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22 December 2009


Oclaro acquires wavelength selective switch firm Xtellus

In response to demand for a total solution including wavelength selective switches (WSS) products to aid regeneration and routing needs, optical component, module and subsystem maker Oclaro Inc of San Jose, CA, USA has acquired Xtellus Inc, which is based in Denville, NJ, USA (with manufacturing and development facilities in Israel and South Korea).

Xtellus provides a family of WSS products capable of powering reconfigurable optical add/drop multiplexer (ROADM) applications over the entire optical network, from the edge to the core. Combining this WSS portfolio with Oclaro’s integrated subsystem design capability gives the firm a strong position in the high-growth ROADM market, Oclaro reckons.

As well as being one of the fastest-growing segments of the optical component market, the WSS acquisition also completes Oclaro's overall portfolio of product areas required to support strategic positioning throughout the metro and long-haul areas of the telecom market.

Oclaro says that Xtellus uses a strategic mix of core technologies, both liquid crystal and MEMS, that will uniquely enable it to deliver a complete family of scalable WSS to power ROADM applications across edge and core optical networks. Smaller-port-count edge WSS applications, where managing product costs aggressively is a key to success, are based on liquid crystal technology. For core WSS applications, Xtellus uses a combination of high-reliability 1-Axis MEMS to switch across high port counts, while also maintaining liquid crystal for attenuation.

Xtellus stockholders will receive shares of common stock of Oclaro worth $33m, part of which will be held in escrow for 18 months to support Xtellus’ indemnification obligations to Oclaro. The agreement also provides for a value guarantee under which stockholders could receive additional consideration of up to $7m if Oclaro’s common stock trades below certain levels at the end of 2010 and if Oclaro’s revenue from Xtellus products is more than $17m in 2010

The agreement also calls for a retention program under which certain staff will receive up to $5m in a combination of cash (a maximum of $1m, to be paid upon close) and restricted stock awards which will generally be subject to time-based vesting and partially subject to the conditions of the value guarantee.

*For its fiscal second-quarter (ending 2 January 2010), Oclaro now expects revenue of $91–93m (up 6.5%–9.3% on fiscal Q1’s $85.1m). This compares with previous guidance (given in late October) of $87-92m (up by 5%). Revenue from Xtellus (to be included in the fiscal second quarter results), for the 16-day period between the 16 December close date and 2 January 2, is not expected to be material.

Oclaro still expects to generate net cash in fiscal Q2, even after paying the cash amounts due at close of the acquisition. Oclaro also expects that, in terms of non-GAAP operating income, Xtellus' operations will be close to breakeven in each of the first two quarters of calendar 2010, generating gross margins consistent with Oclaro's corporate targets, and moving into positive non-GAAP operating income in second-half 2010. Any Xtellus-related net cash burn in 2010 is expected to be largely limited to the working capital required to support their corresponding revenue ramp.

See related items:

Oclaro goes into underlying operating profit

Oclaro and Newport close deal to exchange New Focus and Spectra Physics high-power laser diode businesses

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