January 30, 2009
With few minor exceptions, companies at Photonics West this week were extremely concerned with or at a minimum beginning to feel the impact of the economic slowdown. Those with a narrower focus or multiple discrete segments bring the impact into a finer focus. We might generalize that:
• Components or instruments for medical applications (Biophotonics) have remained strong or growing – medical companies increasingly incorporate photonic component/instruments at the core of their systems and many new instruments using optical sensing technologies are in the offing.
• Aerospace and defense oriented components/systems, while pretty stable, have begun to see stretching of timelines or delays.
• Production systems and capital equipment are weak, though Photonics West may not be the best measure of this segment. Multiple companies commented on double-digit industrial orders declines.
• Many broad based component suppliers have not seen much decline yet – but do expect slowing tied to weaker R&D budgets.
Repeatedly companies expressed the sentiment “a flat year would be a good year”.
We could be quite bearish, except there were numerous exceptions, and several outright bullish tales to lift our spirits. These tended to be companies bringing new technologies to established markets, those seeing growth opportunities in the dislocation of established markets or companies capable of leveraging their core competencies across multiple business segments where penetrating new applications was offsetting any weakness in their more established opportunities.
Another point in the favor of the bulls was that even among the most negative executives at Photonics West, we repeatedly heard the comment “this is nothing compared to 2001-2003″. Perhaps this is because that era was so optical specific or because the survivors have restuctured in a manner that has them significantly more prepared for the environment we face today. Many of these companies have built both scalable and “de-scalable” business models. Companies have been cutting quickly and despite fears about where revenues go, there is far less desperation in this industry than even four years ago. We will follow up with a few comments on specific companies in posts to follow.
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Tradeshow Recaps | Tagged: Optical Components | 
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Posted by Dennis Gallagher dgallagher@gtadvisors.com
January 30, 2009
Back in October we commented on the ESI/Zygo merger and held it out as an example to other companies of forward strategic thinking (ESI Zygo Merger). As much as we might have liked the combination of ESI and Zygo when it was announced, the changes in the economic climate and the varied impact they are having on companies around the world are enough to pull apart almost any agreement. On January 20, Zygo withdrew from the merger.
The first reaction under circumstances like these is to slow the process down and see what effects the tougher business climate begins to exert. As we heard from companies at Photonics West just this week they can vary from one company to another and between vertical markets. Depending upon what happens the outcome can be anything from walking away from the transaction to resetting or reaffirming the price and moving ahead. Even in the case of a walk away such as happened in this case, if the idea was truly a good one, the parties can reengage when the the economic dust settles and each company is quite certain of the ground it is standing upon.
Leave a Comment » | Topics on Our Mind, Transaction News | Tagged: M&A, Optical Components | Permalink
Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
January 28, 2009
One reader responded to our “Two Drunks” post: “You may be a little hard on Bookhan/Avanex, especially given the overall market environment…Two drunks maybe, but ones with cash and opportunity to remove cost in a market best characterized by heavy R&D requirements, low ASP’s and last man standing. The optical food chain works in totality, but not as it is chopped up. Is some of the creative thinking, time for the systems houses to own the components once again to leverage photonic integration along with combating the Infinera threat?”…
Perhaps. And maybe we should be considering them as potential acquirers. Several months ago there was talk that Ciena was beginning to think along those lines and you might argue that Nortel moved down that path with its 40G platform. I’m not convinced though and will be surprised to see that course reversal with the pricing pressure we see for communications services old and new, but we’ll keep an mind open and our ear to the ground.
Leave a Comment » | Technologies, Thinking About M&A?, Topics on Our Mind | Tagged: M&A, Optical Components, Telecom | Permalink
Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
January 28, 2009
You can’t call on companies in the vertical markets where we prospect without saying something about the news yesterday: Bookham and Avanex finally announcing plans to merge. As the team that actually raised $15 million for Bookham back in February 2000, prior to its IPO later that year, the news feels almost like a eulogy.
Two Internet bubble era rocket ships have tumble back through the atmosphere with perhaps only the crash landing left to transpire. This cycle has repeated itself over and over again in the technology world where the star companies of the past reach a point where the only thing they think they can do is merge with a competitor in order to eliminate industry capacity, cut staff and hopefully firm up the pricing environment in the market segment they serve. It is the sort of thing business managers do when they can no longer find ways to be a growth company.
I guess I believed there was another way, but no matter, it wasn’t in the heads of the managers and board members of the two companies. So what does it mean to someone in the M&A business that calls on optical communications companies that might want to sell to a strategic acquirer?
