On our daily market perspectives page, we have been discussing the mystery surrounding the lack of discussion on Amazon at public events involving MACOM Technology Solutions and Fabrinet. While there is not access to what was totally addressed at these conferences, as we go to publication of this article, it appears that both of the companies are ignoring the opportunity, and for whatever reason, the financial analysts at these meetings are not asking any questions on the matter. As a result, there remains only the notes of one investment firm, which was likely selected for being the most bullish on the optical space recently, as the only obvious source of the apparent agreement between the three companies. However, as we pointed out on our last blog post, even if Amazon were to change its mind in building its own 100G CWDM4 devices, the jolt of the possibility has already affected vendors in the space in a profound way.
Certainly, it is hardly out of character for Amazon to want to keep its networking plans as secretive as possible. Perhaps these analysts already know that neither MACOM nor Fabrinet executives will answer any inquiries involving Amazon.
Evidently, MACOM would have a lot riding on a deal with Amazon because of its dependence on optics for revenue growth. The big retailer, which is well-known for its frugality, will undoubtedly look to take even further advantage of the supplier on price with this knowledge. In fact, the vendor may be in for a rude awakening to whatever extent the company actually believes its contention that “the cloud operators are different in being preoccupied with optimizing revenue, while OEM customers as well as carriers are more about optimizing cost.”
The stakes are even higher for MACOM in the optical space for another reason. About a couple of months ago, we mentioned problems with delays at the company: “When Macom acquired Applied Micro Circuits, the former said it ‘intends to divest [the] non-strategic compute business within the first 100 days of closing. In hindsight, such a goal was probably optimistic, and there is apparently no detail on this sale, or any sign that it was successful in this endeavor.”
At that time, we also wrote: “It seems there is an interface problem between MACOM’s PAM4 DSP chip and any off -the-shelf driver chip. While we understand that the difficulty is not complicated, it will delay the adoption of this solution by about six months.”
Getting back to the combination of Fabrinet and MACOM, we disagree with one of the more prominent investment houses in the optical space that “employing a contract manufacture model, may be the most controversial source of competition.” There will be no question on “who is responsible for the engineering” – that will be Amazon.
As we have previously said, “Amazon has an excellent engineering team, and it is hard to believe that it would go ahead with this project without an excruciatingly, high-level vetting process, which would have resulted in rigid assurances of adequate quality of piece-parts and in a solid commitment by both MACOM and Fabrinet to come through on high-volume shipments.”
[written by Mark Lutkowitz]