Oclaro Inc., the company formed by the merger of Bookham and Avanex, announced Wednesday that it will sell the New Focus business of its Advanced Photonics Solutions division in exchange for the Newport Spectra Physics high-power laser diodes business in Tucson, Ariz. Oclaro will also receive $3 million in cash, which is expected to fund the substantial portion of related transition and integration costs. The Newport Spectra Physics high power laser diode business and the Oclaro New Focus business are comparable in size, each with revenues between $20 million and $30 million in the 12 months ended March 31, 2009. The New Focus business includes optoelectronics, high-resolution actuators, optomechanics, tunable lasers, vacuum and ultraclean products and OEM-engineered products. With no customer overlap, Oclaro said it expects the acquisition to be seamless to both companies' customers. Oclaro will purchase the operating assets of the Spectra Physics Tucson, Ariz., facility, as well as the intellectual property of the diodes business, while Newport retains all obligations under the facility lease. Newport's Tucson fab will be consolidated into Oclaro's Zurich, Switzerland, and Caswell, England, manufacturing sites. "From a strategic perspective, we are acquiring a portfolio of high-value photonics products and systems that serve our core markets, while exiting a diode laser business that is less aligned with the focus and profit model of our Lasers Division," Newport President and CEO Robert Phillippy said. "Oclaro owns highly differentiated intellectual property in diode technologies and has significant design and manufacturing resources at its facilities in Caswell, England, and Zurich, Switzerland. By combining our diode laser business with theirs, we will have access to Oclaro's technology and manufacturing scale to purchase industry-leading diode lasers at very competitive price levels." Oclaro said the deal will allow it to expand its high-power laser diode portfolio into new markets by providing the company with a deeper expertise in systems and packaging. The portfolio has the potential to yield gross margins of 40 percent or better, Oclaro said, and positions the company to become the largest merchant supplier to the high-power laser diodes market. The product line is complementary to its single emitter and bars products, Oclaro said, and will allow the company the opportunity to expand intto the medical and analytic, printing, and industrial markets in Japan and North America. Newport said the agreement allows it to now focus on its core business as a laser systems supplier. The majority of the photonics products being acquired are being manufactured at Oclaro's plant in Shenzhen, China, and will be transferred to Newport's facility in Wuxi, China, approximately doubling the manufacturing output of that facility. Lasers and electro-optical products that are currently manufactured by Oclaro in San Jose will be transferred to other Newport facilities. Newport said it expects the transaction to provide incremental profits of $5 million to $8 million in the first full year following the completion of integration. "The New Focus acquisition brings a strong intellectual property position, a well-recognized brand, and a highly differentiated product portfolio to Newport," said Phillippy. "New Focus' product lines are an exceptionally good fit with Newport's existing offerings. New Focus' sales in 2008 were approximately $30 million, of which 70 percent consisted of products that will be integrated into our Photonics and Precision Technologies Division and marketed through our industry-leading product catalog and e-commerce Web site. Another 20 percent consisted of a family of tunable and single-wavelength lasers that we currently do not offer, and that will fit well with our Lasers Division. The remaining 10 percent of New Focus' 2008 revenues were from subsystems for OEM applications, primarily for semiconductor equipment manufacturing customers. While this market is currently at the trough of a deep cyclical downturn, it has performed well for both companies in the past and we believe that New Focus' OEM subsystems business has excellent upside potential over the longer term." "Oclaro is executing on its strategy to become a predominant force in the fiber optics industry," said Alain Couder, president and CEO, Oclaro. "Through a series of strategic moves, Oclaro plans to leverage our core competencies to expand our leadership position in selected markets and accelerate the pace of photonics innovation. The high power laser diodes business is ideally aligned with Oclaro's business model, corporate growth strategy and core competencies. The consolidation of the Tucson fab into Oclaro's Caswell and Zurich fabs is expected to increase wafer volumes by about 30 percent and improve the gross margin for Oclaro's telecom products as well." Oclaro was recently formed through the merger of Bookham and Avanex, completed in April 2009 (See Bookham, Avanex Form Oclaro). The merger combined the optical components expertise of Bookham with the modules and subsystems expertise of Avanex to create one of the largest suppliers of optical components, modules and subsystems to the fast growing long-haul and metro optical telecommunications markets. The agreement with Newport includes a four-year supply deal whereby Oclaro will be sole source supplier of diodes to Newport Spectra Physics for a one-year period followed by majority allotment for the next three years. The transaction is subject to customary closing conditions and is expected to close by Sept. 26, 2009. For more information, visit: www.oclaro.com or www.newport.com