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Optical components

TriQuint to Acquire Agere's Optics

Agere Systems (NYSE: AGR/A) dropped a bit of a bombshell this morning when it announced plans to sell a substantial portion of its optical components business to TriQuint Semiconductor Inc. (Nasdaq: TQNT) for $40 million in cash (see TriQuint Buys Agere's Opto Biz). The transaction is expected to close in January 2003, subject to approval.

The price tag is more sad evidence of how little the market for optical components is worth these days. Agere, which has been one of the top three players in the market for optical modules and components, announced back in August that it would either sell or close down its activity in this area in order to focus on the more lucrative business of advanced integrated circuits (see Lights Out for Agere's Opto Biz).

"Wow!" says Jay Liebowitz, president of consultantcy Liebowitz Strategies. "On the surface it definitely seems like TriQuint got a great deal."

He says that most folk were expecting a deal closer in size to Bookham Technology plc's (Nasdaq: BKHM; London: BHM) recent purchase of Nortel Networks Corp.'s (NYSE/Toronto: NT) optical components groups, which sold for a total consideration of $111.6 million (see Bookham Buys Nortel's Components Biz).

In the past, the sizes of Agere and Nortel's components businesses were roughly comparable. Indeed, some analysts placed Agere ahead in terms of past revenues, while some put Nortel in the lead, depending on how Nortel's internal sales were measured.

Liebowitz points out, however, that future revenues are more important to the acquiring companies than past performance. TriQuint is projecting that Agere's opto groups will contribute $50 million to $75 million to its revenues over the next fiscal year. Bookham, on the other hand, is expecting to bring in at least an extra $80 million over the next four quarters, from selling components back to Nortel alone.

Furthermore, the Agere sale involved only two sites -- manufacturing in Breinigsville, Pa., and assembly and test in Matamoros, Mexico -- while the Nortel sale involved multiple sites in both the U.S. and Europe. Around 300 Agere employees will transfer to TriQuint; the Nortel sale involved 1,300.

The TriQuint transaction excludes Agere's cable television transmission systems components business, for which the company will continue to seek a buyer.

TriQuint's executives are all cock-a-hoop. "I am delighted that we have been able to reach agreement with Agere to acquire this business," crowed Ralph G. Quinsey, TriQuint's president and CEO in a prepared statement. "It's a natural fit for TriQuint as we have been involved in the design and production of integrated circuits and products for the optical networking business for over 15 years, and it is a core part of our company."

Wall Street seems, so far, to consider it a good deal for each party. Both Agere's and TriQuint's stock climbed in morning trading.

"They [Agere] may not have got a great deal. But it speaks volumes about their ability to execute on what they said they were going to do," comments Liebowitz, noting that only two months had passed since Agere announced its intention to quit the optical business.

The acquisition news played a key part in Agere's earnings call, which took place this morning. For the fiscal year 2002, which ended on September 30, Agere reported an operating loss of $1.8 billion, compared to a $4.6 billion loss a year ago. This reduction was achieved on lower revenues of $2.2 billion for fiscal 2002, compared to revenues of $4.1 billion a year ago.

Thanks to the restructuring initiatives, Agere now expects to break even on revenues of $450 million at the end of 2003.

— Pauline Rigby, Senior Editor, Light Reading
www.lightreading.com
whyiswhy 12/4/2012 | 9:29:10 PM
re: TriQuint to Acquire Agere's Optics Great to interchange with someone who really knows their stuff. As to wa'SDL, the word on the street is: one reactor working, all others passing (cold) gas. Another big layoff coming. Sad. That reminds me to catch the webcast to see if they admit any of this.

Bye for now.

-Why
crystalgrower 12/4/2012 | 9:29:15 PM
re: TriQuint to Acquire Agere's Optics One of the other benefits SDL got was Opto pissed off their best grower who was doing ALL of their product material and she went to SDL and also helped make them fly!
Even with the help they got, you still have to give kudos to the original SDL team. They worked hard and built something good, although it remains to be seen what will be left of it!
Godzila 12/4/2012 | 9:29:18 PM
re: TriQuint to Acquire Agere's Optics Who woulda thunk it?

ME Opto is now Triquint (try what?). Sounds like an expression on the face when you cannot relieve yourself in the W.C.! Like something the Agere guys felt about their Opto business.

I agree with the last post on how management really did a number within Agere Opto. The downfall is to be blamed on the stupid games played by the management, instead of them trying to attack the market and striving to be a competitive business. Lucent/Agere/AT&T mentality does not bode well in this fast moving market.

