Some previous assumptions go out the window, and certain, subsequent actions make greater sense, with our current understanding that Finisar’s destiny was out of the hands of its founder, Jerry Rawls. He did not voluntarily retire, but was forced to step down, from the CEO’s office, by the board of directors of the corporation. Looked at in this new context, we would assert that Rawls could have likely saved himself by just using a little imagination in making the financing work to enable a purchase of Oclaro. The appointment of the last CEO was only for one purpose: to sell the firm (of course, his quick dismissal validates that claim). Now while the trade conflict between China and the US allows the people working at Finisar to wish that approval for the deal with II-VI will not happen, it is probably inevitable that the culture of the former will erode anyway, whether it starts happening in the short term, or further down the road. If the merger does not occur, the Finisar board can just hire another “CEO” to perhaps go back to the idea of dismantling the firm, and then selling the piece-parts. From the US perspective, China remains a special case, regarding world security concerns, but the template that has been used so far is based on placing new tariffs and other barriers temporarily to gain concessions of all types, but not to keep them there indefinitely. Although both Lumentum and II-VI are in effect, holding companies, we would anticipate that the obliteration the “Oclaro” culture, which has been gradually happening, would be a lot worse at II-VI for Finisar, in that it will be quicker and more painful. It will be another casualty of the efforts of the hyperscale operators, as Finisar is primarily a data communications play. (While everybody should be resistant to blaming customers in general too much, there are just so many examples of a lack of good faith on the part of these buyers, such as the COBO farce, but most especially on pricing.)
The coming loss of the interaction and of the comradery between the talented engineers at both Finisar and “Oclaro” will negatively affect the optical business as a whole. The necessary high-end developments on that debilitated datacom side, will be further hampered.
Also, any interesting, candid banter, will be even in shorter supply at conferences. We can now look forward to hearing more disingenuous proclamations on the rate of technology change (along with the mandatory inflated projections), incessant concentration on speed and feeds, and an even greater amount of time spent away from practical, unsexy, products, like data center VCSELs, which form the basis of the marketplace.
Moreover, there will be less insistence on making apples-to-apples comparisons on solutions, and a much lower chance for executives to make important public statements, regardless of the risk, such as Finisar’s legitimate criticism of silicon photonics several years ago (while Lumentum had a number of previous opportunities to address the matter, it was rather late to the party). Additionally, “Oclaro” expressed the unfairness a while back of having to be responsible for designing on-board optics solutions, after investing so much in various form factors for 100G. Furthermore, a Google will have far fewer reliable technology partners to work with in achieving its technical plans.
There will be individuals from Finisar and “Oclaro,” who choose to either seek out refuge in less onerous work environments, who choose to retire, or who will get involved with new start-ups. Both the trade press and the research firms will express great excitement over these new ventures, without the perspective of what was lost. They will exaggerate their ability to make a substantial difference in the space.
Obviously, these newcomers cannot afford to go head to head with the much larger players in the market. The most successful entrepreneurs will strictly stick to the conventional strategy of hitting the niche opportunities, ignored by the bigger entities, while avoiding the commoditization trap, through customization of devices for specialized applications.
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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]