First, take these two guys off the list of potential acquirers for the next year and maybe for all time. Second, think about the list of remaining buyers. It’s getting pretty short. There’s JDSU that seems to have taken an acquisition holiday, but certainly could be a buyer if they chose. Then we have Finisar. They have been active over the past few years and as we saw with the Optium merger, they still seem to think there is a growth opportunity out there. Opnext would seem to be an option although you have to wonder if this is an acquirer that is still using training wheels. They now have StrataLight under their belt so I guess time will tell. You can’t ignore Oplink, but Joe has always opted to buy on the cheap and its not clear to me that is a strong underpinning for an acquisition strategy and certainly as a seller it is not the first place you would want to turn. There’s Emcore…or is there? I suppose there may be some special situations after that, but to make a long story short, the list is shrinking and it’s time to be a little more creative.
We’ve been trying to encourage potential sellers in that direction, but it’s not easy. Nonetheless we will continue.
Leave a Comment » | Thinking About M&A?, Topics on Our Mind | Tagged: Optical Components, Telecom | Permalink
Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
January 15, 2009
We’ll probably be accused of talking about the pimple on the butt of an elephant, so we’ll start by saying this is one example and there are certainly others. During our prospecting for client opportunities we have gotten to know TeraXion, a Quebec City company that makes dispersion compensators for 40Gb networks and beyond. The pace of deployment of this transmission technology has picked up nicely in the past year and with that the need for TeraXion’s products and those that compete with it.
Nortel has used electronic dispersion compensation in its 40Gb platform and this technology has looked like the single greatest threat to TeraXion over time. However the limbo status that Nortel has now landed in may hold that threat at bay for now and perhaps for a good amount of time to come. We believe the value of TeraXion and other emerging technology companies that are well protected by IP, should strengthen acquisition interest in these companies.
As is always the case, getting together on value is one of the toughest parts of the puzzle. Both sides in any transaction today need to make a bet “on the come” on value and should look at the next few years as a time to put organizations in order to hit the ground running when the environment inevitably improves.
Leave a Comment » | Technologies, Thinking About M&A?, Topics on Our Mind | Tagged: Optical Components | Permalink
Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
January 15, 2009
I just got off a call with a CEO that is in the process of selling his business to a strategic acquirer. His business is dwarfed by the potential acquirer and even though the strategy team at the acquirer believes in the technology the CEO’s company possesses, the operating people seem to be concerned about taking on a loss with the business even though it is negligiable for the parent. As a result, nothing is happening.
The paradox of the situation is striking to me at this moment in time. Here we are in an environment that could remain trying for a year or even more, one where it would be difficult to argue the earnings reported by the buyer next quarter or even for the next year matter. What does matter is what will be there to drive the success of the potential acquirer when things finally improve. That will be the thing that will instill investor interest when they begin to look beyond the current mess. The messaging to customers that you invested when times were tough to put them in a better position will also be powerful.
This is not the time to sit back and wait for everything in the world to sort itself out. This is the time for strong companies to selectively make investments, some through acquisition, that will make them the leader of tomorrow. Perhaps buying my friend’s company won’t do that, but I suspect it has more to do with a lack of leadership at a time when CEOs and the heads of strategy need to stand up and lead.
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Posted by Kevin C. Slocum, Managing Director, kslocum@gtadvisors.com
January 6, 2009
Today on Greentech Media’s Blog was an entertaining post by Michael Kanellos about an LED, powered by a candle, using a solid-state thermoelectric from Nextreme Thermal Solutions. At this time of year in my house we are working on science fair projects. This year, inspired by prolific inventor Dean Kamen’s plans to put a Stirling engine in a car, my son is building a Stirling engine from tin cans. The project, like many other science fair projects (and startups?) is more about energy conversion than about energy generation; what is popular and what is possible.
If these were mature technologies we would already have an “efficient frontier” of energy conversion solutions most cost-effective for the energy source. We simply are not there yet. The pace of change in energy conversion/cost is rapid because the move from fossil fuels, hydroelectric and nuclear power towards alternatives such as solar, geothermal and wind is both dramatic and alters the energy conversion options. There inevitably will be a range of specific energy conversion solutions for specific energy source and applications that will emerge. Turbines have been in continuous development since 1828 and continue to evolve.
Coincidentally, today Tom Cheyney discusses Greentech’s most recent Venture Power Report. He points out that solar start-up companies were more than half of VC investments in Q4 2008. That represents a very large bet on a single, albeit important, energy conversion technology. The logic behind both solar and the imminent scaling of solar trials is completely clear, but we think a great deal of success will be found amongst the energy conversion alternatives as well. The best bang for the energy investment buck might be found in a thermoelectric, Stirling engines or even the energy transport infrastructure that enable greater adoption of alternative energies.
Leave a Comment » | Technologies, Topics on Our Mind | Tagged: Alternative Energy, Solar Energy | Permalink
Posted by Dennis Gallagher dgallagher@gtadvisors.com
