Newport, Oclaro to exchange assets: New Focus for Spectra Physics

June 4, 2009
June 4, 2009--Newport Corp. (Irvine, CA) and Oclaro, Inc. (San Jose, CA) have signed definitive agreements for an exchange of assets and cash. Under the terms of the agreements, Newport will acquire the New Focus business of Oclaro's Advanced Photonics Solutions division, along with its portfolio of products. In exchange, Oclaro will acquire Newport's Spectra Physics high power laser diode manufacturing operation and receive $3 million.

June 4, 2009--Newport Corporation (Irvine, CA) and Oclaro, Inc. (San Jose, CA) have signed definitive agreements for an exchange of assets and cash. Under the terms of the agreements, Newport will acquire the New Focus business of Oclaro's Advanced Photonics Solutions division, along with its portfolio of products including opto-electronics, high-resolution actuators, opto-mechanics, tunable lasers, vacuum and ultraclean solutions, and OEM-engineered solutions. In exchange, Oclaro will acquire Newport's Spectra Physics high power laser diode manufacturing operation, located in Tucson, Arizona, along with $3 million in cash.

Oclaro was recently formed through the merger of Bookham and Avanex (completed in April 2009), which created one of the largest suppliers of optical components, modules and subsystems to the fast growing long-haul and metro optical telecommunications markets. The transaction will help Oclaro expand its high power laser diode portfolio, providing deeper expertise in systems and packaging to target higher value solutions in new markets. By leveraging the Newport product line, Oclaro's brand, chip design, technology innovation and manufacturing infrastructure, Oclaro hopes to become the largest merchant supplier to the high power laser diodes market. This portfolio has the potential to yield gross margins of 40% or better, Oclaro says.

Newport president and CEO Robert Phillippy said, "The New Focus acquisition brings a strong intellectual property position, a well-recognized brand, and a highly differentiated product portfolio to Newport. New Focus' product lines are an exceptionally good fit with Newport's existing offerings. New Focus' sales in 2008 were approximately $30 million, of which 70% consisted of products that will be integrated into our Photonics and Precision Technologies Division and marketed through our industry-leading product catalog and e-commerce website. Another 20% consisted of a family of tunable and single-wavelength lasers that we currently do not offer, and that will fit well with our Lasers Division. The remaining 10% of New Focus' 2008 revenues were from subsystems for OEM applications, primarily for semiconductor equipment manufacturing customers. While this market is currently at the trough of a deep cyclical downturn, it has performed well for both companies in the past and we believe that New Focus' OEM subsystems business has excellent upside potential over the longer term."

Newport noted that the majority of the photonics products being acquired are being manufactured at Oclaro's plant in Shenzhen, China, and will be transferred to Newport's facility in Wuxi, China, approximately doubling the manufacturing output of that facility. Lasers and electro-optical products that are currently manufactured by Oclaro in San Jose, California will be transferred to other Newport facilities.

The company reported that it expects the transaction to provide incremental profits of $5 million to $8 million in the first full year following the completion of integration.
As part of the transaction, Newport will pay Oclaro $3 million in cash to reflect differences in the revenue levels of the two businesses, as well as to compensate Oclaro for the higher costs involved in transitioning the diode manufacturing business to its fabrication facilities in Europe. In addition, the two companies will enter into an agreement for Oclaro to be a strategic supplier to Newport of high-power diodes for incorporation into its Spectra-Physics laser products. Both companies will provide transition-related services to the other during an integration period of six to twelve months.

Phillippy added, "From a strategic perspective, we are acquiring a portfolio of high-value photonics products and systems that serve our core markets, while exiting a diode laser business that is less aligned with the focus and profit model of our Lasers Division. Oclaro owns highly differentiated intellectual property in diode technologies and has significant design and manufacturing resources at its facilities in Caswell, England, and Zurich, Switzerland. By combining our diode laser business with theirs, we will have access to Oclaro's technology and manufacturing scale to purchase industry-leading diode lasers at very competitive price levels."

"Oclaro is executing on its strategy to become a predominant force in the fiber optics industry," said Alain Couder, president and CEO, Oclaro, Inc. "Through a series of strategic moves, Oclaro plans to leverage our core competencies to expand our leadership position in selected markets and accelerate the pace of photonics innovation. The high power laser diodes business is ideally aligned with Oclaro's business model, corporate growth strategy and core competencies. The consolidation of the Tucson fab into Oclaro's Caswell and Zurich fabs is expected to increase wafer volumes by about 30% and improve the gross margin for Oclaro's telecom products as well."

The product line is complementary to Oclaro's single emitter and bars products and offers new growth opportunity for Oclaro in the medical and analytic, printing, and industrial applications in Japan and North America. The Newport Spectra Physics high power laser diode business and the Oclaro New Focus business are comparable in size, each with revenues between $20 million and $30 million in the twelve months ended March 31, 2009.

The agreement includes a 4-year supply agreement whereby Oclaro will be sole source supplier of diodes to Newport Spectra Physics for a one year period followed by majority allotment for the next three years. With no customer overlap, Oclaro expects the acquisition to be seamless to both Oclaro and Newport customers. Oclaro will purchase the operating assets of the Spectra Physics Tucson, Arizona facility, as well as the intellectual property of the diodes business, while Newport retains all obligations under the facility lease.

"With Oclaro as our trusted partner, Newport can focus on its own core competencies as a laser systems supplier," said Dave Allen, vice president and general manager, Spectra Physics Laser Division, Newport Corporation. "We chose Oclaro specifically as our outsourcing partner, due to their world-class chip design and manufacturing infrastructure. Those strengths combined with the Spectra Physics systems understanding and packaging expertise will create a power house in the high power laser diode business, ideally suited as the primary supplier to Newport."

The transaction is subject to customary closing conditions and is expected to close within three to five weeks.

For more information visit Newport's website and Oclaro's website.

Posted by Barbara G. Goode, [email protected], for Laser Focus World.

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