SEPTEMBER 18, 2002
PREVIOUS NEWS ANALYSIS
Component Closures: Trouble Ahead?
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Ongoing plant closures and layoffs have significantly cut the world's optical component-making capacity. And some are questioning whether that's a problem in the making.
In the latest news, JDS Uniphase Corp. (Nasdaq: JDSU - message board; Toronto: JDU) has confirmed plans to lay off hundreds of additional employees by the end of 2003.
Details surfaced in today's Ottawa Business Journal, which cited JDSU's 10-K report filed with the Securities and Exchange Commission (SEC) this week. That document makes it clear that more than 2,000 employees were yet to be terminated as of the end of its fiscal year, on June 30, 2002: "Based on decisions made through the end of fiscal 2002, we will reduce our total workforce by approximately 16,550 employees. As of June 30, 2002, 15,450 employees have been terminated."
JDSU's ax will fall on a number of optical component plants worldwide, representing a total of over 400,000 square feet of facilities, about 7 percent of the total capacity it had on June 30.
On the roster for closure is a plant in Toronto, which makes optical performance monitors; an AWG plant in Columbus, Ohio; an EDFA facility in Eatontown, N.J.; a laser subsystem plant in Manteca, Calif.; a plant in Waghaeusel-Kirrlach, Germany, making waveguide splitters; a fused fiber components facility in Torquay, U.K.; and an FBG plant in Sydney, Australia.
JDSU's news is the latest in a stream of major cuts made by optical component manufacturers:
Alcatel Optronics (Nasdaq: ALAO - message board; Paris: CGO.PA) yesterday announced plans to close or sell facilities in Plano, Texas; Gatineau, Quebec; and Lannion, France, totaling over 54,000 square feet of capacity (see Alcatel Optronics to be Slashed ).
Agere Systems (NYSE: AGR - message board) announced plans last month to exit the making of optical components altogether, closing over 300,000 square feet of capacity in four locations worldwide (see Lights Out for Agere's Opto Biz ).
Bookham Technology plc (Nasdaq: BKHM - message board; London: BHM) said in July (see Bookham Reports Q2, Preps Layoffs ) that it will consolidate its active and passive components at two sites -- Milton and Caswell in the U.K. -- while closing sites in Maryland and Swindon, U.K., representing 166,000 square feet.
And the list goes on. ADC Telecommunications Inc. (Nasdaq: ADCT - message board) and Nortel Networks Corp. (NYSE/Toronto: NT - message board) have their component divisions up for sale, with no buyers in sight (though rumors abound -- see Nortel Close to Components Sale ). ADC has stated that if no one steps up, it will abandon its components interests (see ADC Selling Components Biz ).
At least one industry source thinks the cuts may be too deep, even though the present market is clearly tanked. After all, if demand increases and no one's around to meet it, prices could go up. Manufacturing backlogs could occur -- couldn't they?
"In theory, yes, prices could go up," says Stephen Montgomery, president of research firm ElectroniCast Corp. But he thinks the world of optical components often proves theories wrong. "It's complex -- it remains to be seen."
Still, he has concerns. Right now, he estimates optical inventories will last six to nine months more. But he says it can take up to 36 months to build and place optical components inside systems. So even if one forecasts equipment demand increasing in 2004, it's clearly time to think ahead.
Current cuts have reduced optical manufacturing capacity by about 30 percent worldwide, Montgomery says, claiming to be "optimistic." That could result in price increases for components if demand starts building again.
Of course, there are those who point to the present cuts as the result of artificially inflated demand -- the well-known bubble effect created when equipment suppliers tried to estimate telecom bandwidth requirements in a market gone haywire.
But Montgomery says there are signs of a different sort of problem afoot. "In Asia, at least two equipment vendors have mentioned they can't find the parts to make gear for fiber-to-the-home products fast enough," he says. "It's taking too much time to ramp up."
At least one vendor thinks that won't be an issue. "We ramped up quickly before, and we can again," says Gerald Gottheil, director of marketing communications at JDSU. "We'd be glad to do that!"
— Mary Jander, Senior Editor, Light Reading
www.lightreading.com
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