Top 5 components/subsystems VENDORS
- JDS Uniphase
- Agilent Technologies
- Bookham Technology
- Avanex
- Finisar
Generals and politicians have frequently embraced "divide and conquer" as a strategic approach to mastering their foes. However, the opposite has proved axiomatic in the optical communications components and subsystems space. Many of the top companies here have gathered and combined, taking advantage of an economic climate that demands consolidation.
The "you need it, we got it" approach would appear a good strategy for surviving the down market (increasing one's chances of at least some revenue) and positioning a vendor as a leader when systems houses look to pare their supplier lists. On the other hand, product lines can be expensive to maintain—and the greater the number of products, the greater the expense.
For 2004, we expect more consolidation—and perhaps more purchases from the companies that have been the most active merger-and-acquisition players in 2003. Meanwhile, here are the Top 5 components and subsystems companies our analyst sources say have the most momentum going into the new year.
JDS Uniphase has ruled as king of the hill since the days of the bubble. The first of the "one-stop shop" companies is universally regarded as the market share leader. Through the merger of JDS Fitel and Uniphase, the acquisition of such companies as SDL and E-Tek (to name only two), and internal R&D, the company has developed a product line that includes source lasers; photodetectors and receivers; modulators; transmitters; transceivers; transponders; cable television transmitters and amplifiers;
EDFAs, optical amplifiers, and Raman amplification pump modules; pump lasers; add/drop multiplexers (ADMs); WDM couplers; and optical switches. (The company also has a test instrumentation division as well as "network-ready," thin-film, and commercial laser products.)
However, the company has shrunk along with the market. A reconsolidation plan has many of the company's Ottawa resources moving to California. Meanwhile, JDSU enters 2004 under new management, which perhaps signals a shift in direction from expansion to maintenance. New chief executive Kevin Kennedy faces the challenge of guiding the company through an uncertain market against competitors who have mimicked its expansion strategy. Meanwhile, Asian companies will attempt to undercut JDSU's sales of lower-speed devices through aggressive pricing. Certainly, there are reasons to believe that the crown currently rests uneasy—but the king remains determined to keep its place on the throne. It would take a significant market change to unseat JDSU in 2004.
Agilent Technologies garners more attention for its test equipment than its components. However, its strength in transceivers for data communications applications—the hottest market around—puts it high on the list in the minds of most of our analysts. The company has been particularly strong in small-form-factor (SFF), small-form-factor-pluggable (SFP), and GBIC transceivers for multimode applications. It has carved significant niches for itself in the Fibre Channel and Gigabit Ethernet (GbE) communities as well. It also was one of the more vocal champions of the X2 multisource agreement (MSA) for 10-GbE transponders.
The company complements its optical modules with a line of physical layer ICs, including framer/mappers, switches, serializer/deserializer devices, and transmitter and receiver chips.
Bookham Technology was the first of optical startups to use the cash it raised in the bubble to acquire an extensive product line. Founded on the strength of a wafer-level technology it called "ASOC," the company has switched gears (and subsequently has discontinued its ASOC activities) with the acquisition of the component and module assets of Nortel Networks and Marconi Communications as well as startups Cierra Photonics and Ignis Optics. The purchase of New Focus expanded the company's activities deeper into non-telecommunications markets, gave it a manufacturing presence in China, and provided a welcomed infusion of cash. The last benefit should extend Bookham's runway as it integrates its assets and positions itself as a competitor on what it hopes will be nearly equal footing with JDSU.
Bookham's optical communications product line includes a variety of transmitters and receivers, continuous wave lasers, passives, amplifiers, amplifier components, transceivers, and transponders. Once consummated, the New Focus deal will add instrumentation units as well as non-optical products.
Avanex is slightly behind Bookham, both in terms of when it embarked on its spending spree and how far down the road to asset integration it has progressed. It may also not be finished with its purchases. However, the company may be in a better cash position than Bookham, which could give chairman, president, and CEO Walter Alessandrini more time to fit his new pieces together.
The company opened its Fremont, CA, headquarters in 1997. It went public in February 2000, based on the strength of its "photonic processors" product line. It closed its first acquisition in July 2000 when it picked up Holographix, a developer and manufacturer of holographic diffraction gratings. A proposed merger with Oplink in 2002 did not receive shareholder approval. Late that year, Alessandrini assumed the top spot in the company and embarked on an aggressive expansion plan this year. Avanex snapped up Alcatel Optronics and Corning's Photonics Division in May and Vitesse Semiconductor's Optical Systems Division in August.
Avanex's current product line includes multiplexer subsystems based on a variety of technologies (including planar, thin-film, and interleaver), dispersion management modules, optical add/drop modules, wavelength blockers, lasers, modulators, detectors, transceivers, transponders, amplifiers, optical-channel monitors, and "network-managed subsystems."
All of which brings us to the fifth Top 5 company. While there was significant agreement among our analyst sources on the first four companies, opinions were split on number five.
Finisar was our choice for the breadth of its product line, innovation, and visibility in the market. The fact that RHK says the company is number five in terms of market share doesn't hurt, either.
Its line of offerings includes amplifiers (as well as the circulators and isolator arrays that go into them), multiplexer/demultiplexer modules, optical ADM modules, and a broad line of transceivers and transponders. Like JDSU, Finisar also has an instrumentation division. The company has been particularly prominent in XFP development: It was an early signatory to the MSA, its FTRX-3611-3xx won our Attendees' Choice Award at the last OFC, and it unveiled at last June's SuperComm the first 1550-nm XFP using a "temperature-controlled" electro-absorption modulated laser. Meanwhile, its transceiver line includes SFF, SFP, GBIC, and 1×9 devices targeted at GbE and Fibre Channel applications.