Growth Through Murders and Inquisitions
2 CommentsPosted by finisar on January 27, 2010
This week’s post comes from Finisar CFO, Steve Workman.
I was invited by Rafik to do a guest post on Lightspeed. I considered various topics including the adrenaline rush we all get working on the “ragged edge” of accounting, but then it occurred to me that you can’t truly know Finisar without understanding our views on M&A. Finisar has used M&A extensively in developing its vertically integrated business model. In doing so, it has targeted a variety of companies, both private and public, big and small, foreign and domestic. To date, 12 transactions have been consummated in building our optics business although we looked at many more along the way and even backed out of a couple. And we have done so almost irrespective of the macroeconomic environment or stock price at the time of the transaction. As long as we felt the deal could be accretive within a relatively short period of time (generally one year to allow for restructuring although manufacturing synergies can take longer), then the transaction qualifies for consideration. Of course, pure technology deals can take longer to pay off and generally require that we take a healthy dose of skepticism before evaluating the opportunity.
How successful have we been with our M&A strategy? We ask ourselves that question all the time. We had a couple of false starts with respect to establishing an internal capability for building lasers (this is hard). And we had the chutzpah to announce a hat trick (3 deals at one time for those who don’t follow hockey) back in the internet bubble when we probably didn’t fully appreciate some of the integration issues you can run into. While some transactions have definitely worked better than others, we have never been shy about using M&A to sharpen our competitive edge. As noted in a recent Harvard Business Review article, “while M&A activity has been severely depressed since 2008 and fell dramatically in early 2009, acquiring companies during that period tended to outperform their industry peers in market valuation, according to a global study by Towers Perrin and Cass Business School examining 204 deals, each worth more than $100 million.”
In Finisar’s case, we have greatly expanded our product lines, patent portfolio and R&D capabilities through M&A. Our optics revenues have grown from just $47 million in fiscal 2000 when we became a public company to an annual run rate of over $580 million as of the most recent quarter reported and was headed higher based on our guidance at the last earnings call. In the process, we have become the world’s largest supplier of optics for communications applications. But “being big” is not what drove our M&A strategy. To understand what did, we need to take a walk down Finisar M&A Lane.
In the heady days of the internet bubble, we should remember that did not make any of the key components that were used to build our transceivers such as lasers or ICs. Furthermore we built all of our products using outside subcontract manufacturers instead of doing it ourselves. During that time, we were at the mercy of some of our competitors in terms of obtaining key components. Without an adequate source of supply, market share can suffer as key customers direct more of their orders to those who are most likely to supply enough product in the timeframe needed. In addition, attempts to introduce new products earlier than our competitors were compromised as a result of not having early access to new versions of those key components. Our experience from the bubble underscored the importance of vertical integration for certainty of supply and for accelerating product development while having our own off-shore assembly and test operation was going to be important in order to control access to our technology and exercise greater control over product quality while keeping costs low. It wasn’t until later that we realized that having an internal manufacturing assembly and test capability also gave us the ability to respond more quickly to upside surprises which happens almost irrespective of the economic environment at the time.
If we just look back at the goodwill we wrote off in fiscal 2009, you could reach the conclusion that we sometimes venture off the reservation. But goodwill impairments are almost inevitable given the macroeconomic cycles we must work through periodically. In the case of Optium, we entered into a merger agreement where we agreed to issue shares for a certain percentage of the combined company in May 2008 which determined the amount of goodwill that would be booked. The transaction was finally approved by shareholders in the fiscal quarter ended October 2008. During that same quarter, Wall Street went into a meltdown and the economic consideration of what we had issued was no longer supporting the amount of goodwill that was generated according to the rules of GAAP accounting. As a result, we were forced to write off all of the goodwill in the same quarter that it was generated. Would we have done the same deal had we fixed the exchange ratio much later when our stock price was lower? Of course we would, because Optium’s stock price would have been lower as well. A falling stock price does not mean the relative contribution of each party to the value of the total has changed. If we had done the same transaction later in the year when stock prices were lower, the amount of goodwill written off would have been considerably less or perhaps none at all. The fact that companies record a goodwill impairment is sometimes more a statement about the economy at the time the transaction was undertaken rather than a problem with the transaction itself.
So how successful have we been with our M&A strategy? I’d say good enough so we aren’t shy about considering new opportunities, but have earned just enough credits from Hard Knock U. to be very careful as we evaluate them.
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The Silent War and the Yellow Wall
No CommentsPosted by Rafik Ward on January 18, 2010
There is a silent war that has been brewing for years in our industry. Not everybody knows it, but we refer to it as the war between optics and copper. I will have several postings on this subject in the coming weeks. There are many fundamental limitations of copper, and as a fiber guy I am acutely aware of all these limitations.
