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II-VI Lays Out Oclaro Plans

Following its Oclaro acquisition, II-VI now intends to simplify operations, re-think manufacturing and pursue new products. Compound Semiconductor reports.

Vertically integrated: II-VI provides synthetic crystal materials growth, optics fabrication, electronics component manufacture and more.

In September this year, Oclaro, sold its Switzerland subsidiary, including GaAs fabrication facility and associated laser businesses, to materials and optoelectronics business, II-VI, for $115m.

Oclaro chief executive, Greg Dougherty, described the move as "an important first step in our plan to restructure", but equity analysts have since downgraded the optical communications developer's share rating, citing 'daunting operational challenges' ahead.

Meanwhile, the sale represents the second deal between the two companies. II-VI bought Oclaro's thin film filter business and interleaver product line in late 2012, after a spate of acquisitions including photonic design business, Photop, tunable optical device developer, Aegis Lightwave and advanced ceramic materials developer, M Cubed Technologies.

This latest acquisition furnishes II-VI with the necessary GaAs semiconductor technology to manufacture high power laser diodes, VCSELs and 980nm pump lasers alongside a related research and development facility in Tucson, US. And as chief financial officer, Craig Creaturo asserts, his company is retaining all related employees.

"This includes 200 workers at the Zurich operation, all people at Tucson as well as around twenty individuals throughout Oclaro that we identified as supporting this business," he says.

As part of the deal, II-VI also acquired the MOCVD reactors for growing GaAs epitaxial layers at Oclaro's UK fabrication facility, formerly owned by Plessey Caswell. "All the GaAs substrates that [the Swiss business] use today are coming from Caswell in the UK, so this will continue for the foreseeable future," says Creaturo. "But in the longer term it will be logical to move these into the Zurich operation. This will not be an immediate move, it needs to be planned out from logistical, regulatory and environment standpoints."

And while Oclaro is continuing the back-end manufacturing of the 980nm pump and some high power laser diode products at its Shenzhen facility in China, this could also change. Right now, Oclaro is supplying these products to II-VI under a manufacturing services agreement, but as Creaturo says: "We have options internally as to where to take these product lines. We're currently studying each one and will make the right decisions as to what to do with each going forward."

"We have large-scale operations in Asia and will possibly be using those in the future," he adds.

And it is this attitude that lies at the heart of II-VI's business strategy. Take a look at the structure of II-VI and you will see the business is incredibly vertically integrated. The company develops, refines and manufactures myriad materials, components and products primarily for industrial, optical communications and military markets as well as photovoltaic, medical and aerospace applications.

Zinc Selenide for infrared laser optics, silicon carbide for high power electronics, bismuth telluride for thermoelectric coolers, optical channel monitors for reconfigurable optical networks, microchip lasers, optoelectronic modules, optical couplers for telecoms; the list of products is exhausting.

"We believe in vertical integration and having the materials expertise," says Creaturo. "We control the cost and quality along all lines, we're not so dependent on other [suppliers] and we're pretty self-sufficient in our manufacturing approach."

"This goes all the way back to having materials-centric businesses and controlling the raw material input as much as we can," he adds.

But vertical integration or not, can II-VI really turn the latest Oclaro sale into a commercially solid entity? Indeed, some business analysts recently suggested that II-VI had entered "overbought territory", advising investors to sell shares.

Creaturo remains confident. He asserts high power lasers and the 980nm pump lasers will remain the backbone of the business, but highlights how the Zurich team will now have the financial backing to explore new opportunities in say, sensing for consumer electronics.

Meanwhile he is also adamant his company can simplify Oclaro's operations, and, for example, has spotted 'a lot of synergies'  with products from II-VI's Photop business.

"We believe many components here will now be used to manufacture the high powered lasers and 980nm pump lasers that Oclaro was manufacturing," he says.

Convinced more opportunities will emerge with time, he adds: "In a typical acquisition, we might add global sales and manufacturing, crystal growth expertise or our global offshore manufacturing footprint. We buy a healthy growing business, and we are usually able to make it better."



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