You put Union and Management together and walla, what you get is a sure way to kill a company. In AgereGÇÖs case, both the union and Management had the same attitude in thinking more about saving their own jobs and playing games instead of minding the business. Yet, I think that the union folks really did turn around towards the end and for the most part were more willing to make personal sacrifices for the business than the management was. Management was aloof as ever, and never really understood that they were not in corn growing business!

I know the market has not been favorable to Agere's Opto business. Undoubtedly, the problems were caused by several factors; but I put the lack of direction on the part of management on top of the causes for this downfall.

Don't squint too much.
TheChief 12/4/2012 | 9:29:18 PM
re: TriQuint to Acquire Agere's Optics It is easy to see all points... my vote is for a hybrid. Management ran the future of the company into the ground financially and technologically while the union drove down the current productivity. These two are a losing combination.
=================================================

I agree! I think that this is more of a big corp thing than something limited to telecom. All the big US airlines are almost bankrupt while southwest is growing and has profits. I would like to see the telecom industry try to emulate the business structure of the industries that are making money today.
FiberGuy 12/4/2012 | 9:29:18 PM
re: TriQuint to Acquire Agere's Optics It is easy to see all points... my vote is for a hybrid. Management ran the future of the company into the ground financially and technologically while the union drove down the current productivity. These two are a losing combination.
whyiswhy 12/4/2012 | 9:29:18 PM
re: TriQuint to Acquire Agere's Optics Crystal:

Seems to me the government also helped SDL quite a bit on their 980nm program, but that's a minor point. Completely agree on the true cause of Ageres woes: poor management. Unions are symptoms, not diseases.

Unfortunately for TriQuint, the union (aren't there two?) is entrenched, and they are now infected by contact. Good luck.

-Why
gea 12/4/2012 | 9:29:19 PM
re: TriQuint to Acquire Agere's Optics "My point: Get off of the unions case! Managers kill companies, not labor!"

Hear hear! This should be patently obvious to all who have worked in Telecom over the last few years.

A point I keep making in this context is that this "Telecom Meltdown" seems to have been brought on entirely by poor management. Why do I say that? Because bandwidth demand has continued to increase during this time, like it always did...this collapse was not brought upon us by a calamitous drop in demand.

No, manager after manager convinced and incented each other to overbuild/overborrow/overspend on an absurd level of demand that materialized, based on very dubious data and the Ra-Ras of Gilder, Grubman, and Khosla.

And now witness that we engineers are suffering for this, while most of those responsible get renumerated to absurd levels, and are basically still in power.

If WE engineers had been unionized these last few years, the damage now would be much smaller, in terms of the disruption of our lives and incomes. Reg'lar working folks understood this during the first few decades of the 20th century, but we have yet to learn.
crystalgrower 12/4/2012 | 9:29:21 PM
re: TriQuint to Acquire Agere's Optics You guys so miss the point in regards to Agere's fortunes! Yes the union system wasn't the easiest or most productive thing to have on the shop floor and lowering labor cost is an advantage proportional to the amount of labor in a process. But losses due to labor at Lucent/Agere were an order of magnitude less than the losses due to incredibly poor decisions made by Agere management.

Case in point:A lot of the 980um pump technology sprang from Bell Labs. but the first succesful 980 product developed in the Labs was rejected by the Manufacturing management because "we don't want to grow anything with aluminum in it"! So the Labs developed an Al free product AND was forced to do reliability analysis and improvement for SDL who was supplying (at the time) crappy chips! While working with SDL to improve their product enough to make them rich, the tireless efforts of the Al-free folks resulted in higher performance and more reliable 980s! So what did the brains at LU/Agere decide? Al free stuff is too hard to grow, everyone else is using Al! Another multiyear project killed! But the 980 business was a big one, and it was a big cost to LU to buy, so another 980 program with the conventional AlGaAs/InGaAs was launched at the Labs and breakthroughs were made in facet coating and reliability with yields improved and gads of reliability data. So again the business was presented with a new product and their response was "We don't want to be in the pump business"! So what happened? the folks from the last project quit and a year later the business hired people to make 980s by MBE via the "IBM process". More millions were spent, more people quit pissed off and discouraged, and a few months ago the $2M MBE machine sold for $67K on auction!

And I know I'm ranting but this is only one of at least 100 multimillion dollar projects that failed not for technical reasons but for poor judgement and politics by high level managers that couldn't find their ass with both hands and a map!