Let me start with my favorite one – this photo below. We call it the yellow wall. We have heard of installations using heavy CX4 copper cable, where the “wall” of copper was so heavy the system required reinforcements to avoid toppling over due to the weight of the copper pulling it.
Stay tuned for more on this topic.
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Finisar and Ixia Demonstrate 100G Ethernet Interoperability
No CommentsPosted by Rafik Ward on January 12, 2010
Last week, Finisar and Ixia announced a successful demonstration between Ixia’s K2 100 Gb/s and 40 Gb/s IP test interfaces with Finisar’s 100G Ethernet (100GE) CFP optical transceiver modules. Read the full press release. As a witness to the event, I can tell you first-hand how exciting this is not only to the technology innovators within the optical industry but to the carriers and service providers who will ultimately bring this technology into the hands of the end-users. We were fortunate that one of our colleagues took a photo to capture this special moment that we shared in our lab with Glenn Wellbrock, Director of Optical Transport, Network Architecture, and Design at Verizon.
The 100G era has begun.
From left to right: Chris Cole (Finisar, Director of Engineering), Christian Urricariet (Finisar, Director High-Speed Optics Marketing), Glenn Wellbrock (Verizon, Director Optical Transport, Network Architecture, and Design), and Rafik Ward (Finisar, VP Marketing).
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SFP+ Shipment Milestone: 1.5 Million and Counting
No CommentsPosted by Rafik Ward on January 5, 2010
Welcome to 2010! I’d like to begin the new year by recognizing an important company milestone: Finisar has shipped more than 1.5 million SFP+ optical transceivers since 2007 – this volume is equivalent to the entire population of Phoenix, Arizona – the fifth largest city in the US. It is not every day that the optics industry can tout such a major milestone and, given the economic issues over the last 18 months, we are excited to have achieved it!
Now, a little history about the SFP+ (enhanced small form factor pluggable) transceiver. Finisar began shipping this new form factor in 2007 as a solution offering a smaller footprint and higher performance capabilities compared to the SFP transceiver design. Today it is used primarily in 8 Gbps Fibre Channel and 10 Gbps Ethernet networking equipment including switches, routers, Host Bus Adapters (HBAs), and Network Interface Cards (NIC cards).
For more than twenty years, we have led the industry in volume production of optical communication components used by some of the world’s largest networking equipment manufacturers and system providers. I believe this is a direct result of our strategic focus on building internal design and manufacturing capabilities which not only supply many of our own components but also provide more tools to innovate and deliver leading-edge products to our customers.
I am excited to begin the new year on such a positive note for Finisar as well as the entire optics industry. I’d like to take a moment to wish all of our Lightspeed readers a wonderful new year. I look forward to blogging with you in 2010!
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The charm of history and its enigmatic lesson
No CommentsPosted by simonpoole on December 16, 2009
As this marks my first ‘official’ post for my new column, I’d like to start by looking back over the past 30 years that I’ve been involved in the optical communications industry to see whether Aldous Huxley’s aphorism that “The charm of history and its enigmatic lesson consist in the fact that, from age to age, nothing changes and yet everything is completely different” holds true for our industry.
Whilst it’s hard to think of something as recent as optical fiber communications moving from “…age to age…”, it can, however, be viewed as a series of technological waves – each of which builds on the momentum and advances of the previous. Once Kao and Hockham’s work had identified silica as the optimum transmission medium, and the group at Corning proved that low-loss fibers could indeed be made from silica, the challenge was then to develop the communications systems based on this wonderful new material.
With the benefit of 20/20 hindsight, each of the past three decades in optical communications can be characterized by a significant technological change and, as we shall see, I think we are about to embark upon yet another revolution in the next few years.
The 80’s
The time of The Smiths but also big hair and Maggie Thatcher – and telecoms made the transition from multimode to single-mode fibers. Single-mode fiber now dominates the telecoms transmission part of our industry but multi-mode fiber has not gone away and is still the dominant medium for client-side optical transmission.
The 90’s
In the 1990s the shift was from single wavelength SDH/SONET at 1310nm to DWDM at 1550nm using EDFAs. Whilst the first commercial deployment of EDFAs in 1993 occurred the canonical seven years after the invention of the EDFA in 1986, it looks like it will only be next year (2010) that world-wide shipments of amplified DWDM systems finally overtake those of single-wavelength (SONET/SDH).
Present Day
As of late 2009, we are in the middle of the transition from fixed network architectures to reconfigurable architectures. This has come through a progression from Wavelength Blocker technology through PLC-based ROADMs to today’s weapon of choice for reconfiguration – Wavelength Selective Switches (WSS). Again, optical reconfiguration has been around for nearly a decade now, but reconfigurable systems, whilst being the most rapidly growing part of the market, still account for less than half of all WDM system sold.
