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Why JDSU Bought Picolight
JDSU (JDSU) announced that they are acquiring Picolight, a maker of VCSEL based optical transceivers. This is yet another example of healthy consolidation in the optical components business, which ultimately will lead to a better business environment for all- except for the customers like Cisco that exploit the oversupply situation. And Cisco is the likely reason JDSU bought Picolight in the first place.
JDSU paid $115m in stock for Picolight, roughly 2.5x to 3x Revenue. While not a huge amount of money, it is a respectable sum when compared to public valuations of other small optical component companies like Stratos (STLW) Avanex (AVNX), or Bookham (BKHM)..
Picolight is interesting because they are the last pure-play provider of VCSEL based modules, using technology developed in house. The reality is they are a laser supplier that was forced to package their products up in order to extract maximum value. Particularly interesting are their long wavelength (1310nm) VCSELs. Finisar (FNSR) is a major VCSEL supplier, and aside from acquiring 1310nm VCSEL technology from Genoa and Infineon, has yet to commercialize it.
Low cost, low power 1310nm lasers are suddenly are a lot more valuable with the advent of the 10G-LRM standard for transmitting 10GbE. LRM that can extract much more value from 1310nm lasers by using crafty EDC (Electronic Dispersion Compensation… but let’s call it crafty for the benefit of most readers) electronics to take 1310nm wavelengths and transmit them further over existing fiber. It is a crucial technology for reducing the cost of optics in 10GbE deployments. Vitesse (VTSS.PK) is a key EDC chip supplier into SFP= based EDC designs.
Picolight, like any good VCSEL supplier, will make the argument that VCSELs are inherently cheaper to manufacture than the DFB or FP lasers used in the majority of 1310nm applications today. JDSU, in purchasing Picolight, is betting their VCSELs will enable a cheaper LRM solution. VCSELs also have low power characteristics that make their use ideal for small form factor SFP+ applications.
What does not make sense is that JDSU has previously dismissed the optical components business and chosen to focus on subsystems and test equipment. But JDSU would not have acquired Picolight unless they were focused on fielding a competitive 10G LRM module. This indicates that JDSU senses an opportunity in the market that didn’t exist a year ago. They are in essence, admitting a mistake through their actions.
The fact that a company that publicly dismissed the optical module market and has now reversed that stance is very notable. Today, JDSU is very much not engaged with Cisco, the largest module customer, for next generation 10GbE modules. Perhaps the Picolight purchase is an admission that this situation must be reversed, and a bet that long wavelength VCSELs are the means to make it happen. JDSU just needs to convince Cisco that the technology is ready for prime time.
Author is long Finisar and Vitesse and short Cisco as a hedge.
CSCO is absolutely the main reason. No doubt about it.
There is another potential reason – JDSU finally has a good GM running that business. He understands the issues and needs the Picolight portfolio. Expect this modules business to do well in the future.
Andrew, if its about the 1310nm vcsel, what happened to the one JDSU got with the E2O acquisition? Of course, Picolight may have a better design, but they also have a very good 850nm for use in short reach 10G modules. BTW, any idea how Avago or Finisar matches up with 1310nm vcsels? Finisar acquire Genoa, Honeywell, and IFX all of whom where trying to develop a commercialized version.
I don’t know what happened to E2O. You have to use this kind of technology or you lose it – the people who tie their success to cutting edge products leave if their designs aren’t flight tested regularly. Picolight was shipping a respectable amount of product, more than E2O was (warning unverified guess). I’m sure other readers have the answer. I’m not sure it really matters.
Would you have any insight on how much of an advantage…yield and/or costwise that the lw vcsel commands over the 1310nm FPs? It has been such a challenge to get it commercialized and the prices of FP’s became so cheap, it almost made the issue moot.
BTW, I really appreciate your site and articles, very interesting and thought provoking. Keep up the great work, Andy.
Some quick comments and opinions on the questions raised so far:
1) JDSU put the E2O LW VCSEL work on the shelf pretty quickly — they bought the company for its 850-nm products. E2O was working on both 1300- and 1550-nm VCSELs at the time it was acquired, and demonstrated a LW VCSEL-based XENPAK LX4 prototype at one trade show. I don’t think they were shipping any LW VCSEL products at the time of the acquisition — the technology was still in development. The fact that the company was working on both wavelengths simultaneously implies to me that either they were trying to run before they could walk or their approach worked better at 1550 than it did at 1300. JDSU does seem bullish on the Picolight 1300-nm technology, however.
2) There’s not a lot of 1300-nm work going on right now that I know of. I believe OCP has throttled back on further development of the technology it acquired from Cielo and the last time I checked with Finisar (a couple of years ago) the AOD group (where the Honeywell assets ended up) was happy at 850 nm. The Infineon technology ended up with a Danish company called Alight, which is trying to meld it with a manufacturing process they’ve developed. I believe there are some Asian companies still working at this wavelength, including RayCan of Korea. I wouldn’t be surprised if at least some of the usual Japanese suspects are working in this area as well, but I don’t have any confirmations.
3) Meanwhile, Vertilas in Germany is working on 1550-nm technology and has announced products. BeamExpress in France could be active as well. NeoP bought the company’s product lines but not the LW VCSEL IP, Tim Jenks told me. He suggested that the BeamExpress team probably would continue working on the technology, but I haven’t had a chance to confirm that. RayCan is working at 1550 nm as well.
Hmmmm. Just how compelling is the 1310nm VCSEL over the F-P for the 10G LRM modules? If the demand comes anywhere close to a 20 million units through 2010, it looks like JDSU has picked up a real winner. Do you expect FNSR and/or Avago to revisit their research on lw vcsels or can they still come out ok with F-Ps?
20M 10GE units through 2010? Kinda high don’t you think?
“Sir! I’ll have whatever Steve0616 is having!”
With over 60% of the fiber connecting datacom switches being FDDI, it seemed doable within 5 years. Maybe that number is a little too happy, though, cheers.
does anyone make VCSEL that operate at 1850 nm?
thanks
mike
Fast forward to July, 2008 and Picolight CTO has just announced his departure. No surprise!
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