Agere to exit optoelectronics business

August 14, 2002--Agere Systems today announced that it would redefine its business to focus on providing advanced integrated circuit solutions that access, move, and store network information. The company will exit the optoelectronics business.

Aug 14th, 2002

August 14, 2002--Agere Systems today announced that it would redefine its business to focus on providing advanced integrated circuit solutions that access, move, and store network information. The company will exit its optoelectronics business, which represented about 10% of the company's total revenues in the June quarter of fiscal 2002.

Agere is seeking a buyer for all or parts of this business, but will discontinue optoelectronics operations no later than June 30, 2003. With the dramatic changes in the telecommunications industry, including capital spending constraints, excess capacity in the core network, and significant delays in deployment of higher-speed technologies, demand for optoelectronics components has decreased considerably. According to market research firm RHK, optoelectronics components industry revenues are expected to decline from approximately $7 billion in 2000 to about $2.3 billion in 2002, a 67% drop. This decrease was driven by weakness in the long-haul segment, an area where Agere's optoelectronics solutions were primarily focused.

"We are redefining Agere as a premier provider of integrated circuit solutions to target the communications and computing opportunities that present the best long-term potential," explains John Dickson, president and chief executive officer at Agere. "As we exit our optoelectronics business, our first priority will be to ensure that we fully support our opto customers during the transition and meet our commitments to them."

Agere will continue to deliver advanced integrated circuits for wireless data and storage applications, as well as multi-service networking solutions for segments such as metro, access and enterprise.

"With this strategy, Agere will be well-positioned to build on its existing leadership and address new opportunities as market conditions improve," adds Dickson. "Going forward, we are pleased that our customer base will remain essentially unchanged, as we continue to provide IC solutions to these and other customers in the network equipment, computing and wireless markets."

Agere's Portfolio

For the networking equipment market, which is served by the company's Infrastructure Systems Group, Agere will provide processing, aggregation, framing, switching, and physical layer solutions, as well as application-specific integrated circuits (ASICs) for enterprise, access, metro, and wireless networking systems.

According to Dataquest, Agere is the leading supplier of wired communications integrated circuits (ICs) as well as network switching and access ICs. The company is the No. 2 supplier of communication ASICs, and among the top three players for ATM and SONET/SDH semiconductor solutions.

For the end-user market, which is served by Agere's Client Systems Group, the company will continue to provide IC solutions for computing, storage, wireless handset, and wireless local area networking (LAN) applications. The Client Systems Group represented almost 60% of Agere's revenues in the June quarter. According to IDC, a market research firm, Agere is the leading supplier of read-channel and preamplifier chips for the hard-disk drive market. The company is the No. 2 provider of 802.11/Wi-Fi solutions for wireless LAN applications, according to Dataquest.

Consolidation and workforce update

With the planned exit of the optoelectronics business, the company will discontinue or sell operations in its facilities in Dallas, TX; Alhambra and Irwindale, CA; and Matamoros, Mexico. In addition, as a result of this exit and the previously announced sale of the analog line card business, the company no longer needs to move manufacturing operations from its Reading and Breinigsville, PA, facilities to the Allentown, PA, facility. As announced in January this year, the company intends to sell the Reading and Breinigsville properties once it discontinues those operations.

The company will move its remaining IC wafer fabrication line in Allentown to Orlando, FL, by the end of September 2003. This move will allow the company to consolidate all of its U.S. manufacturing operations in one facility, resulting in significant reduction in manufacturing space and costs.

Agere continues to seek a buyer for the Orlando operations and intends to sell the plant as an ongoing operation, allowing the company to continue sourcing products from this facility. If the company does not identify a buyer, it plans to operate that facility at least through September 2004. The company's manufacturing consolidation is consistent with its "fab-lite" strategy. Agere will leverage foundries for standard process technologies, continue its IC assembly and test operations in Singapore and Thailand, and maintain its wafer manufacturing joint venture with Chartered Semiconductor.

Agere's central campus will remain in Allentown, where the company's two sites will house research and development, operations, marketing, sales, and other corporate functions.

The continued streamlining of the company's business, including the plans to exit the optoelectronics business and consolidate manufacturing operations in Orlando, will reduce Agere's active workforce from approximately 11,200 currently to about 7,200 by the end of December 2003.

Agere expects that today's initiatives will allow it to achieve its target cost and expense structure, enabling the company to further reduce its quarterly operating income revenue breakeven point from the current $700 million level to $500 million during the second half of the calendar year 2003.

More information about Agere Systems (Allentown, PA) is available from its Web site at www.agere.com.


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