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
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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.
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.
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...
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.<<<


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.

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.

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.
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!

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.
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
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