My point: Get off of the unions case! Managers kill companies, not labor!
Dr.Q 12/4/2012 | 9:29:25 PM
re: TriQuint to Acquire Agere's Optics Sadly, in the latter half of the 20th century and into the 21st, a union job has come to be regarded as a sinecure. Lucent & Agere suffered a lot from the attitude on the part of some workers that 'You can't touch me--I'm in the Union'. [Same attitude contributed to death of Bethlehem Steel in the same area.] The west coast dock strike illustrates the same entitlement attitude.

To treat the issue fairly, I have to point out that this attitude was often in response to years of managers whose style was, "I'm a manager, You're a worker, Don't you ever forget that. You stay down there in your place." Treating people like 8th graders for years will make them act like 8th graders.

-Dr. Q
samwise 12/4/2012 | 9:29:28 PM
re: TriQuint to Acquire Agere's Optics From my personal experience working side by side with AT&T/LU/Agere union people I realize how the current union contract kills the competitiveness of US industry whenever the industry going through a tough time.
1. When times are tough, younger, harder working union people are first to go because of lack of seniority.
2. Those 30+, 40 yrs of service guys left behind have practically NO incentive to save their OWN jobs(!!) If the plant is closed, they can get TWO YEARS of extra pay and they can retire as well. If they work hard to keep the plant going, then they have to retire on their own, WITHOUT these two years of extra pay.

When times are good, the older union people enjoy extra pay from overtimes and extra perks, etc. There is little incentive for them to retire as long as they can still physically do the job. When times are tough, they bump the younger people and they are just waiting to see the whole thing up in smoke. For a while I had to work in a line with every union people with 30+ years of service, and that was the most depressing experience (for me, not for them). That line was eventually shut down after a few months and they got their wishes.
mcon 12/4/2012 | 9:29:33 PM
re: TriQuint to Acquire Agere's Optics not only do markets bear out the final outcomes; so do individuals.
while i'm not going to get into generalizations on people born with a silver spoon, everyone has choices in life to better themselves financially or otherwise.
my arguement is that unions have left the realm of humane treatment and now are red tape and bloated expenses for what?
union decisions are based on what is the best for the union. period.
for the record i would fall in the catagory of the poor, but planning on changing that by applying hard work and intelligence. i wish the same for everyone willing to put forth the effort.
mc
FiberGuy 12/4/2012 | 9:29:36 PM
re: TriQuint to Acquire Agere's Optics DW,

I think you are misunderstanding my point. I general, Unions are great ideas and provide wonderful jobs with stability. However, it is easy for me to see why some companies would look outside of unions for high volume manufacturing. That is my only point.

I think the issue here is the same as with "foreign labor" discussions in a previous room. It is too easy to see both sides as being partial right... how you make the call depends only on your experience.


FG
DarkWriting 12/4/2012 | 9:29:37 PM
re: TriQuint to Acquire Agere's Optics Sorry MCON and FiberGuy but until I see the gap between the rich and poor decrease for 20 years straight, I'm not buying your "old school economics" spiel.

DW
mcon 12/4/2012 | 9:29:41 PM
re: TriQuint to Acquire Agere's Optics i am a little suprised to find ignorance of this type on a site focussed on the future of things to come. my apologies if some people are just uninformed. it is productivity gains that fuel rising incomes across the board.
read: unions = stifling productivity
thinking of "me" is for dinosaurs on the way out.
outsourcing labor in favor of more productive employment is the way to higher wages.

standing in the way of progress strangles the efficiencies the market bears out. then the market goes elsewhere. remember when everyone worried about japan's auto dominance?
they implemented more efficient ways to manufacture as we were strapped with old equipment, old processes and people looking out for themselves.

apply to the same mentalities to LU, where a friend of mine (now at avaya), was told he needed to slow down once because he would make his co-workers look bad. (is it any wonder the japanese were able to do a better job?)

luckily, even though it doesn't seem lucky now, the market will bear out where the efficiencies are and reward those companies that have proactive employees.

that will leave alot of me-me-me's in the unemployment line to consider their work ethic.
if you really care about america's economy going forward, it would do us all well to leave outdated practices of delivering goods and services behind.
thx mc
FiberGuy 12/4/2012 | 9:29:41 PM
re: TriQuint to Acquire Agere's Optics gotta say mcon... I am off the same opinion. I am very Pro-American (in fact too much so at my last trip to Pearl Harbor -- too much anger), but in these times outsourcing to China is much cheaper than dealing with unions both internally and at CMs.

FG
TheChief 12/4/2012 | 9:29:42 PM
re: TriQuint to Acquire Agere's Optics Dr.Q wrote:

AT&T had been a cost-plus operation for generations, and the unions knew it, so they strong-armed lucrative contracts during the monopoly era.

