Oclaro, Newport swap assets

03 Jun 2009

Newport purchases the Oclaro New Focus product line in exchange for the Newport Spectra Physics high-power laser diode business and $3m cash.

Oclaro and Newport have agreed an exchange of assets. Newport will acquire the New Focus business of Oclaro's Advanced Photonics Solutions division in exchange for the Newport Spectra Physics high-power laser diode business. Oclaro will also receive $3m in cash, which is expected to fund the substantial portion of related transition and integration costs.

The deal enables Oclaro to expand its high-power laser diode portfolio and target higher value solutions in new markets, according to CEO Alain Couder. "Oclaro is executing on its strategy to become a predominant force in the fiber optics industry," he said. "The high-power laser diode business is ideally aligned with Oclaro's business model, corporate growth strategy and core competencies. The consolidation of the Tucson fab into Oclaro's Caswell and Zurich fabs is expected to increase wafer volumes by about 30% and improve the gross margin for Oclaro's telecom products as well."

The agreement includes a four-year supply agreement whereby Oclaro will be sole source supplier of diodes to Newport Spectra Physics for a one year period followed by majority allotment for the next three years. With no customer overlap, Oclaro expects the acquisition to be seamless to both Oclaro and Newport customers. Oclaro will purchase the operating assets of the Spectra Physics Tucson, Arizona facility, as well as the intellectual property of the diodes business, while Newport retains all obligations under the facility lease.

Robert Phillippy, Newport CEO, said: "New Focus' product lines are an exceptionally good fit with Newport's existing offerings. New Focus sales in 2008 were approximately $30m, of which 70% consisted of products that will be integrated into our Photonics and Precision Technologies Division and marketed through our industry-leading product catalog and e-commerce website. Another 20% consisted of a family of tunable and single-wavelength lasers that we currently do not offer, and that will fit well with our Lasers Division. The remaining 10% of New Focus' 2008 revenues were from subsystems for OEM applications, primarily for semiconductor equipment manufacturing customers. While this market is currently at the trough of a deep cyclical downturn, it has performed well for both companies in the past and we believe that New Focus' OEM subsystems business has excellent upside potential over the longer term."

Phillippy noted that the majority of the photonics products being acquired are being manufactured at Oclaro's plant in Shenzhen, China, and will be transferred to Newport's facility in Wuxi, China, approximately doubling the manufacturing output of that facility. Lasers and electro-optical products that are currently manufactured by Oclaro in San Jose, California will be transferred to other Newport facilities.

The transaction is expected to close early in the fiscal quarter ending 26 September 2009.

• In a subsequent conference call with analysts, Oclaro's Couder stressed that the asset swap would proceed smoothly. "After carrying out the Bookham and Avanex merger, we know that we have the recipe for successful integration of the Newport high-power diodes business," he said.

Couder also indicated that the direct costs incurred in the consolidation of the Tucson facility and the resulting extra load on the Zurich and Caswell fabs would be covered by the $3m cash exchange included in the deal.

Oclaro's stated goal is to achieve a gross profit margin of 30% by the June quarter of 2010, and reach 35% in the long term. "Adding Spectra Physics laser diode business helps align our Advanced Photonic Solutions division to Oclaro's target business models," said Couder. "This deal ultimately happened because it helps us to reach our targets more quickly."