News Article

Oplink Gets Active With $99m OCP Buy-out

Laser maker Furukawa Electric sells its majority stake in the chip manufacturer Optical Communication Products to US-based module vendor Oplink.

Oplink Communications, the Californian supplier of optical networking modules and subsystems, has acquired a majority shareholding in Optical Communication Products (OCP).

Japan-based Furukawa Electric will sell Oplink its 58 percent shareholding in OCP for $99 million in a cash-and-stock deal.

Furukawa, whose initial funding supported the foundation of OCP back in 1991, is selling its stake for just over $84 million in cash, with the remaining $15 million payable in Oplink shares. The Japanese firm has also been OCP s key supplier of semiconductor lasers over the past few years.

Oplink added that it has made an offer to acquire all of the outstanding shares in OCP following the initial majority purchase.

In a conference call hosted by Oplink s senior managers - although, perhaps significantly, not OCP s - CEO Joe Liu said that Oplink and Furukawa Electric had been discussing a potential deal for the past couple of years.

While the China-centric Oplink has typically focused on low-cost manufacture of optical subsystems and modules, OCP s primary expertise is in transmitter and receiver components for metropolitan and access networks.

Last year, OCP acquired the Taiwanese chip manufacturer Gigacomm, giving it a strong foothold in the fast-growing market for fiber-to-the-home (FTTH) components (see related story). Importantly, the Gigacomm acquisition also gave OCP access to a second, internal, supply of semiconductor lasers.

Gigacomm manufactures lasers at its semiconductor facility in the Hsinchu Science-based Industrial Park in Taiwan.

Despite the strengthening market for metropolitan and access network components, OCP s finances will not make particularly encouraging reading for Oplink.

In its most recent trading update, for the quarter that ended on December 31, 2006, OCP posted an operating loss of $5.8 million on sales of only $17 million.

While most of the optical networking business is enjoying a return to more favorable business conditions, OCP s sales figure was down both sequentially and year-on-year.

For Oplink, which may well be considering a switch of OCP s manufacturing operations from Los Angeles to China, integrating OCP into its existing business appears to be a tricky proposition.

On the plus side, OCP s focus on access applications should prove complementary to Oplink s expertise in the metro sector.

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