Simply by a process of elimination, it is difficult to foresee any other player besides Finisar being interested in purchasing JDSU’s planned spinoff of its optical components portfolio, Communications and Commercial Optical Products (CCOP). Such a deal would provide Finisar with further diversification in the telecommunications transport space as well as potentially in new business sectors. Also, to whatever extent they presently go head to head with each other, it would eliminate a competitor from engaging in the cutthroat pricing behavior that is so prevalent in the market today.
With its heavy focus on data communications, some industry observers have mentioned Avago Technologies as a possible acquirer of those JDSU assets in order to broaden its product line. However, there is a high likelihood that Avago would have a hard time justifying such a takeover after its relatively recent buyout of CyOptics, which was decided upon partially to bolster its telecom business.
More to the point, Avago would not want to take a big hit to its comparatively impressive gross margins by bringing on such a wide array of single-component devices, which would hardly result in premiums. Nevertheless, one should not totally rule out a token effort to engage in the bidding process in order to help jack up the price on CCOP that a Finisar would have to pay.
Another company that has come up as a possible suitor is newcomer to the space, Koch Industries. Yet, it appears that Koch’s main interest in optical componentry is very targeted to a particular niche application, really as just a conduit — for OEO conversion in the connectors of high-speed cables.
Regarding firms in Asia, it seems doubtful that Japanese vendors, such as Sumitomo Electric and Furukawa Electric would have much interest in picking up CCOP. Historically, they have not been inclined to grow their companies through M&A types of actions with western suppliers, to a large degree because of cultural differences. In addition, the US government has not allowed even quite small electronics providers facing imminent shutdown to be acquired by Chinese companies.
[written by Mark Lutkowitz]
(For additional discussion on Avago, please click here.)