Intel walks away from tunables

19 Dec 2007

Emcore picks up the chip giant's tunable laser business for $85 million to plug a gap in its own telecom portfolio.

“The tunable laser business was not profitable at Intel, but the cost base at Emcore will be significantly lower.”Rueben Richards, Emcore CEO

As part of its continued exit of the optical components business, Intel announced today that it is selling its tunable laser product lines to Emcore in a stock and share deal worth $85 million.

Emcore will acquire intellectual property, assets, and technology relating to tunable lasers, tunable transponders, 300-pin transponders, and integratable tunable laser assemblies — the telecom portion of Intel's optical platform division. This will position it as one of the leading vendors of tunable laser products, taking on JDSU and Bookham in tunable transponders and Santur in tunable laser chips.

Intel's tunable laser technology was part internally developed, and part acquired from the purchases of the tunable laser business of New Focus in May 2002, and the assets of startup Sparkolor later the same year. It had also gained optical packaging and transceiver know-how from its purchase of LightLogic for $400 million in 2001.

The move seems a little out of synch with the telecom market, given that tunables are considered to be a hot spot at the moment. According to a report from CIR, the market for tunable lasers is set to reach $870 million by 2012, roughly triple its current value.

From Intel's point of view, however, the tunable laser business was never a big part of the company. "The optical telecom components business continues to be an attractive market opportunity but Intel has determined that it no longer needs to own this technology and the corresponding products to achieve our long-term strategic objectives," Amy Kircos, a spokesperson for Intel, told fibresystems.org.

"They developed a market leading technology...but it's just too small to be at Intel or to be meaningful there," said Emcore CEO Reuben Richards on the company's earnings conference call today.

Emcore believes it can manage the tunable division more efficiently than Intel, to the extent that it will accelerate Emcore's own return to profitability. In fiscal year 2008, it expects the tunable laser business to contribute up to $65 million in revenues, noting that "gross margins are higher than the corporate average".

"It [the tunable laser business] was not profitable at Intel, but the cost base that we will be transporting over to Emcore will be significantly lower, with much lower overhead charges," says Richards. "In a lower fixed-cost environment like Emcore, we expect it to be profitable one quarter out."

Savings will come from job cuts — only half of around 120 staff will be taken to Emcore — and economies of scale in manufacturing. Intel had just finished transitioning all of its manufacturing to Thailand, coincidentally to the same contract manufacturer used by Emcore. "Given the fact that we manufacture at the same contract manufacturer, the transition couldn't be easier," he claims. Expanding its relationship with the contract manufacturer will give the company leverage to reduce costs across all its telecom and datacom product lines.

Over the next year, Emcore says it will have to consider whether to split the two parts of the company: telecoms and photovoltaics. "The fibre-optics unit is large enough to function on a standalone basis. The board will consider whether shareholder value might be maximized by splitting into two separate businesses," the Emcore man notes.

Intel is reportedly still seeking suitors for the remaining portion of its optical products division, which makes lasers and transceivers targeted at enterprise data centres and storage applications. In September 2006 Intel sold its framer/mapper product group, which makes Ethernet chips, Sonet/SDH framers, and T1/E1 devices, to Cortina Systems. And last month, it offloaded the development of its IXP28xx network processor line onto startup Netronome via a licensing agreement.