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Oclaro restructure to cost at least $20M

08 Nov 2013

Latest streamlining of the slimmed-down photonics company has already seen cuts in Israel.

Oclaro’s latest attempt at right-sizing will cost the company between $20 million and $25 million to implement.

According to a quarterly filing with the US Securities & Exchange Commission (SEC), the photonics component and module maker has already made some minor cuts to its research and development effort in Israel, but that is only a precursor to a much more significant restructuring.

The move follows the recent sale of Oclaro’s gallium arsenide (GaAs) laser diode manufacturing operation in Zurich, Switzerland, as well as its optical amplifier and micro-optics business, to II-VI.

A chunk of the proceeds from those sales have already been used to pay off term loans and a credit line, and much of what is left will finance the restructuring. “We intend to further simplify our operating footprint, reduce our cost structure and focus our research and development investment in the optical communications market where we can leverage our core competencies,” wrote Oclaro in the filing.

Restructuring will slash headcount
The latest chapter in the company’s activity is being overseen by CEO Greg Dougherty. Announcing details of Oclaro’s latest financial quarter, he said:

“We have started the restructuring process, which has required some hard choices and decisions, including a reduction of our global workforce, the closing of additional sites and a simplification of our organization structure.”

“While our work will take several quarters to complete, I am pleased with our progress so far. I am enthusiastic about the potential for Oclaro in the future as we emerge from our restructuring process a more focused and stronger company.”

Going into more detail in an investor conference call, Dougherty said that Oclaro, which employed some 3000 people across 20 global locations before the II-VI deals were completed, would slim down to less than 1500 in 10 sites by July 2014. Employees in Europe, the US and Korea were notified of the plans in late October.

“Our cost structure is far too high, and our cash burn rate is unsustainable,” said the CEO. He, along with his fellow executives and company board members, is to take a 15 per cent pay cut as part of the down-sizing.

In line with its focus on communications, Oclaro’s management is also considering its options regarding the Komoro facility in Japan, which produces components for industrial and non-telecom applications. At the moment, the self-contained business contributes around 7 per cent of company sales and breaks even, but since it doesn’t fit the company's new focus, Oclaro says that it is “exploring options” that would likely involve selling the unit.

Breakeven point
In the meantime, Oclaro posted a net income of $33.3 million for the quarter. However, that figure included $63.5 million relating to its recent dispositions, and masked an operating loss of $31.7 million on sales of $96.6 million.

In the quarter, sales of more advanced 40G and 100G transmission modules grew strongly, although that was largely offset by a significant decline in sales of older 10G-and-below products.

With the increased demand for 100G products, Oclaro will also build a new pilot line at its Caswell, UK, manufacturing facility, to develop devices for 100G coherent optical communications more effectively.

A clearer picture of the company’s financial performance should emerge as the restructuring efforts come into effect, but losses will continue to mount up in the final three months of calendar 2013, with Oclaro expecting to post a pre-tax loss of up to $20 million on sales of between $92 million and $102 million.

Following the restructure, Oclaro’s first target – set for a year from now – is to break even on quarterly revenues of $110 million.

As of September 28, the company’s balance sheet showed $92.2 million available in cash and equivalents.

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