More from Chase H&Q report on PIRI:
Announces PIRI acquisition:
Yesterday, SDL announced its intent to acquire Columbus, Ohio based Photonic Integration Research, Inc. (PIPI) for $1.8B, $31.25 in cash and the remainder in stock with the exact share count tied to the stock price at closing. At the current share price, this would be equivalent to $1.2M shares. The acquisition has been approved by PIRI's shareholders and SDL expects closure sometime in June, pending government and regulatory approval. With
the acquisition, SDL will gain access to approximately 100 patents (US and international) on a perpetual, non-exclusive basis.
PIRI Company Profile: PIRI was established in 1987 by Battelle, Mitsubishi Corp., and NTT Corp, and is presently owned by the three founders. The firm designs and fabricates Array Waveguide Gratings (AWG) and related technologies for fiber optic communications equipment. PIRI's headcount is 133, with between 15-20 engineers and facilities totaling 36,000 square feet. We believe the vast majority of PIRI's sales ae to Lucent. With the 400G, Lucent is the only system vendor in volume production on AWG-based transport gear. SDL indicated it is comfortable with prospects in future Lucent boxes and other customers.
To date, PIRI has been managed conservatively, more for profitability than for growth. PIRI is presently running only one shift and is working at full manufacturing capacity. Another 20,000 feet of capacity is due to come on line in Q4, at which time we expect quarterly sales to well exceed $30M based on current customers. Additionally, management has plans for an additional 60-70K sq. ft. We believe SDL will rapidly work toward the addition of another shift in addition to capacity. Given the market opportunity, SDL should be well positioned to address the AWG market opportunity.
AWG and Alternative Filtering Technologies: DWDM systems essentially multiplex (combine) and demultiplex (separate) a number of optical signals, each at a different wavelength, on a single fiber optic cable. These systems can use various multiplexing technologies, such as thin-film filters (TFFs), arrayed waveguides (AWGs), or fiber bragg gratings (FBGs). Currently, TFFs, such as those manufactured by JDS Uniphase through its OCLI acquisition are the most prevalent technology, although Ciena, a DWDM system innovator, primarily uses FBGs. While TFFs and FBGs are manufactured in batches according to wavelength, AWGs are manufactured on wafers, usually constructed of silica. One of the most important metrics for optical systems is insertion loss. The losses associated with TFFs and FBGs per channel (one fiber per channel) are low, but these technologies are often cascaded. Consequently, as system channel counts grow, so do losses. Alternatively, the loss in AWG is essentially independent of channel count. This loss can be thought of as a "fixed cost" associated with coupling the fibers to the AWG. So as systems continue to become denser, AWGs make more sense, both from optical loss and manufacturing perspectives. Waveguide technology can also be applied in other optical components, such as variable optical attenuators (VOAs), switches, and splitters. Individual components can be combined on a single wafer to construct integrated subsystems, such as add/drop multiplexers.
The two most prevalent technologies used to manufacture AWGs are flame hydrolysis (FH) and chemical vapor deposition (PECVI). While each technology has advantages and disadvantages, either can work well. In addition to these two methods, Bookham uses silicon. While silicon can be advantageous from a manufacturing perspective, it is inherently "lossy" and can present other problems due to the optical differences between the fiber itself (silica) and the silicon waveguide. IOT, which is now wholly owned by JDS Uniphase, uses an ion deposition process, which can be difficult to manufacture.
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