Avago selling its optical module business to Foxconn; what will it mean?



LightCounting Releases a new Research note


Rumors of Avago selling its fiber optic module business arose months ago and became a poorly kept secret in recent weeks. Recently it has been reported publicly that Foxconn (legally Hon Hai Precision Industry Co., Ltd) is the buyer with the deal expected to close in November 2015. Many people know Foxconn as the world’s largest contract manufacturer with 1.3 million employees, and as Apple’s chosen partner for the manufacture of iPhones. Supplying the product that allowed Apple to ship 13 million iPhone 6s’s in its first weekend speaks volumes to Foxconn’s scale and capability. Foxconn has a market cap of $1.343 trillion. Last quarter, net income was a razor-thin 2.64% on revenue of $29.5 billion. Another contract manufacturer, Fabrinet, did better at 6.3% net income with a focus on assembling optical modules.


So is the future of Avago’s fiber optic product line going to be razor thin margins that accelerate the rapid erosion of optical module pricing? Only time will tell and competitors do have cause for concern. But the Avago fiber optic product line is actually going to Foxconn Interconnect Technology or FIT, a Foxconn business unit that is not a contract manufacturer. FIT is more of a classic connector company started in 1974 that competes with the likes of TE Connectivity, Molex and Amphenol. FIT has 70,000 employees and they focus on cables, connectors, cable assemblies, and some specialty fiber optic products. The FIT business unit claims 9,000 patents along with strong investments in R&D and test. They have a couple of lights-out assembly lines. Optical R&D is centered in Taiwan and Brea, California. The Taiwan group is working on silicon photonics. FIT is operated largely as an independent business unit of Foxconn and thus require R&D investment and margins similar to their direct competitors.

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Coming soon:

  1. Mobile Fronthaul Optics Report & Forecast, November 2015
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