Gary, I think sometimes you have this idea that Virtual Mfg concept will fit ALL industries in ALL circumstances! Life is never that black and white. CSCO is also investing HUGE dollars to build their own optical component mfg processes because the reality is that the optical components are NOT a commodity today by ANY stretch of FUD or imagination TODAY.
By the time optics becomes a commodity, few key players like NT, JDS and Corning will have made bilions and billions of profit all the while consolidating their position in the optical market.
Ever heard of Intel and MSFT? Some people say they commoditized their products 10 years ago as well! Wow, if NT could only commoditize the optical component market and sell $100 billion dollars worth of components to CSCO-the-Virtual-Manufacturer at 80% profit margins.......I would be one happy investor.
Read this Gary and realize that optical component market is CONTROLLED by few key players and NT wants to be one of the main controlling entity not only to make gobs of money in the next 10 years as the world's entire network undergoes the conversion to "light", but also to ENSURE they get preferential supply so that NT will never ever have to explain why they missed a quarter due to supply constraints.
There are some huge intellectual property rights and patents as well as key group of propeller heads that NT is acquiring along with the Uniphase plant to further distance themselves from faltering LU and non-player CSCO.....to dismiss this as a mass-commodity market is laughable.
Generating and controlling billions of beams of light on a consistent basis over a long stretch of distance under all kinds of environmental circumstance is not quite like turning out 500 million cellphones or 100 million desktop PC's. The analogy is sadly simplistic and simply not relevant. It is POSSIBLE that the optical component market will get commoditized but that will likely happen when some 50% of the entire end-to-end network is driven by photonic technology and since we have probably less than 1% of the end-to-end network populated by photons, .....guess how lucrative the market will be from now to 50%?
To:Kenneth E. Phillipps who wrote (9576)
From: telecomguy Tuesday, Feb 6, 2001 9:51 PM
Respond to of 9577
Here is more info on the NT deal with JDS.....it helps that Roth knows JDS's CEO really well as JDS CEO orginally worked for Roth at NT and had a very amicable parting of ways when he left NT to start JDS. Apparently NT also was in the driver's seat to get the Zurich plant due to their ability to potentially nix the deal.
The way I see it, this brings JDS-Uniphase really close to NT (part of the deal was that NT will commit to buy $500 milllion worth of component in the future years from JDS). The real loser in all this is Corning and LU-Agere. The two dominant players JDS, & NT looks like they are forming a tight alliance to dominate the optical market!
Corning should have done the deal with NT......after all, NT owns 40% of the optical systems market and in the end, customer will always dictate the tango. GLW didn't want to cede control so now NT is aggressively going after the GLW market on it's own in what promises to be an interesting dogfight -- however, in an exploding market, NT's gain is of course not necessarily GLW's loss either.
This deal will LEGITIMIZE NT's component spin-off and turn that spin into far greater valuation for NT (meaning more CASH!) without any deterioration on earnings/share. Clear win-win deal for NT and JDSU.
thestreet.com
Tech Stocks : Telecom
JDS Laser Plant Deal Pumps Up Nortel
By Scott Moritz
Senior Writer
2/6/01 3:01 PM ET
Nortel (NT:NYSE - news) Tuesday got a rich parting gift in exchange for its role in advancing the $17.6 billion merger of JDS Uniphase (JDSU:Nasdaq - news) and SDL (SDLI:Nasdaq - news).
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As the world's largest buyer of pump lasers, Nortel could easily have nixed the merger on the grounds that it would consolidate production of nearly 90% of these critical optical components in the combined JDS/SDL operation. But instead of playing spoiler, Nortel agreed to pay $3 billion to buy an optical plant in Zurich -- an attractive bit of window dressing for the upcoming IPO of Nortel's optical component business. (See TheStreet.com's coverage of the merger approval. )
For Nortel, which says the deal won't reduce earnings this year, the Zurich plant brings choice pump laser expertise and the intellectual property rights to the technology. "Without doing all the arithmetic, clearly this unit has customers," Nortel's optical networks president, Greg Mumford, said in an interview Tuesday. "There are only two pump laser suppliers in the world that are shipping [these pumps] in volume. ... So it does come with a very healthy business."
The technology in question is known lovingly as the 980-nanometer pump laser. The laser is an essential light-generating component in network amplifiers, which are used to shoot lightwaves through optical fiber networks. As more Internet traffic gets carried on light and more networks are built with these components, the availability of pump lasers will continue to increase in importance. That tenet was the top concern among antitrust lawyers reviewing the JDS-SDL merger, which shareholders will now vote on Feb. 12.
Nortel shares were up 45 cents, or 1%, to $36.21 in midday trading Tuesday. JDS was up more than 6% and SDL was up 8.5%, as the long-awaited deal is now all but certain of being completed.
"This is a great win for both companies, JDS and Nortel," says CIBC World Markets analyst James Jungjohann, who has a strong buy on JDS. CIBC advised JDS on the merger with SDL.
Expensive precision watches aren't the only thing the Swiss make. JDS's Zurich plant supplies 40% of the world's 980 pump lasers. And by some Wall Street estimates the Zurich plant will generate about $200 million in revenue in 2001. So not only does Nortel get some immediate payback on its investment, it also gets a roster of new customers. That answers a question that had hovered over Nortel's planned optical spinoff, whose main customer has been Nortel itself.
While JDS had to sell the plant to satisfy the Justice Department, it's not clear how many buyers were on hand, given the number of delays the deal had. Nortel's looming deal-breaker status probably didn't work against it. Optical rival Corning (GLW:NYSE - news) and Japanese manufacturer Furukawa were rumored to be interested as well.
But industry observers such as RHK's Jay Liebowitz have their doubts. Corning acquired pump laser technology with its acquistion of Lasertron last year and may not have needed the Zurich operation, says Leibowitz, whose firm consults to the entire optical industry. Lucent's (LU:NYSE - news) pending component business spinoff, Agere, could certainly have used the Zurich boost, but given the financial health of Lucent, a deal wasn't in the cards. And, says Liebowitz, Furukawa has a strong position in a competing technology -- the 1480 pump laser -- and isn't likely eager to jump into a parallel business.
For Liebowitz, the $3 billion price tag suggests Nortel got a favorable deal. Corning paid the same for Pirelli's optical component business late last year. And, says Liebowitz, Pirelli's unit, unlike the Zurich plant, was "not known for delivering a strong volume or the highest performing" components |
