LightTrends

 

Sumitomo Electric Buys EMCORE Data Center Centric, Optical Product Line for $17 million

On March 28, 2012, Sumitomo Electric announced that it will acquire VCSEL-based component and transceiver product lines from EMCORE.  This includes Emcore’s parallel transceivers, active optical cables and other VCSELs component product lines, targeting applications in datacenters and local networks.  The metro and long haul product lines, such as tunable lasers and the CATV optical, will remain with EMCORE. The deal is valued at approximately $17 million. In fiscal year 2011, this product line represented approximately 5% of EMCORE's overall revenue.

At LightCounting’s OFC2012 dinner seminar we discussed the 2011 wave of acquisitions, Cisco Lightwire acquisition and warned clients – “There will be (more) blood”!  With Cisco/Lightwire and Oclaro/Opnext - this makes two in a week and three in a month!  Who is next?
 
For EMCORE

The acquisition will enable EMCORE to focus more on its strengths in metro and telecom long-haul components and CATV products such as: tunable lasers, tunable XFPs, Cable TV modules and transmitters, FTTx transceivers, Indium Phosphide (InP)-based lasers, photodiodes, video transport and specialty photonics products.  Additionally, it will simplify EMCORE’s fiber optic division by increasing product and management focus and reduce fixed costs.

The cash acquired will help fund expensive advanced product development in these areas as well.  As the network service providers prepare for the “Exa-flood” of data traffic the number of product permutations is exploding.  Building long-haul components, such as tunable lasers, detectors, components for metro and long haul for all the “alphabet soup” of DPSK, DQPSK, DP-DQPSK, coherent and non-coherent is both financially and technically challenging. The sale allows EMCORE to focus its resources on this market segment. EMCORE’s tunable laser technology is a perfect fit for applications in 40/100 Gbps DWDM interfaces that require spectrally narrow lasers. The recent flood in Thailand, that disrupted company’s production line for tunable lasers at Fabrinet, had an immediate impact on shipments of 40G coherent transponders and related components, emphasizing reliance of the industry on EMCORE’s technology.

For Sumitomo

The combination will give Sumitomo a VCSEL fab – a key core technology for data center, short-reach product development and to reduce costs by vertical integration.  It is becoming nearly impossible to buy all the transceiver components in the open market, assemble them and compete profitably with the vicious price wars in the various segments.  Building very fast VCSELs are becoming technically very difficult as data rates reach and pass 25G.  The unit volumes for 25G-based transceivers in data centers are poised for strong growth in the next few years.

Sumitomo’s product line has been focused on optical links of 10Km and greater.  The EMCORE products will enable Sumitomo to participate in the 0-10 Km data center market for optical modules inside system chassis to interconnecting servers, switches and routers across large data centers.  The merged product lines will enable Sumitomo to span both the client and line side for all the lasers, detectors and components as well as transceivers from <1 meter to ~1,000 Kilometers. The only area missing from Sumitomo’s product line are consumer optics and submarine! 

The acquisition will enable Sumitomo to enter the InfiniBand HPC interconnect space and high-end data center severs with active optical cables and soon likely embedded optical modules.  EMCORE acquired the Intel Connect Cables product line in 2008.  Many server, switch, router systems companies and optical transceiver/component companies are rapidly positioning themselves with new product introductions and by mergers and acquisitions for the next wave of big data center builds to carry the “Exa-flood” of data traffic coming.  Sumitomo will be able to carry the data flood with optical products from inside the system chassis all the way out to the long-haul network.

Summary

The Oclaro/Opnext acquisition merges two companies of nearly the same size and makes one entity.  The majority of the two companies product lines had little overlap.  Although it will be advantageous for the two companies if they can reduce internal costs and combine sales, but from an industry perspective: the merger simply combines two smaller companies into one with each serving their own market segments and customers. The merger does improve the industry structure, but the net impact on the market will be minimal. 

The Sumitomo/EMCORE business unit acquisition is different.  It will give Sumitomo a much more competitive presence in data center interconnects where it has almost no presence.  The $17 million invested is likely to return far more for Sumitomo in only a few years. The threat to competitors will be significant as Sumitomo is a well-financed, international company with vertically integrated technologies and products.  This company combination positions Sumitomo directly against Avago, Finisar and other data center interconnect competitors.

LightCounting recently  published its updated AOC report titled AOCs Supercomputers to SmartPhones that includes InfiniBand and Ethernet products but also more extensive coverage on consumer optics such as HDMI, USB, Thunderbolt, and optical interconnects for use inside future smart phones and tablets. For more information on the AOCs and the Forecast Report see www.LightCounting.com/Reports.

By Brad Smith, VP and Chief Analyst, Data Center Interconnects   Brad@LightCounting.com