t2,
whats your take on this article. This may be why JDSU lower in after market. Another wrench in the works. Lane
quote.bloomberg.com
Nortel Says It's `Concerned' by Fiber-Optic Component Mergers
Brampton, Ontario, July 25 (Bloomberg) -- Nortel Networks Corp. Chief Executive John Roth said he's ``concerned'' that so many fiber-optic component makers are being acquired, the first signal that Nortel may oppose the purchase of SDL Inc. by JDS Uniphase Corp.
``We are concerned at the level of consolidation in the vendor community that's going on,'' Roth said on a conference call in response to a question.
Nortel hasn't yet decided whether to formally oppose any mergers of component suppliers, Roth said. JDS expects its proposed acquisition of SDL in a stock purchase now valued at $45.8 billion to get close scrutiny from antitrust regulators, who in such a case typically poll customers to check for concerns. The purchase would make JDS an even bigger No. 1 in fiber-optic components.
Nortel, the biggest maker of fiber-optic equipment, is JDS Uniphase's No. 2 customer. In past quarters, it's had trouble finding the components it needed to fill equipment orders.
JDS Uniphase has made 16 acquisitions in five years, including the landmark purchase last year of JDS Fitel Inc. for $7.18 billion that sparked a wave of industry consolidation. SDL itself has made three big acquisitions this year.
Limited Suppliers
Because Nortel uses a lot of advanced parts, it has only a limited number of qualified suppliers.
``As we see the market tighten up in terms of the choice that we have to deal with, that makes it even more of a concern,'' Roth said.
Roth said Brampton, Ontario-based Nortel is concerned enough to spend $1.2 billion to more than triple its own production of fiber-optic components in the next 18 months. It announced the investment plan yesterday.
``That's part of the rational for a fairly large investment in Nortel to ensure that we have choice of supply in the components that are very critical to us,'' he said on the call.
Chief Financial Officer Frank Dunn said Nortel is confident it will have the components it needs this year. It's expanding production to make sure it has enough supply and choice 15 months to 18 months from now, he said.
Most equipment makers like to maintain at least two main suppliers of key components. That helps to ensure they can always find enough if one supplier runs out, as well as pressure vendors to cut prices.
Corning Talks
Nortel is in talks to combine its components business with Corning Inc., which also has smaller unit in the same industry, people familiar with the matter said yesterday. Roth declined to comment on the discussions when asked on the call.
Under the proposal being discussed, Nortel could end up with a majority stake in Corning, the people said. It would, however, take steps to ensure that the merged company runs independently.
Corning has taken part in the consolidation, too, spending more than $6 billion on acquisitions in the past year.
Nortel said yesterday that its components business would have sales of more than $2.5 billion this year at market prices. Corning, the biggest maker of glass used in fiber-optic networks, had component sales of about $450 million last year and expects them to increase more than 80 percent in 2000.
JDS Uniphase's $20.4 billion acquisition of E-Tek Dynamics Inc. was reviewed by the U.S. Justice Department and passed on the condition that JDS give up E-Tek's right of first refusal to some key components. JDS, based in San Jose, California, completed the purchase in June.
Nortel rival Lucent Technologies Inc. is JDS Uniphase's No. 1 customer.
Jul/25/2000 20:56 ET |
