Lumentum jolts the industry with Oclaro acquisition 
Tuesday, March 13, 2018 at 3:19PM
Roy Rubenstein in 3D sensing, Alan Lowe, Coherent, Greg Dougherty, Lumentum, OFC 2018, Oclaro, indium phosphide, photonic integrated circuits, silicon photonics, transmission, transport

Lumentum announced on Monday its plan to acquire Oclaro in a deal worth $1.8 billion.

The prospect of consolidation among optical component players has long been mooted yet the announcement provided the first big news jolt at the OFC show, being held in San Diego this week. 

Alan Lowe“Combined, we will be an industry leader in telecom transmission and transport as well as 3D sensing,” said Alan Lowe, president and CEO of Lumentum, on an analyst call discussing the deal.

Lumentum says their joint revenues totalled $1.7 billion with a 39% gross margin over the last year. And $60 million in synergies are forecast in the second year after the deal closes, which is expected to happen later this year. 

The $1.8 billion acquisition will comprise 56 percent cash and 44 percent Lumentum stock. Lumentum will also raise $550 million to help finance the deal.

“This is a big deal as it consolidates the telecom part of the component market,” says Daryl Inniss, business development manager at OFS Fitel and former market research analyst.



Lowe said that ever since Lumentum became a standalone company three years ago, the firm concentrated on addressing the increase in optical communications demand that started in late 2015 and then last year on ramping the production of its 3D sensing components. “Execution on major M&As had to wait,” he said.

The company investigated potential acquisitions and evaluated several key technologies including silicon photonics and indium phosphide. This led to it alighting on Oclaro with its indium phosphide and photonic integrated circuit (PIC) expertise. 

Lowe also highlighted Oclaro’s strategy of the last five years of first trimming its business lines and then successfully executing on delivering optical transmission products.

Oclaro’s CEO, Greg Dougherty, CEO of Oclaro, described how his company has focussed on delivering differentiated photonic chip products to various growing end markets. “This is a very good combination for both companies and for the industry,” said Dougherty.


There is no overabundance in [optical] chip designers worldwide and together we have the strongest chip designer team in the world


Business plans

Lumentum’s business includes telecom transport components, modules and sub-systems. Its products include reconfigurable optical add/drop multiplexers (ROADMs), pump lasers, optical amplifiers and submarine products. In the second half of 2017, Lumentum’s telecom revenue mix was split three quarters telecom transport with transmission products accounted for the remaining quarter. Other Lumentum businesses include industrial lasers and 3D sensing.

In contrast, Oclaro’s focus in solely transmission components and modules, with the revenue mix in its most recent quarter being 53 percent telecom line side and 47 percent datacom client-side products.

The combined R&D resources of the merged company will allow it to do a much better job at supporting datacom products using the new QSFP-DD and OSFP form factors. “Right now I’m guessing that Alan is spread thin and I know the Oclaro datacom team has been spread thin,” says Dougherty.

The acquisition will also pool the two companies’ fabrication facilities.

Lumentum has already moved its lithium niobate manufacturing to its main gallium arsenide and indium phosphide fab in San Jose, California. San Jose also hosts a separate planar lightwave circuit fab.

Oclaro, which is headquartered in San Jose, has three photonic chip fabrication sites: an indium phosphide laser fab for datacom in Japan that makes directly modulated lasers (DMLs) and electro-absorption modulated lasers (EMLs), an indium phosphide fab in the UK that manufactures coherent optical components and sub-assemblies, and a lithium niobate fab in Italy.

The acquisition will also bolster the company’s chip design resources. “There is no overabundance in [optical] chip designers worldwide and together we have the strongest chip designer team in the world,” says Dougherty.

Lumentum plans to assign some of the chip designers to tackle a burgeoning pipeline of 3D sensing product designs.

In 2017 Lumentum reported three customers that accounted for nearly half of its revenues, while Oclaro had four customers, each accounted for 10 percent or more of its sales, in 4Q 2017.  Oclaro selected customers include the webscale players, Amazon, Google and Microsoft, as well as leading systems vendors such as Ciena, Cisco, Coriant, Huawei, Juniper, Nokia and ZTE. 

Both Oclaro and Lumentum, along with Neophotonics, signed an agreement with Ciena a year ago to use its WaveLogic Ai DSP in their coherent module designs.

Lumentum plans to provide more deal details closer to its closure. Meanwhile, the two CEOs will continue to run their companies with Oclaro’s Dougherty remaining at least during the transition period.


Further information:

For the link to the acquisition presentation, click here.  

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