To keep the tirade balanced, another of the problems was that the system had FAR too many managers
=================================================

This is the DoD companies after the Gulf War. Peace broke out and Clinton cut the DoD budget and look what happened. McDonald Douglas is a prime example. I worked very close with them on a project in the early 90's. The only way to go up the management ladder was to get an MBA and were a suit and tie every day. I was working in a lab in St. Louis wearing jeans next to a guy with a suit on, what a joke. By the mid 90's they went into a nose dive and survived only by being bought.

The telecom survivors will be the one's to reconize the problems Dr.Q outlined and change them.
crystalgrower 12/4/2012 | 9:29:44 PM
re: TriQuint to Acquire Agere's Optics While the unions may have contirbuted to a high labor cost at Agere/Lucent/AT&T, anyone who set foot in any location for more than a few hours would have to be totally clueless not to realize that the real problem there was the management (or lack thereof!)! I remember annual reviews where high level managers bragged that this year only 85% of the employees didn't trust or respect them, down from 92% the year before! There were some good managers there once, but they were all smart enough to leave many, many years ago after beating their heads against the wall trying to change things!


The only good thing about them staying together and going to TriQuint is that maybe it will slow down the "cancer" from spreading to the rest of what's left of our industry!

whyiswhy 12/4/2012 | 9:29:45 PM
re: TriQuint to Acquire Agere's Optics Looks like Agere is in for major culture shock, and at the same time TriQuint management better load up on coffee.

Are the unions still there? If so, I doubt Agere can be turned around. I saw the same thing in aerospace when they tried to compete in the commercial world: failed every time, even with the best technology. The culture was 8.0 hours and go home. Work for retirement, keep your head down.

Only by starting with a new crew in a new location (union-free) did it succeed.

It takes a total purge.
Dr.Q 12/4/2012 | 9:29:48 PM
re: TriQuint to Acquire Agere's Optics One of the fundamental problems with manufacturing in the AT&T system (by which I mean Lucent, Agere, Avaya, since this hasn't changed from pre-1984 days) is that the unions owned the factories. AT&T had been a cost-plus operation for generations, and the unions knew it, so they strong-armed lucrative contracts during the monopoly era. That entitlement mindset never dissipated after the monopoly break-up, and persisted into Lucent and Agere and Avaya.

To keep the tirade balanced, another of the problems was that the system had FAR too many managers. (Note that Agere's Opto ended 2001 with more managers than at start of 2001, but only about HALF as many total employees. As of July 2002 there were 1st and 2nd level engineering managers ((group managers and department heads)) who had had no-one reporting to them for >6 months.) It was cushy to be a manager in the AT&T system, for the same entitlement mentality reason noted above. The telecom bubble arrived in the late 90's just as Agere & Lucent were starting to make the painful adjustments to marketplace reality. The bubble let them continue to slide along on the old ways. It is a tragedy that so many people got hurt in the process.

-Dr.Q
Irishboy 12/4/2012 | 9:29:51 PM
re: TriQuint to Acquire Agere's Optics Un-American

What a load of old bollix.

I wonder if you took a poll of the 450,000 people that have been laid off from our industry in the last year, how many of them wish that they had been protected by unions?

The idea that US capitalism is an equal opportunity wealth creator has been proven over the last 24 months to be crap.

While the bosses have been persuading/forcing us to take 401ks instead of defined pension benefits, then raping those self same 401k's with their stock manipulation scamsGǪ.
While they give us options instead of cash, while paying themselves massive cash bonuses, deferred compensation scams with guaranteed returns, split insurance policies and defined pension benefits for themselvesGǪ...
While they ship our jobs off to Asia, and give us 2 weeks notice as their easy IPO deals hit the skidsGǪGǪ.

who is looking out for Joe 6pack........

What is Unamerican about a bunch of guys banding together to leverage their negotiating strength to protect an advantage they have, and to hell with the begrudgers.

Seems like a blue collar equivalent of a Compensation Committee to me!!!

Get real, bud. It's totally American to consider #1. The dockworkers have just been better at negotiating and had more strength than your average Joe. Fair Play to them.
DarkWriting 12/4/2012 | 9:29:51 PM
re: TriQuint to Acquire Agere's Optics >>>Soap Box: Sorry it does not seem to some to be "American" to say so, but unions are a noose around our economic recovery's neck. To wit, look what several hundred dockworkers have done to the retail industry's Xmas, (and therefore entire year). All because they want to be able to ensure that 20 or 30 clerks make 120K per year.<<<

Opto,

I am afraid you may be one of the "Dumb Republicans" I refered to in my previous posts. When the corporate executives in this country make 500X the average worker, perhaps a clerk making $120K isn't unreasonable (I don't think it is, by the way, but neither is the executive pay)? I would say that this economy rewards the people that can get the money any way they can, even if it takes unions. If we engineers are too stupid to figure that out, we get what we deserve.

