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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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.

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.

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.

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.
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.
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
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!
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.
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.
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