Oclaro trades New Focus to Newport for high-power laser diode assets and cash

JUNE 3, 2009 By Stephen Hardy -- The agreement includes a 4-year supply agreement through which Oclaro will become the sole source supplier of diodes to Newport Spectra Physics for one year and a majority supplier for the next three years.

JUNE 3, 2009 By Stephen Hardy -- In a deal worthy of Major League Baseball, Oclaro Inc. (search Lightwave for Oclaro) and Newport Corp. (search Lightwave for Newport Corp.) have agreed to swap assets. Newport will acquire Oclaro's New Focus business in exchange for the Newport Spectra Physics high-power laser diode business and $3 million in cash to help fund the related transition and integration costs.

Oclaro -- Bookham at the time -- acquired the New Focus assets in 2004.

The agreement includes a 4-year supply agreement through which Oclaro will become the sole source supplier of diodes to Newport Spectra Physics for one year and a majority supplier for the next three years.

The transaction is subject to customary closing conditions and is expected to close early in the fiscal quarter ending September 26, 2009.

From the Oclaro end, the laser diode assets are seen as complementary to the company's existing single emitter and bars products. The new assets will offer expansion opportunities in medical, analytic, printing, and industrial applications in Japan and North America. Oclaro estimates the portfolio has the potential to yield gross margins of 40% or more.

Oclaro will buy the operating assets of the Spectra Physics Tucson, AZ, as well as the intellectual property of the diodes business. Newport will keep "all obligations under the facility lease," according to Oclaro.

Said Alain Couder, president and CEO of Oclaro, "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."

Newport, naturally, likes the deal as well. "New Focus's product lines are an exceptionally good fit with Newport's existing offerings," Robert Phillippy, Newport's president and CEO, said. "New Focus' sales in 2008 were approximately $30 million, 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's OEM subsystems business has excellent upside potential over the longer term."

Most of the photonics products being Newport will acquire are being manufactured at Oclaro's plant in Shenzhen, China. They will be transferred to Newport's facility in Wuxi, China, which will approximately double that facility's manufacturing output. The lasers and electro-optical products Oclaro currently manufactures in San Jose will be transferred to other Newport facilities.

Newport expects the deal will increase profits $5 million to $8 million in the first year after it finishes integrating its new assets.

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