The Future
The next wave to hit and one which, I think, has fundamental implications for our industry, may be that of coherent transmission. Proposals for coherent transmission systems have been around since the early 1960s. Coherent transmission even had a brief flowering in the early 1990s before being steamrollered by the oncoming EDFA/DWDM juggernaut and put into the “interesting research but doesn’t really work for optical communications so we’ll call it a sensor” basket. It was then forgotten for a decade or more whilst we all got busy riding the photonics bubble of the late 1990s. In the past few years, however, the seemingly irresistible advance of Moore’s Law has raised the capabilities of silicon processors to the point where we can now dust off once again the potential benefits of coherent communications, add to them the processing power of an ASIC and finally drag optical communications kicking and screaming away from spark-gap transmitters and into the radio era circa 1930 (albeit with a slightly higher bandwidth).
Once again this change could radically alter the operation of our industry, with a move away from purely optical capabilities and an increasing reliance on silicon (as Physicist and Nobel Laureate Arnold Penzias once said, “If you find yourself fighting Si, don’t” ). However, as in previous changes, the adoption of coherent transmission likely will initially take place at the bleeding edge of the system, at 40 and 100 Gb/sec. However, given the additional cost and optical complexity of a coherent transceiver (i.e. additional modulators, local oscillator, etc.) coherent transmission is unlikely to displace existing technologies at 10G and below. More likely coherent will be the “weapon of choice” for future evolution to even higher per-channel bitrates (1 Tbit/sec/channel, anyone?) which provide improved immunity to the non-linear Shannon limit.
So, does Huxley’s postulate hold true? Does nothing change and yet everything is different?
From a technical perspective, everything is indeed different. Each wave of technology has brought huge changes to our industry and, as a result, immense increases in the ability of people to access information when and where they need it.
On the other hand, each wave follows roughly the same timeline for adoption, taking at least a decade to displace the then incumbent technology (I nearly used the words “paradigm shift”, but that’s for a future post) and in that regard, nothing changes.
Finally, the last word this week should go to JCR Licklider, one of the grandfathers of the Internet and founder (in 1962) of the Intergalactic Computer Network, who, after many years of watching how technologies are developed, hyped, and then finally adopted noted that: “People tend to overestimate what can be done in one year and underestimate what can be done in 5 or 10 years“.
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Out of His Depth Overview
No CommentsPosted by simonpoole on December 10, 2009
Hi folks. In my new blog I plan to provide a personal take on what’s new, interesting, unusual, and/or under-reported in the area of optical communications. Stay tuned for next week’s official post! First up, a quick introduction to the esoteric joys of the Australian Conference on Optical Fibre Technology (ACOFT) which has just celebrated its 32nd consecutive year, making it nearly as long running as the much better-known OFC series in the US. However, I don’t think any of the recent OFC conferences can offer anything like this video clip, in which Associate Prof Peter Farrell from Melbourne University shows how to entertain the audience between sessions…enjoy.
As always, comments are strongly encouraged.
Simon
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Introducing A New Lightspeed Column: Out of His Depth by Simon Poole
2 CommentsPosted by Rafik Ward on December 10, 2009
This month I am excited to introduce a new Lightspeed blog column, “Out of His Depth” to be hosted by Dr. Simon Poole, Director of New Business Ventures for Finisar Australia. For those of you not so familiar with Simon, here’s some colorful background:
Simon is an engineer and entrepreneur with nearly 30 years experience in optical communications in academia and industry. As a researcher he was a member of the team at Southampton University that invented the Erbium-Doped Fibre Amplifier (EDFA) which is recognized globally as one of the key inventions underpinning the optical communications revolution. As a result of this he was sentenced to penal servitude (his words!) in the colonies where he served his time by founding and running the Optical Fibre Technology Centre (OFTC) at Sydney University.
Tiring of life in the ivory tower he founded and ran one of the first optical components spin-outs from a university (Indx Pty Ltd) to develop and manufacture Fibre Bragg Gratings (FBGs). Indx was subsequently acquired by Uniphase and grew to over 300 people with revenues of ~$100M annually.
Leaving Indx in 2001, he founded Engana Pty Ltd which is now (after a brief stint as Optium Australia) Finisar Australia, and is the division of Finisar responsible for developing and manufacturing Finisar’s range of class-leading Wavelength Selective Switches and ROADMs.
In his current role, he is leading an internal start-up to expand Finisar Australia’s core activities into the field of Optical Instrumentation (WaveShaper) as well as supporting the strategic marketing of Finisar’s range of WSS products.
