Everybody out of the pool?
They had told us to expect something like this. Too many companies currently chase too little business, and some players inevitably will collapse or just stop running. Certainly, watching several startups become "stopdowns" was disappointing, but it was fairly easy to nod your head sagely and decide that the market's version of survival of the fittest must be respected.
Then Agere Systems announced that it had had enough of optoelectronics and it was dropping out of the market. And other firms in the component space have decided to pursue similar routes. W.L. Gore is the most recent (as this issue went to press, anyway), and industry speculation continues over who might make a play for Nortel Networks' component operations. However, there was something particularly startling about Agere, with its Bell Labs heritage, turning away from optics.
It definitely seems like the end of an era, if you'll pardon the cliché. In speaking with Ray Nering, director of marketing for systems architecture at Agere, the numbers certainly seemed to add up (or down) as far as supporting the company's change of strategy. Optoelectronics sales composed only about 10% of the company's revenue in the June quarter of fiscal 2002. The future doesn't look particularly bright for that part of the business in Nering's eyes either. He foresees the SONET transceiver and transponder space, where Agere had enjoyed much of its success, becoming a commodity market in the near future—if it hasn't become one already, particularly at the lower data rates. Meanwhile, the long-haul SONET market continues to lie fallow until demand catches up with capacity.
Despite this logic—or maybe because of it—I find the loss of Agere particularly sobering. In addition to losing a direct line to the pioneers at Bell Labs (at least in optoelectronic components—Lucent still has Bell Labs expertise for its systems products), the optical components industry also will lose one of the groundbreakers in automated manufacturing. To think that a company with this kind of background doesn't believe it can make it in optical communications components is something of a shock.
And it is likely to be the first of several as the industry continues to consolidate. Agere hopes to sell its assets, which means that several companies have "for sale" signs in front of their component operations—and more will likely follow. One barometer of the perceived long-term potential of this market will be how many prospective buyers are out there and whether they do more than just tour the facilities. Perhaps one of the shocks will be who decides to enter this business at a time when several have decided to leave.
Stephen M. Hardy
Editorial Director and Associate Publisher