Lumentum jolts the industry with Oclaro acquisition

Lumentum announced on Monday its plan to acquire Oclaro in a deal worth $1.8 billion.

The prospect of consolidation among optical component players has long been mooted yet the announcement provided the first big news jolt at the OFC show, being held in San Diego this week. 

Alan Lowe“Combined, we will be an industry leader in telecom transmission and transport as well as 3D sensing,” said Alan Lowe, president and CEO of Lumentum, on an analyst call discussing the deal.

Lumentum says their joint revenues totalled $1.7 billion with a 39% gross margin over the last year. And $60 million in synergies are forecast in the second year after the deal closes, which is expected to happen later this year. 

The $1.8 billion acquisition will comprise 56 percent cash and 44 percent Lumentum stock. Lumentum will also raise $550 million to help finance the deal.

“This is a big deal as it consolidates the telecom part of the component market,” says Daryl Inniss, business development manager at OFS Fitel and former market research analyst.

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The many paths to 400 gigabits

The race is on to deliver 400-gigabit optical interfaces in time for the next-generation of data centre switches expected in late 2018.

The industry largely agrees that a four-wavelength 400-gigabit optical interface is most desirable yet alternative designs are also being developed.

Optical module makers must consider such factors as technical risk, time-to-market and cost when choosing which design to back.

Rafik Ward, FinisarUntil now, the industry has sought a consensus on interfaces, making use of such standards bodies as the IEEE to serve the telecom operators.

Now, the volumes of modules used by the internet giants are such that they dictate their own solutions. And the business case for module makers is sufficiently attractive that they are willing to comply.

Another challenge at 400 gigabits is that there is no consensus regarding what pluggable form factor to use. 

“There is probably more technical risk in 400 gigabits than any of the historical data-rate jumps we have seen,” says Rafik Ward, vice president of marketing at Finisar.

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