Aug. 15, 2002 — Agere Systems Inc. said Wednesday it is exiting the optical components business, leaving analysts and competitors guessing about what the move means for the commercial future of small technology.
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One of only a few makers of MEMS-based switches, Agere said it would cut 4,000 jobs and either sell off or shut down the portion of its business devoted to making optical components for telecommunications equipment by June 30, 2003.
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Executives gave few details in a conference call Tuesday. But analysts said Agere’s decision to bail out on optical components is bleak news for small tech research and development projects within the company.
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“The question remains — and I don’t know the answer and it’s possible they don’t know the answer — what is going to happen to all of these projects, some of which involved MEMS or nanotechnology, dotted around the company?” said Lawrence Gasman, president of Communications Industry Researchers Inc.
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“A lot of the things they’ve done in MEMS will just fade away,” Gasman said. Some may not, he speculated. A joint project with former parent Lucent Technologies Inc., for example, incorporated 3-D MEMS in a router that is being sold commercially.
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Another industry analyst called the Agere technologies that are now on the block a bargain — if anyone has cash.
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“I expect this is going to be a great buying opportunity for someone,” said Tom Hausken, director of optical communications components at Strategies Unlimited Inc. “We’re at the bottom. It can only go up from here.”
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Agere’s is not the only optical components businesses up for sale now, however. Analysts say Nortel Networks Corp. is looking for a buyer for its optoelectronics group and Corning Inc. may be shopping its optics unit around.
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The optical business accounted for 10 percent of Agere’s revenues in the quarter ended June 30, 2002, and a much larger percentage of costs. MEMS and nanotechnology elements incorporated in Agere optical products were a relatively small piece of the business line, but they were important to a fledgling technology struggling to prove its worth in a tough market.
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Ironically, only one day before the announcement, Agere and its former parent, Lucent Technologies Inc., were awarded a patent on packaging assemblies for silicon MEMS devices that insulate them from contaminants and allow them to be replaced easily.
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Technological advances, however, bowed to a bruising market, which left Agere with too much capacity for the volume of business that came from a bloodied telecom sector.
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“Everyone knows and has known for at least a year-and-a-half now that there had to be consolidation,” said Philip Chapman, chief executive officer of OMM Inc., a San Diego-based maker of MEMS-based photonic switching subsystems. “There were too many potential providers of all of the optical and optoelectronic technologies. This is not a surprise. It’s just a matter of who are going to be the surviving companies.”
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Agere’s departure from the components market could leave OMM the only commercial shipper of MEMS-based all-optical switch modules, he said.
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As a switch-maker, Calient Networks Inc. of San Jose was sometimes a customer and sometimes a competitor of Agere’s, said its CEO, Charles Corbalis. Calient sometimes bought components from Agere, but both companies made a MEMS-based optics switch.
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“I don’t know from the text of that announcement whether they discontinued it or not,” Corbalis said. “But if they did, that’s great for us.”
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Survivors need all the advantages they can get, he added, since no turnaround is in sight for a seriously trouble telecom sector that is not buying much of anything these days.
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OMM has reined in higher-capacity products and cut staff by nearly one-third, similar to Agere’s announced cutback. Calient partners with other firms to get its products into the market. But the survivors so far have the advantage of being privately held, small and focused.
“This is the best position to be in,” said Corbalis. “You’re not under price pressure to make older stuff cheaper, which is what a lot of the larger players selling to incumbents are doing. They’re selling the boxes cheaper and cheaper and watching their margins get squeezed.”