Stephen Simpson, CFA
Darspal S Mann
Mar. 29, 2015, 7:39 PM
- Optical component industry consolidation "was a common topic of discussion among investors and companies" at the industry's recent OFC conference, reports Piper's Troy Jensen. "The reasons for consolidation are well known and center on operational expense savings, a more rational pricing environment, and more complete product lines."
- One deal that's viewed as especially likely: A Finisar (NASDAQ:FNSR) purchase of JDS Uniphase's (NASDAQ:JDSU) optical component/laser unit (CCOP), currently set to be spun off as Lumentum Holdings in Q3. Activist Sandell Asset Management has been urging JDS to sell CCOP, which had FY14 (ended June '14) revenue of $794M (+7% Y/Y). Jefferies' James Kisner thinks a deal could happen, but not before the spinoff occurs.
- Jensen on industry consolidation in general: "The question isn't really an if, but more of the urgency of potential sellers and buyers and also at what price a deal would take place. In general, our feeling is that investors were slightly more anxious for a deal, while companies we spoke with sensed the need for consolidation, but were less anxious."
- The industry has already seen a decent amount of M&A. In addition to CCOP, smaller component vendors Oclaro (OCLR - $213M market cap), Alliance Fiber (AFOP - $308M market cap), Applied Optoelectronics (AAOI - $196M market cap), and NeoPhotonics (NPTN - $217M market cap) could be targeted. NeoPhotonics has soared since delivering a big Q4 beat (fueled by strong 100G component demand) on March 3.
Nov. 20, 2014, 1:38 PM
- Optical networking hardware vendors and their component suppliers are turning in a good day. The gains come a day after component vendor Oplink announced it's being acquired by Koch Industries for $445M, and will be managed by connector maker Molex (a Koch subsidiary).
- RBC thinks Koch's entrance into the slumping component industry could trigger further consolidation. "Current fab utilization rates remain low ... with optical component vendors unable to charge a premium for their innovation. Gross margins are currently weighed by competitive pressures with optical component makers willing to cut pricing to account for high fixed costs."
- The firm believes Finisar (FNSR +1%) could be a buyer, and JDS Uniphase (JDSU +1.5%) and Oclaro (OCLR +7.1%) sellers. JDS, set to spin off its component unit, is facing activist pressure to put the business on sale.
- Meanwhile, Ciena (CIEN +2.8%) announced this morning it's partnering with Avaya to offer an enterprise solution that pairs its optical networking and integrated optical/Ethernet gear with Avaya's Ethernet switches. Like peers, Ciena is trying to lower its dependence on pressured carrier capex budgets.
- Other gainers: AFOP +3.7%. NPTN +3.3%. ADTN +2.7%. INFN +1.9%.
Jan. 8, 2014, 5:23 PM
- Finisar (FNSR) is acquiring u2t Photonics, a German maker of 100G optical components (specifically, receivers and photodetectors), for $20M in cash + $7M in assumed net debt. With u2t having posted 2013 revenue of $33M, Finisar is paying just 0.82x trailing sales. (PR)
- Finisar, which has already partnered with u2t to create 100G modulators, says the deal will help it deliver end-to-end/vertically integrated 100G modules, as well as build smaller modules and products supporting higher data rates.
- Demand for 100G optical networking systems has been taking off over the last year. Finisar's purchase comes amid ongoing concerns (dismissed by the company) about the long-term impact of 100G silicon photonics solutions being developed by Cisco, Intel, and others. u2T's components rely on indium phosphide, a relatively costly/high-performance material.
Apr. 11, 2013, 9:43 AM
In addition to announcing it's acquiring CyOptics, Avago (AVGO -0.3%) is creating a 20M-share buyback authorization (good for repurchasing 8% of shares) to replace a 15M-share authorization that just expired. CyOptics, which had 2012 sales of $210M and relies on an advanced material known as indium phosphide, lowers Avago's dependence on its wireless chip business (over half of sales), and makes the company a tougher optical component rival to JDS Uniphase (JDSU) and Finisar (FNSR). Avago asserts CyOptics' products strengthen its hand in the 40G/100G space, an area Cisco and Intel are also interested in.| Apr. 11, 2013, 9:43 AM
Jan. 10, 2013, 1:04 PM
Alcatel-Lucent (ALU) has acquired Capella Photonics, a maker of advanced wavelength selective switch (WSS) components for optical switching hardware. The purchase comes after ALU reported a 17.5% Y/Y Q3 sales drop for its Optics division, and at a time when the company is reportedly mulling the sale of its submarine optical business. Finisar (FNSR) is a major WSS component supplier.| Jan. 10, 2013, 1:04 PM
Mar. 27, 2012, 9:34 AM
Up initially following its all-stock acquisition of Opnext (OPXT +47.8%), Oclaro (OCLR -7.1%) is now lower. Concerns about the deal's premium, and perhaps the potential for share loss as customers strive to keep a diverse stable of suppliers, could be having an impact. That, in turn, has brought Opnext shares down to $1.67, well below the $1.96 price implied by yesterday's close. Rivals are trading higher: FNSR +3.4%. JDSU +2.2%. NPTN +1.1%.| Mar. 27, 2012, 9:34 AM
Mar. 26, 2012, 4:32 PM
Oclaro (OCLR) is acquiring rival optical component vendor Opnext (OPXT) in an all-stock deal that values Opnext at $1.96/share, or $177M, based on today's close. Oclaro will be issuing 0.42 shares of its stock for every Opnext share outstanding. Many have speculated the optical component market is ripe for consolidation. OCLR +2.2% AH. OPXT halted. FNSR +0.9%. NPTN and JDSU could also see volatility.| Mar. 26, 2012, 4:32 PM
Mar. 7, 2012, 4:00 PM
Saddled with too many vendors and excess capcity, the optical component industry is due for consolidation, says industry analyst Subu Subrahmanyan, who also speculates Oclaro (OCLR) could merge with Finisar (FNSR) or JDS Uniphase (JDSU). Finisar CEO Jerry Rawls says deals are often discussed, but disagreements over price and fears of post-merger market share losses are standing in the way.| Mar. 7, 2012, 4:00 PM