While his technical accomplishments were recognized by being made a fellow of both the IEEE and IEAust, and he is a regular speaker at conferences around the world, his musical taste and personal style remain (to the despair of his family and friends) firmly mired in the UK indie scene of the early ‘80s (anyone other than Simon for Billy Bragg or The Smiths?).
I invite you to visit us next week for the launch of Simon’s new column: Out of His Depth.
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SC09: And the winner is…
No CommentsPosted by Jan Meise on December 9, 2009
As promised we are excited to announce the winning result from our Laserwire® weight competition at Supercomputing 09.
Our question was: What is the % savings in weight of a 10 meter Laserwire active optical cable compared to a 10 meter RJ-45 cat6a cable?
The correct answer is: 85.46%
Check out the pictures of the Laserwire 10m cable weighing in at 98 grams and the Cat6a 10m cable with 674 grams.
The iPOD will go to the lucky winner from Stanford University who had the closest guess of 85.5%.
For more information about low latency, low power, low weight and low cost 10GbE connectivity please visit our website.
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5 Minutes with Jag Bolaria, Linley Group
1 CommentPosted by Jan Meise on December 7, 2009
Last month the Linley Group hosted the Data Center Networking seminar in San Jose, California. We took a few moments with Linley analyst, Jag Bolaria, to talk about the future of the optics industry and specifically his view on the war between Optics and Copper technologies.
JM: In the early 2000’s, the general view was that the telecommunications industry had significantly over-invested in fiber optic infrastructure – do you think the investment has caught up with the industry needs of today?
JB: Yes, a lot of money went into the telecom infrastructure and that was followed by a significant cut back in new equipment. In fact, this cut back continued for more than seven years. Since 2000, the traffic mix has shifted dramatically to data from voice—and in the future video will drive further growth in traffic. This new makeup of traffic requires an infrastructure that is designed more for data and video rather than built upon voice technologies. Consequently, in 2009 and 2010 we are at the beginning of an update to the telecom infrastructure—an update that will shift the infrastructure technologies from TDM and SONET/SDH to packet traffic, Carrier Ethernet and OTN.
JM: What areas in fiber optic infrastructure do you foresee organizations investing in as we move into 2010?
JB: The fiber optic infrastructure growth will be driven by OTN technologies, which include data rates of 40Gbps and 100Gbps. Much of this growth will be driven by carriers and a need by the carriers to consolidate multiple transport technologies to OTN and Carrier Ethernet.
JM: When do you predict the war between Optics and Copper will end – or will it?
JB: Instead of a war, we see these as complementary technologies for the most part. Clearly, long haul uses optics today and will continue to use optics. In the Enterprise, distances greater than 100 meters will continue to be optics. At 10Gbps, optics offers a low power solution, which will continue to dominate for several years. Once 10GBase-T can reduce power dissipation to less than 2W, it will offer another alternative for OEMs and end users. This alternative will be particularly attractive for LOM designs. In this type of the larger landscape, we expect both copper and optics to continue shipping volume in millions of units.
JM: How do you see the Optics Components vendor landscape evolving over the next 5 years?
JB: We expect 10Gbps optical port shipments to increase rapidly for the next 3-5 years. This will lead to further consolidation and will favor vertically integrated suppliers for optical modules.
Thanks for your time today, Jag.
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Finisar at Supercomputing09: Event Wrap-Up
No CommentsPosted by Jan Meise on December 4, 2009
What a week at SC09 in beautiful Portland. Maybe the weather was a little chilly but with over 10,000 attendees this was definitely the hot event in the HPC community. Looking at the traffic at Finisar and the booths of other optics companies it has become obvious that HPC and optics connect in a big way. From OEMs to System Integrators to the actual End-User, Active Optical Cables are becoming the interconnect of choice when it comes to InfiniBand QDR and 10GbE Cluster Installations.
With respect to InfiniBand, our Quadwire™ cables helped to connect this year’s SCinet Network and Mellanox’s intrabooth connections. On the 10GbE side we powered a link in the Myricom booth and demonstrated Network convergence of InfiniBand and 10GbE in a live demonstration at the Mellanox booth with our Laserwire® (www.laserwire.org) product.
In case you missed our Second Source Partnership announcement with Foxconn shortly before SC09, please read about it here.
At our booth we had a number of industry first demonstrations including: the first active optical cable implementation of a CXP to 3x QSFP breakout cable, a Laserwire® active copper cable, and a QSFP to Laserwire adapter.
Let’s not forget the fantastic Laserwire Girl who was cruising the show floor promoting our Laserwire cable technology.
And if you were one of the folks to enter our iPOD competition on guessing the weight savings comparing a 10m cat6a cable with a 10m Laserwire cable, then you’ll be excited to know the results of this contest to be announced later next week. So be sure to check back soon.
I look forward to any comments or experiences you would like to share from SC09.
