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Oclaro deal puts pressure on captive laser fabs

Already able to beat vertically integrated companies on cost, Oclaro's purchase of Newport's Spectra Physics unit should further boost high-power laser diode manufacturing efficiency.

The aggressive moves that Oclaro is making to reshape the optoelectronic industry will lead to more sales of laser diode fabs, according to chief executive officer Alain Couder.

Oclaro announced that it will acquire the Spectra Physics high-power diode business of Newport Corporation on June 3 (see related newsfeed entry).

Diode production will move from Spectra Physics Tucson, Arizona, laser fab into its own operations in Caswell, UK, and Zurich, Switzerland.

The acquisition is intended to further strengthen Oclaro s technical knowledge in this area, and improve its manufacturing efficiency by increasing utilization of the European fabs.

Couder says that this “critical mass” is in distinct contrast to other vertically-integrated laser diode manufacturers.

“Our view of the industry is that there are too many fabs in the world right now, but some of them are pretty small and not efficient enough,” he said.

“Oclaro has been able to build a state-of the-art fab which is quite efficient and we are already selling diodes to other companies because we do a better job on performance and cost.”

“We expect that over time some of those companies will decide to divest their fabs and put more business into our business.”

Newport has exhanged the Spectra Physics business plus $3 million in exchange for Oclaro s New Focus brand of photonics products, which are aimed at a broad range of manufacturing industries.

The two companies have also signed a four-year supply deal, with Newport pledging to buy all of its diodes from Oclaro for the first year.

The supply deal is “strategic”, Couder says, with Newport designing Oclaro components into its products that should ensure the relationship continues beyond the initial four-year period.

Coming just a few weeks after Oclaro was formed by the merger between Avanex and Bookham in late April, this deal increases the firm s focus on telecommunications modules and optical components.

Although InP and GaAs chip manufacturing will move away from Tucson over the next 12 months, some employees will be retained at the site. This team will provide some historical Spectra Physics expertise in systems and packaging that Couder says was otherwise missing from Oclaro s high-power diode business.

The $3 million should cover the costs of integrating Spectra Physics into Oclaro. Currently revenues from New Focus and Spectra Physics are approximately equivalent, meaning that the deal should have no overall impact on Oclaro's finances in its current financial year.

However, Oclaro claims that in future the deal should add more than $6 million annually to its earnings before interest, tax, depreciation and amortization.

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