NOVEMBER 2, 2006 -- Optical Communication Products Inc. (OCP; search for OCP) has reached an agreement with SAE Magnetics (H.K.) Ltd, a wholly owned subsidiary of TDK Corp., which will enable the company to manufacture certain product lines in China beginning in the summer of 2007. OCP will maintain its existing manufacturing facilities in Woodland Hills, CA, and Hsinchu, Taiwan, but will reduce these workforces once manufacturing at SAE begins.
"Our partnership with SAE enhances our ability to serve our customers by dramatically expanding our manufacturing capacity while providing the high-performance products these customers require," said Philip F. Otto, OCP's CEO. "With the acquisition of GigaComm in August 2006, we entered Japan, the world's most advanced telecommunications market, and took a leading position in the fiber-to-the-home optical components market. Now, we plan to move into high-volume production in China to augment our proven capabilities in short-run, specialized applications.
"This transition is a key element in OCP's long-term strategy to increase revenues and improve financial performance. Manufacturing in Asia will enable us to increase our manufacturing capacity and flexibility, while simultaneously reducing costs.
"We will continue to fulfill low-volume, fast-delivery requirements from our facilities in the U.S.," explained Otto. "With this step, we will now build on this core strength, adding manufacturing flexibility and faster product development as vital components of our strategy."
As part of the transition to SAE in China, OCP intends to reduce its workforce by approximately 150 to 180 manufacturing positions at its U.S. plant and 70 to 80 manufacturing positions at its GigaComm facility in Taiwan. These workforce reductions are not expected to take place before the summer of 2007.
"We greatly appreciate the contributions our employees have made over the years. We will work with those who will be affected by the changes to ensure the smoothest possible transition," Otto said. "We should see little change in our operations in either the U.S. or Taiwan for many months, so there will be more than enough time for us to prepare for this new phase in our company's development. We expect to retain many qualified employees in both the United States and Taiwan who will continue to develop the various new products demanded by our customers."
In connection with its planned U.S. and Taiwan reductions in workforce, the company said that it expects to incur one-time transition charges of approximately $3 million to $3.5 million during its fiscal year 2007, which commenced on October 1, 2006. The planned increase in operating efficiency is expected to have a positive effect on the company's margins over time.