Will Finisar engage in all of this development work on VCSEL bare die in its new fab in Texas just to take advantage of it for 3D-sensors applications? Why should not the vendor strive harder and take on Broadcom directly with possibly higher quality (and perhaps even functionally-differentiated, especially as this equipment continues to evolve) VCSEL ICs aimed at the traditional transceiver/active optical cable space, while offered at a reasonable price? Our belief is that Broadcom commands an extremely high premium for these devices and that there was no interest by the company in going after the apparently less impressive margins expected to be generated in the smartphone sector. At a bare minimum, Finisar will be able to potentially lower the internal costs of its own VCSEL modules being delivered to data centers, as a result of higher chip volumes for apps across the board.
Our suggested strategy would also have the benefit of not taking Finisar much out of its current comfort zone from both technology and market standpoints, as it went head-to-head with the ex-Avago on VCSEL modules in the past. Of course, it may be quite risky to go out of its way in competing with a significantly larger Broadcom on VCSEL bare die, so early in Finisar’s corporate transition to chips.
Broadcom has a solid reputation for offering the best performance and highest reliability VCSEL componentry. Conversely, a lot of Broadcom’s attention is devoted to substantially more pressing matters, such as with its efforts to acquire Qualcomm.
The motivation of Finisar’s new CEO could be a key factor in such a decision. Starting around the time of the merger between Avago and Broadcom, Michael Hurlston’s rather high profile at the latter seemed to greatly diminish. While we have no reason to think that he would intentionally put any conceivable, personal considerations before the best interests of Finisar, it would only be human nature to get some satisfaction out of any success against such a formidable player where he played a significant role in its development.
Some distress on the part of the present executives at Finisar with the new top leader is to be expected. If it were the current CEO of Broadcom in charge of the optical components firm, in our opinion, there would likely be aggressive, wholesale abandonment of major portions of its business that would probably not totally avoid the risk of alienating customers, as the goal would be to get profit margins for the company significantly higher as quickly as possible. We have heard through the grapevine that Hurlston has for now been spending his time going to the various departments at Finisar, and is just asking questions.
Of course, with MSAs and standards in optics componentry, the perceived abandonment of particular buyers of gear is not as acute, as there are other sources for making purchases. We suspect that Hurlston will take somewhat of a middle-of-the-road approach with the progression of the vendor in terms of moving away from its standard solutions.
Returning to the matter of Finisar taking a major leap into selling bare die for ultimate use in conventional applications, the supplier’s first press release under the new leadership, which focused so much on the firm’s vast experience with VCSELs, may be instructive. The chance of achieving margins noticeably higher than would be the case in selling to Apple and other purchasers of 3D-sensors may be hard to pass up. In moving the needle to a more impressive degree, Hurlston would face less internal resistance in making bolder moves in his efforts to transition Finisar to the ultimate goal of a consistently healthier situation.
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