Gazettabyte

Avago to become the second largest optical component player
Company gains laser and photonic integration technologies
The goal is to grow data centre and enterprise market share
CyOptics achieved revenues of $210M in 2012

How the acquisition of CyOptics will expand Avago's market opportunities. SAM is the serviceable addressable market and TAM is the total addressable market. Source: Avago

Avago Technologies has announced its plan to acquire optical component player, CyOptics. The value of the acquisition, at US $400M, is double CyOptics' revenues in 2012.

CyOptics' sales were $210M last year, up 21 percent from the previous year. Avago's acquisition will make it the optical component industry's second largest company, behind Finisar, according to market research firm, Ovum. The deal is expected to be completed in the third quarter of the year.

The deal will add indium phosphide and planar lightwave circuit (PLC) technologies to Avago's vertical-cavity surface-emitting laser (VCSEL) and optical transceiver products. In particular, Avago will gain edge laser technology and photonic integration expertise. It will also inherit an advanced automated manufacturing site as well as entry into new markets such as passive optical networking (PON).

Avago stresses its interest in acquiring CyOptics is to bolster its data centre offerings - in particular 40 and 100 Gigabit data centre and enterprise applications - as well as benefit from the growing PON market.

The company has no plans to enter the longer distance optical transmission market beyond supplying optical components.

Significance

Ovum views the acquisition as a shift in strategy. Avago is known as a short distance interconnect supplier based on its VCSEL technology.

"Avago has seen that there are challenges being solely a short-distance supplier, and there are opportunities expanding its portfolio and strategy," says Daryl Inniss, Ovum's vice president and practice leader components.

Such opportunities include larger data centres now being built and their greater use of single-mode fibre that is becoming an attractive alternative to multi-mode as data rates and reach requirements increase.

"Avago's revenues can be lumpy partly because they have a few really large customers," says Inniss.

Another factor motivating the acquisition is that short-distance interconnect is being challenged by silicon photonics. "In the long run silicon photonics is going to win," he says.

What Avago will gain, says Inniss, is one of the best laser suppliers around. And its acquisition will impact adversely other optical module players. "CyOptics is a supplier to several transceiver vendors," says Inniss. "The outlook, two or three years' hence, is decreased business as a merchant supplier."

Inniss points out that CyOptics will represent the second laser manufacturer acquisition this year, following NeoPhotonics's acquisition of Lapis Semiconductor which has 40 Gigabit-per-second (Gbps) electro-absorption modulator lasers (EMLs).

These acquisitions will remove two merchant EML suppliers, given that CyOptics is a strong 10Gbps EML player, and lasers are a key technological asset.