Just as the market abandoned hope of consolidation it strikes. The dust has settled from the merger announcement between Finisar and Optium and in plain terms it is a brilliant move. Finisar is already a leader in the industry but this puts them in an even stronger position than before. This series of posts looks at why it is happening, who benefits, who loses, and suggests what is likely to happen next.
The consolidation of MRV (MRVC) & Fiberxon is a healthy force for the industry but one made at the near term expense of shareholders (see MRV, Luminent, and Fiberxon). The rest of the optical component industry will see the benefits of consolidation, but MRV shareholders have lost nearly 30% of their investment since the merger was approved.
MRV (MRVC) completed a merger with component maker Fiberxon without having audited financials and released an 8-K outlining events that do not point towards rapid resolution. In my personal opinion, the company has willingly placed itself in a situation where they face imminent delisting, violation of Bond covenants, and virtually certain attack from shareholder lawsuits and activists. It defies explanation.
MRV Communications (MRVC) announced the OptiSwitch 930, a 10G Ethernet demarcation box today. Demarc boxes are designed to sit at a customer site to manage and monitor the interface between the customer premises and the carriers network. While it is certainly a headline grabbing offering I don’t think significant demand exists for a 10G demarc device. It does highlight the increasing interest in hardware for providing ethernet services to businesses. (see “Enterprise Access Capex – A Ray of Hope?“)
The most under-reported but most significant announcement at OFC2007 was Finisar’s (FNSR) Fiber to the Home (FTTH) product. Most optical vendors are communicating their intent to NOT make a product for FTTH or Passive Optical Networking (PON) applications. When the worlds highest volume optical module supplier decides to go the opposite way, something noteworthy just happened.
It’s common knowledge in the close circles of the optical module business that Cisco (CSCO) has built an extremely profitable business on the backs of optical module companies. What is not appreciated is its magnitude and the corrosive impact it has on the profitability of the optical module business.
Recently, I sat down with Giorgio Anania, CEO of Bookham Technology (BKHM). We discussed a number of things, including the emerging competition of Asian optical component manufacturers. My conversation with him was about the industry in general, and not specific to Bookham.
We like to identify macro technology trends and disruptions then determine the best way (if any) to invest in them by following up with individual technical (as in technology, not charts) and financial analysis. Discussions with gentlemen like Giorgio Anania help me start this process. At this time I’m far from finishing it.
One trend I see unfolding is the emergence of Chinese optical component companies. Every company is moving their labor intensive component manufacturing to Asia (including Bookham) either through outsourced manufactuing or directly owned facilities in low-cost labor areas.
Are you ready for some Japanese ONU install and hardware pr0n? This is excerpted from research we did on Passave (PMCS).
All photos and component data (click to enlarge) are courtesy of a Japanese web page. I used Google to translate the page – available here. (I don’t think human translators have much to worry about yet). Zoro, whoever you are, thank you.