Industry Consolidation Heats Up

Aug. 15, 2002
Nashua, NH, August 15, 2002 -- The collapse of the optical networking industry appears to have speeded up dramatically in the last month, driven by VCs, banks, and major players deciding to cut their losses. It seems every major player in this market is either reorganizing or selling off its components business.

Nashua, NH, August 15, 2002 -- The collapse of the optical networking industry appears to have speeded up dramatically in the last month, driven by VCs, banks, and major players deciding to cut their losses. It seems every major player in this market is either reorganizing or selling off its components business; in the last few weeks alone, ADC Telecommunications, JDS Uniphase, and Bookham Technology have joined in the fire sales.

ADC is looking to divest its pump laser, tunable laser, and passive components businesses, while JDSU plans to sell its Cronos MEMS foundry to Memscap for $7 million, a far cry from the $800 million JDSU originally paid for it. Bookham is transferring its majority stake in Measurement Microsystems A-Z back to the former management and Haleos, which is in the midst of bankruptcy proceedings, claims to be considering bids from 3M and Shipley for its assets.

Corning's Intellisense has already lost or dropped most of its staff, and Corning revealed in its latest financials that it is looking to sell off other nonprofitable divisions, including its optical components business, which analysts says is worth $50 million. And Nortel has sold its 16-acre complex in Silicon Valley to a real estate development firm for $24 million, less than half the asking price.

The latest company to join the mass exodus is Agere, which has decided to exit the components business altogether. Agere is seeking a buyer for all or parts of this business, but will discontinue optoelectronics operations no later than June 30, 2003. Agere will discontinue or sell operations in its facilities in Dallas, TX, Alhambra and Irwindale, CA, and Matamoros, Mexico.

In addition, the company no longer needs to move manufacturing operations from its Reading and Breinigsville, PA, facilities to the Allentown, PA, facility. Instead, the company intends to sell the Reading and Breinigsville properties once it discontinues those operations and will move its remaining IC wafer fabrication line in Allentown to Orlando, FL, by the end of September 2003.
Agere continues to seek a buyer for the Orlando operations and intends to sell the plant as an ongoing operation, allowing the company to continue sourcing products from this facility.

This manufacturing consolidation is consistent with Agere's "fab-lite" strategy, which includes leveraging foundries for standard process technologies, continue its IC assembly and test operations in Singapore and Thailand, and maintain its wafer manufacturing joint venture with Chartered Semiconductor. All of these streamlining efforts are expect to reduce Agere's active workforce from 11,200 to about 7200 by the end of 2003.

While stockholders near and far are crying foul and the US Securities and Exchange Commission has requested additional financial information from at least 10 public optical networking and components companies (including ADC, Corning, Cisco, JDSU, and Lucent), many analysts and industry observers see this trend as more positive than negative.

"I view this as a good thing because it has taken too long until now to get from the 1000 current companies to the 300 we supposedly need to return this industry to profitability," said Conard Holton, editor-in-chief of WDM Solutions.

In the long run, some analysts believe that Nortel, Corning, and most of the start-up companies will likely lose out to the likes of Alcatel Optronics, JDSU, and smaller players like OCP and Finisar, and that others will find themselves in an even more positive position. In particular, Agilent and Intel could likely come out quite well once all the consolidation dust has settled.

"Agilent knows how to work with industry standards, make products inexpensively, and they are relatively healthier than most," said Tom Hausken, director, optical communications components, at Strategies Unlimited (Mountain View, CA). "Intel is just waiting to pick up the pieces at bargain basement prices to position themselves as the next leader in the communications market."

Kathy Kincade

Laser Focus World

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