In recent weeks, there has been a flurry of acquisition activity with three optical component companies being purchased by non-traditional kinds of acquirers, particularly players in the short distance, communications market including data centers. These buyers, such as Huber+Suhner and its takeover of Cube Optics, are definitely concerned about an adequate supply of componentry being available. Evidently, even big enterprises with large data centers have the same types of worries as they are also investing in optical device development, as pointed out in a previous blog article.
M/A-COM bought BinOptics at the premium price of $230 million (probably four to five times revenue) to ensure adequate access to laser semiconductors. The bottleneck created by Avago Technologies' pickup of CyOptics last year was a significant catalyst.
In the past, JDSU and Finisar had a major role in such M&A activity involving optical components. They had the cash and had dominant positions in the overall market. However, the situation has changed dramatically with JDSU’s plans to spin off that portion of the business, and Finisar struggling to keep its margins up.
There is a fundamental problem with any components company trying to make money in just optical communications. Oclaro, another prominent supplier in the market, appears close to running on fumes. Still, we believe it may have a great opportunity to spin out its fab or just become a chip supplier firm.
In contrast, Avago's performance is much better than the rest of the large vendors because of a greater amount of diversification. However, it seems that its biggest problem is its proclivity to potentially burn bridges with major customers, especially with its insistence on not necessarily playing the normal game of lowering its prices with higher volume purchases.
The third acquisition in recent days was with Koch buying Oplink. It was somewhat less of an aberration compared with the other two purchases mentioned earlier because of Koch’s overall movement in a componentry direction with its buyout of Molex last year.
[written by Mark Lutkowitz]