A recent press release written in Chinese apparently demonstrates that Hon Hai Precision Industry’s Foxconn Interconnect Technology has purchased some of Avago Technologies’ optical product lines. Our current understanding is that Foxconn will take over Avago’s module business fully, such as for QSFP transceivers, which has lower margins because of a high level of market competition, with the latter still providing the former with higher margin components, including lasers, TOSA/ROSAs, etc. FoxConn excels in the low-cost assembly process of incorporating such components.
In fact, in what has been described by an executive at another optical company as a fantastically brilliant strategy of giving the assets away, including the Singapore operation, development people in the US, sales and marketing, etc., while maximizing margins, it is our present belief that Foxconn did not pay with cash. According to our latest findings, it appears that the Taiwanese firm has actually promised to pay back the value agreed to in the divestiture by purchasing componentry at prices higher than the going rates from Avago. So, in effect Avago is selling off this business at a premium, which will make its balance sheet look really good, not to mention the overall valuation of the company.
Please stay tuned to our website for any new developments on this transaction.
[written by Mark Lutkowitz]