Oclaro and Newport in major asset swap

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Oclaro is a relatively young company, created in April 2009 when optical components manufacturer Bookham merged with Avanex, a producer of photonics processors for optical networks. Last week, the company signalled another refinement of its strategy by way of an asset swap with photonics giant Newport Corporation. Oclaro will acquire the Newport Spectra Physics high-power laser diode business, along with a $3m cash sum from Newport. In exchange, Newport will acquire Oclaro's New Focus product line - a range of photonics-based tools, sold primarily into R&D markets. The deal also includes a four-year supply agreement, whereby Oclaro will be sole supplier of diodes to Newport Spectra Physics for one year, with a majority allotment for the following three years.

Yves LeMaitre, executive vice-president and general manager of the Oclaro's Advanced Photonics Solutions Division, explained to electrooptics.com the company's motivation for the deal: 'After positioning Oclaro as a leader in telecom metro and long-haul networks through the merger with Avanex, we are looking to establish a leadership position into the laser/photonics market as well. Oclaro's own high power laser diodes have gained significant momentum over the last two years, and the combination with the Spectra Physics laser diode group will create a supplier that simply cannot be ignored.' LeMaitre went on to predict that Oclaro will become the 'largest merchant supplier of high power diodes to the material processing, printing and medical markets... We can become a market leader in a critical and sizeable segment of the photonics industry.'

LeMaitre believes that the company will benefit from concentrating on the 'sizeable and growing market segment' for high-power laser diodes. 'In addition, it leverages our existing manufacturing infrastructure (especially our III-V fabs in Europe) and chip design expertise,' he added.

The US-based New Focus business was acquired by Bookham in 2003 for £118m. The acquisition allowed Bookham (which was UK-based at the time) to gain factory space in the USA, to move into the semiconductor and defence industries, and to reduce its dependency on Marconi and Nortel. LeMaitre explained that although the New Focus business has been performing 'reasonably well' in the current economic climate, it no longer fits with Oclaro's strategy: 'Selling into the broad R&D market drives a very different set of requirements in terms of distribution, sales and marketing. That type of business model is quite different from the rest of Oclaro, and does not allow for the creation SG&A (selling, general & administrative expense) synergies within the company; we have to run New Focus as "a company within a company". The exchange of assets with Newport enables each company to gain access to businesses in line with their long-term strategic goals.'

Furthermore, LeMaitre believes that Newport has every reason to go after New Focus: 'The New Focus photonics tools complement and expand the broad Newport portfolio; the lasers are a natural addition to the Spectra Physics product line, in line with the stated goal of Newport to provide its customers with "Photonics Solutions". In addition, the Newport SG&A infrastructure is designed to support exactly this kind of business, which will create financial synergies and maximise the chances of a successful integration of New Focus.'

The overall sentiment from Oclaro is one of optimistic excitement, as the young company positions itself to dominate the high-power laser diode market. 'The acquisition enables us to continue to lead in innovation, and to take advantage of our established manufacturing infrastructure,' adds LeMaitre. 'High-power laser diodes are in a large, but fragmented market, with many players struggling to sustain innovation and fabs at the level required to keep up with customer applications in material processing, printing and medical markets. Power, brightness and reliability at the right price point are the deciding factors. Without scale and the ability to innovate and invest, many of the existing suppliers are facing challenges to stay competitive. We believe that the combination of the Spectra Physics Tucson laser diode group with the Oclaro team will create a leading supplier and long-term partner for our customers.'