Before the closing of its deal for Emcore’s narrow linewidth tunable laser product line this month, it had been difficult to find any criticism given that Neophotonics bought Santur several years ago. Apparently, there had been some rumblings of a culture clash amongst the personnel with the prior marriage.
In fairness, despite a company doing as much due diligence as possible in advance of a purchase, there is no way to really look under the hood until after sale. In addition, the price for Emcore’s devices was only $1.5 million in cash with the rest of the $17.5 million in debt.
Emcore’s former solutions appear to be unique with their external cavity lasers, which provide a very narrow linewidth at the 100G data rate. However, at least one major system vendor has indicated its willingness to put up with a certain number of errors in the software, and that it is good enough just to use the standard linewidths.
Interestingly, at a conference about a month before the announcement of the buyout, Neophotonics’ CEO in contemplating a hypothetical purchase of Emcore’s assets, stressed more of the consolidation aspect rather than the element of synergy. Now, while he may have possibly done so in order not to tip off a pending deal, it does raise a question about the extent of the perceived level of differentiation inside Neophotonics.
Clearly, in directly competing against other major competitors with tunable laser businesses, including Finisar, JDS Uniphase, and Oclaro, Emcore was losing money. The overall space will certainly be strengthened as a result of the transaction.
With the acquisition, Neophotonics very cheaply increases its market share in the business, while also providing its customers with a story for future long-haul 400G deployment. However, we believe that volume deployment at this higher speed will not occur for a decade or more into the future.
[written by Mark Lutkowitz]