In what seems to be a feverish attempt to extract itself from what may turn out to be one of the biggest exit blunders in optics history, Acacia Communications, which for most of its existence was considered quite secretive, has ostensibly set a record for a publicly-held supplier in the space, after the intention of its acquisition had been announced, in terms of devoting extensive resources to public relations/marketing matters. Usually, the messaging activities of such a public company are pretty confined, like in just providing the standard, condensed, quarterly financial reports and continuing to show up at major business conferences – and even Acacia has avoided issuing any formal press releases. Still, there has been a non-stop PR blitz of new pieces on its blog, articles in other publications, social media submissions, published white papers, and an email blasted invitation earlier this month to market research firms/trade press outlets to get further elaboration on a particular concept. These pursuits by the firm would not totally be about the prospect of it being in arrogant denial about its inability to retain its manufacturer customer base – as there is the appearance that they are being performed without the blessing of its expected new parent company. In fact, the rhetoric seems designed to somewhat antagonize Cisco Systems, most notably in discussing future capabilities, such as 1.6T, or regarding its OpenZR+ plan. Most astonishing, was the reaction by an Acacia executive to our inquiry at ECOC 2019, concerning his confidence level about Cisco continuing R&D work in DSPs, where attendees would have been easily been left with the impression that they might as well have been two ships passing in the night.
fibeReality has addressed Cisco’s narrow purpose with Acacia as mirroring what happened by the acquisition of CoreOptics at 100G, in that it was solely about achieving a short-term, vertical integration, cost advantage. According to our latest intelligence gathering, Cisco tremendously dropped the prices of its CFP2s, soon after the acquisition announcement. Even with our anticipation that the large supplier will be transitioning away from systems toward chips, it would not be in time to hypothetically help Acacia, nor do we believe that Cisco has any desire to make about a $60 million commitment to a new DSP anyway.
The communications about ZR+ would be another plausible case of being in conflict with Cisco’s original plan for Acacia’s acquirement, as we discussed in the first hyperlink above: “its utility will be apt to max out with the 400G-ZR.” Yet, it seems highly doubtful that any kind of perceived insubordination before closing would persuade Cisco to pull out of the deal in the same way that II-VI stuck with Finisar, despite the former apparently realizing the leadership of the latter had been engaging in destructive actions in making a concerted effort to try to sell off its IC Group.
There may be other reasons for Acacia’s unorthodox actions, including even delusional dreams of a “white knight” coming along to save the corporation. Could Acacia be preparing for the chance that it may have to remain independent (and perhaps later attract private equity firms) because the closing of the deal (including approval by China) may never happen at all? Do such actions also have short-term implications in attempting to maintain a higher, perceived valuation during just the mutually agreed-upon, long-waiting period, as its actual financial performance would be expected to decline markedly, relatively soon, as transmission gear vendors continue the process of walking away to other sources for DSPs -- which, of course, Cisco was likely counting on from the beginning, in order to renegotiate the terms?
Once again, this news bombardment is all the more extraordinary in that concealment was a major part of Acacia’s strategy before the broadcasting of the intended purchase by Cisco. At trade shows, the emphasis by the former was not on booths, and meetings were by invitation only, and always held in private rooms, with the need to get through security guards. Nevertheless, Acacia had already become very well-known as the DCO and DSP technology leader in the merchant market, and in our opinion, it looks as if there is no other reasonable explanation for the firm’s unusual behavior other than it is grasping at straws to deal with internal, frenzied desperation.
In addition, all of these endeavors will not make up for the intense dislike by the industry in taking advantage of its formerly monopolistic position and/or choosing Cisco to be its acquirer, nor with its credibility issues. Beyond the infamous occurrence with ADVA, we understand that there was a problem several years ago with its CFPs, which was not conveyed to its buyers, and Acacia ended up in the recalling or replacing of thousands of these devices. In short, the safest bet is that Acacia will remain ensnared in its present predicament.
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As always, fibeReality does not recommend any securities, and this writer does not invest in any companies being analyzed by us.
[written by Mark Lutkowitz]