Furukawa restructures Lucent's 'crown jewel'

TRENDS

By KATHLEEN RICHARDS

Furukawa Electric Co., Ltd. (Tokyo) acquired Lucent Technologies' Optical Fiber Solutions (OFS-Norcross, GA) division in November, broadening its technology portfolio, distribution channels, and manufacturing capacities. Despite the strengths of the OFS and Furukawa optical business units, Furukawa faces many challenges going forward. The management styles and work habits of Japanese and American companies are very different. The optical communications market has changed drastically in the last year and the question on many people's minds is what happens next?

To start with, Furukawa has restructured OFS into two operating companies: OFS BrightWave and OFS Fitel. Both companies are headquartered in Norcross, have a common chief financial officer, and report to newly ap pointed president and CEO Eddie Edwards. The chairman of both business units is Katsuhiko Okubo, a senior management director at Furukawa and former general manager of Furukawa's Fitel division. The holding company for the two new business units, also based in Norcross, is Fitel USA.

OFS BrightWave will focus on optical-fiber cable and manufacturing. Furukawa owns 81.6%, and CommScope has a minority stake of 18.4%. When the acquisition was first announced in July, CommScope's stake was much higher, at about $650 million, compared to the $173 million it invested in the fiber-cable company in the final purchase agreement. CommScope brings with it a strong distribution channel into the hybrid fiber/coax cable television markets-a market that Lucent's OFS unit pursued before fiber demand skyrocketed in the long-haul communications networks.

OFS Fitel, wholly owned by Furukawa, consists of the fiber, specialty fiber, components, fiber apparatus, and research and development organizations. Part of Lucent's legacy is the application-specific family of "-Wave" fibers, many of which were the first products of their ilk in the market: TrueWave (metro), AllWave (long-haul), UltraWave (submarine), and the latest offering, LasrWave (premises).

At this point, the products of both Furukawa and OFS will continue, many of which are complementary-from cable structures to fiber types to components, according to Janice Haber, systems engineering and market development vice president of OFS's Network Products Group. Haber worked in a similar capacity for Lucent's Optical Fiber Solutions division.

"Furukawa focuses on slotted-core kinds of designs," says Haber. "We use central core and loss tube ventures, so the actual structures within the cables are complementary." Furukawa also concentrated more on conventional singlemode fiber and dispersion-shifted fiber, which is sold primarily into the Asia-Pacific markets.

On the specialty-fiber front, Lu cent's OFS developed passive components such as erbium-doped fiber for amplifiers, dispersion compensating modules, and optical-channel monitors, while Furukawa has had some success with active components, especially pump lasers. On the development side, OFS is proficient in two of the three glass-making processes, modified chemical vapor disposition, and vapor axial deposition, while Furukawa excels in manufacturing.

Despite Lucent OFS's strength in the North American and European markets, the parent company's troubles may create a bumpy road ahead for Furukawa's new business units. "Furukawa is a very successful company in the eastern rim nations, and they've done very well throughout the world, except in North America," says Sam Greenholtz, senior analyst of optical networking at Communications Industry Researchers. "This acquisition will give them that opportunity. But given Lucent's losses leading up to the buyout-everybody knew that Lucent was trying to get rid of OFS and they lost some accounts because of it, or if they didn't lose the account, they certainly weren't getting the sales-given that and given the price drop, Furukawa has got an uphill battle in the U.S. market."

Combined, OFS Fitel and OFS BrightWave employ about 4,000 people. Negotiations between the companies may have started as early as December 2000, when the optical-fiber and optical-cable industry was still reeling from record levels of year-over-year growth. Furukawa and Lucent have a history of partnering in joint ventures in the optical space.

When the acquisition was announced last July, the buyout was structured as a $2.75-billion joint venture between Furukawa and coaxial-cable supplier CommScope (Hickory, NC). By the time the deal was finalized Nov. 16, the amended purchase agreement was estimated at $2.3 billion, with CommScope investing only a minority stake in the resulting optical-cable business.

Lucent's Optical Fiber Solutions unit reported $1.925 billion in sales in September 2000 and was considered the "crown jewel" of the company by some analysts. Sale of the OFS unit was a key component of beleaguered Lucent's restructuring plan. The Optical Fiber Solutions business was originally spun out from AT&T in 1996.

Furukawa was attracted to the optical-fiber unit based on Lucent's patents and intellectual property and an opportunity to strengthen its position in the fiber, cable, and related markets worldwide, particularly in North America. In 2000, Furukawa accounted for 7% of worldwide fiber production, and Lucent represented 19%, according to the companies. The largest fiber producer that year was Corning at 30%.

More in Market Research