Anxiously awaiting your lawyer post, no love lost there either.

DW
opto 12/4/2012 | 9:29:53 PM
re: TriQuint to Acquire Agere's Optics By selling the operation, Agere can essentially eliminate union and other employment liabilities that can as well be negotiated out of the deal by the purchaser. There is no other way to eliminate what seemed like good agreements formed 2 years ago. In this difficult time, union obligations remain a substantial obstacle for surviving. Any company doing manufacturing in China will run rings around breinigsville.

Soap Box: Sorry it does not seem to some to be "American" to say so, but unions are a noose around our economic recovery's neck. To wit, look what several hundred dockworkers have done to the retail industry's Xmas, (and therefore entire year). All because they want to be able to ensure that 20 or 30 clerks make 120K per year.

OK, I feel better now. Next post, I'll attack Lawyers...
sunra 12/4/2012 | 9:29:55 PM
re: TriQuint to Acquire Agere's Optics Well the math is pretty simple, if you have projected revenues of $50-75 million and you are going to lose $10-20 million generating that revenue then the $40 million price tag makes a little more sense.
whyiswhy 12/4/2012 | 9:30:00 PM
re: TriQuint to Acquire Agere's Optics My bad. This is the second day in a row. TriQuint, right. Same comments though.

-Whyiswhy
TheChief 12/4/2012 | 9:30:00 PM
re: TriQuint to Acquire Agere's Optics I would like to know what the cost estimates would be to shut down these 2 locations. My guess is that it would have be greater than the sell price. I heard that the cost for NT to shut down their sites would have cost over $150 mil, so getting $110 mil was great for NT.
let-there-be-light 12/4/2012 | 9:30:01 PM
re: TriQuint to Acquire Agere's Optics (before you get on my case)...
yes, i know, I messed up the html tags again...
let-there-be-light 12/4/2012 | 9:30:01 PM
re: TriQuint to Acquire Agere's Optics It's TRIQUINT, not Vitesse
and AGERE, not Lucent
<\i>

It must feel nice to be able to correct others for a change!!

[email protected]
Pauline Rigby 12/4/2012 | 9:30:02 PM
re: TriQuint to Acquire Agere's Optics It's TRIQUINT, not Vitesse
and AGERE, not Lucent

[email protected]
whyiswhy 12/4/2012 | 9:30:02 PM
re: TriQuint to Acquire Agere's Optics $40M is far less than the cost of the plant and product development costs (IP). Smart bottom feeding.

But: If Agere could not make a go of it, due mainly to negative cash flow, then it is hard to see how Vitesse can do it. In that sense, this is just like the BKHM/NT deal. New products, new management will be required: a major turn-around project. Not soon, not easy. Let's see.

-Whyiswhy
fusionboy 12/4/2012 | 9:30:03 PM
re: TriQuint to Acquire Agere's Optics "we're talking agere, not lucent"

'cause you put lipstick and a dress on a pig, don't mean it's not a pig!
gea 12/4/2012 | 9:30:03 PM
re: TriQuint to Acquire Agere's Optics Oops! Lost my mind there for a second. But the price still seems like Firesale to me.
ivehadit 12/4/2012 | 9:30:04 PM
re: TriQuint to Acquire Agere's Optics gea,
get with it! we're talking agere, not lucent.
gea 12/4/2012 | 9:30:04 PM
re: TriQuint to Acquire Agere's Optics Sure seems like Firesale prices. On the surface, it looks a lot like a price even stupid Lucent leadership wouldn't agree to, but had to in order to stay afloat.

I find it amazing that a division that will contribute between 50 to 75 million this year can get sold for $45 Million. Does this attest to just how incompetant Lucent's management is? (In other words, that they would be in a situation where they probably are forced to sell such an asset).
FiberGuy 12/4/2012 | 9:30:04 PM
re: TriQuint to Acquire Agere's Optics 1.) TriQuint? Am I the only one that thinks this is an odd aquisition? I guess it is the sign of the times.

2.) Why would they not buy the CATV components? That business is doing better than most... perhaps they have a buyer all lined up. Three come to mind: Harmonic, Arris, & Scientific Atlanta

I think only Arris fits the bill to buy that portion of the business as they are a well diversified company (electronics and optics) and have grown in the past through major purchases (such as Antec).

Just my free 2 cents...
FG
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