percent. Some of that is attributable to moving to China. It hasn't stimulated greater revenues. At best, companies are finding they need to make eight or nine times more product just to stay where they are," Liebowitz says.

Gasman of CIR sees other issues. China may have cheap, reliable labor now, but the future calls for more sophisticated technology, he thinks. "Manufacture of simple components such as TFFs and fixed OADMs has been carried out in Asia for quite a few years," he writes. "I would say that the ability of Asian manufacturers to produce complex integrated optics products is unproven, although I think it is just a matter of time before their competence is established."

Ironically, as China's workforce and vendors strengthen their presence in integrated components, the companies that moved to China may see the value of their operating savings evaporate in the face of competition. Still, at least for the short term, the tradeoff seems to be helping many stay alive to face that risk.

— Mary Jander, Senior Editor, Light Reading

<<   <   Page 2 / 10   >   >>
mrJade 12/5/2012 | 12:31:26 AM
re: The Asian Invasion BobbyMax ....what can we say about him...RETARTED!
Iipoed 12/5/2012 | 12:31:31 AM
re: The Asian Invasion Why does anyone care about your opinion of BobbyMax, Get a life and post something worthwhile
calpole 12/5/2012 | 12:31:32 AM
re: The Asian Invasion Even if it is extremely clear, Bobbymax
at best is a college drop out,

1. He must be in his 55-65, because he attended
school at a time when there used to be
a few Indian students in the US univs.

Otherwise, he would have learned that all the toppers in any diacipline in any US univ
is an Indian with 75% probability.

2.Where did he get 6-7M Vietnamese?

By his other posts, it is clear that he
has no knowledge of any thing. Again to educate
him more, I would just like to remind him, the
kind of Mathematics and Physics we have
done in our 11th std. in India is even better than
that what US kids receive in the first year
of college.

But still, for research & higher studies,
US universities are better because they have a tradition of 100-200 years where as India was liberated only 50 years back..

vermillion 12/5/2012 | 12:31:39 AM
re: The Asian Invasion Getting back to the topic at hand:

This story is of the very lowest quality, even for LR. Why? Because it concentrates almost entirely on the irrelevancy known as DowsLake Microsystems and their move to China. [Boo! Hiss...]

The DowsLake move to the Shanghai area is utterly meaningless when compared to something like JDSU's move of all but the kitchen sink to Shenzhen. What's wrong with focusing on Agilent? I think we all agree Agilent will still be around next year.

Leaving that aside, let's talk about DowsLake. I checked out a couple of the stories on LR and the company website, and I was apalled. Let me explain.

1. Welcome to Amateur Night
I met a guy from Ottawa once whose job it was to work with Dan Yang after JDSU's takeover of AFC's amplifier business. He claimed he would, say, ask for a design drawing, and she would get out a scrap piece of paper and a pencil and start doodling. Pathetic if true!

Good thing her new company is going for ISO certification later on this year, AFTER her she teaches granny and her mah-jiang circle how to build the modules. It'll be SO much easier to make it up as you go along and then fake the process documentation later. What a joke!

Hasn't this industry grown up yet? Do we really have people who would be players, whose process is two doses of seat-of-the-pants and one dose of yeah-whatever? I thought the long, dismal downturn was supposed to be our time-out to fix all of that amateurish crap!

2. Home for Lunar New Year
Considering that the leadership of this fart-in-a-windstorm of a company appear to be Nanjing U. Physics cronies with graduate degrees from U.S. universities, I would have expected them to do a runner for the cheap labour in their glorious motherland a long time ago. DowsLake hardly qualifies for the theme of the story--telecom components manufacturing moving to Asia. It's more about networking with their mother country: "After you visit for New Year and scarf down a bowl of dumplings with granny and her mah-jiang circle, make sure they wash their hands before they start assembling the amplets!" (or is that "amp-lings" ???).

The fact that they are only doing the move now suggests that they never had customers before, so that economies-of-scale were irrelevant. Now they may either be getting desperate or finding some sales in China (???).

Does the press for DowsLake actually mean that LR editors suspect that DowsLake has some guanxi (connections) that will help them make things happen in China? From what I understand, a few well-placed "uncles" in high places can make a very big difference to doing business in China.

vermillion 12/5/2012 | 12:31:40 AM
re: The Asian Invasion I sincererly apologize to all Light Reading message board readers for my juvenile attack on Bobby Max: "BobbyMax, you Ignornorant Slut!".

Naturally, I meant to say:
"BobbyMax, you Ignorant Slut!"

My fingers acquire a slight stutter when I get to writing a flame like that. Kind of pathetic, huh?

vermillion 12/5/2012 | 12:31:40 AM
re: The Asian Invasion ODH, allow me to explain something. BobbyMax is a complete idiot. We can let the Pidgin English spelling go, but the content is consistently idiotic.

To paraphrase a line from days of old when SNL was still funny: BobbyMax, you Ignornorant Slut! ODH is right, you should stick to the topic: the move of telecom manufacturing to Asia. That goes for crapshooter and his girlfriends too.

BobbyMax: As for your characteristically irrelevant tangent to the topic of interest, please go to http://www.nobel.se and check out the names and nationalities of the laureates, especially in Physics. You will find a number of Indian and Chinese names, both representing India and China, and those listed as Americans.


BobbyMax wrote:
"America was invaded by Asians since the mid sixties, ..."

If you have read this article, the subject is the opposite. It's "Asia invaded by Americans" with various optical and semiconductor technologies for the manufacuring expertise. The technology and consumption are from America.
GO_PHOTON 12/5/2012 | 12:31:42 AM
re: The Asian Invasion > I dont know about China, but India has some of
> asias best management schools and lot of
> indians study in top american mngmt schools
> too. there is no shortage of mngmt talent in
> india.

Asia's best colleges are in Japan, Hong Kong,
Singapore, Taiwan, period. In today's world
it is simply not possible to have good universities without having the best

crapshooter 12/5/2012 | 12:31:44 AM
re: The Asian Invasion I've tried to be kinder in my last couple of posts. I see that neither of you will accept an olive branch. We obviously have differences of opinon. Who is right and who is wrong? Neither...that's why they're called "opinions."

You are nit-picking way too much with these posts.

It's Sunday and, after today, I won't have time to really check the boards until next weekend. I am not going to respond to either of you any longer.

ODH 12/5/2012 | 12:31:44 AM
re: The Asian Invasion
BobbyMax wrote:
"America was invaded by Asians since the mid sixties, ..."

If you have read this article, the subject is the opposite. It's "Asia invaded by Americans" with various optical and semiconductor technologies for the manufacuring expertise. The technology and consumption are from America.
crapshooter 12/5/2012 | 12:31:45 AM
re: The Asian Invasion FH,

Well said on all accounts. You've expressed things better than I.

<<   <   Page 2 / 10   >   >>
Sign In