Alain Couder, Oclaro Inc.
The optical communications market has experienced
substantial growth in recent years, demonstrating a significant turnaround since
2000, when the industry was at the nadir of the dot-com bust because of the massive
build-out of high-speed optical communications equipment. Ten years ago, about 1000
companies competed for market share in a steeply declining arket, bleeding cash
with intensive and redundant investments in R&D and capital. By 2010, that number
had declined to about 200, with only a handful enjoying the strategic customer relationships
and financial wherewithal to invest and grow.
This industry consolidation is now bearing fruit, as optical providers
are improving their financial models to reach sustainable levels that allow them
to continue to reinvest in innovation and capacity expansion. One company in particular
has completely transformed itself into a major player in this market over the past
several years: Oclaro, created through the merger of Bookham and Avanex in early
2009, has been executing against a deliberate strategy to be the predominant force
in the fiber optics industry, driving further industry consolidation and outdistancing
the competition with a broad portfolio of products and technology innovation.
By implementing successful growth strategies, Oclaro has seen
revenues increase by more than 40 percent year over year (FYQ1 2010 compared with
FYQ1 2011), with positive EBITDA (earnings before interest, taxes, depreciation
and amortization) and gross margin performance, and a strong balance sheet with
no debt. We are now on an ambitious path to capitalizing on our increased addressable
market with a goal of reaching $1 billion in revenue in 2013, combined with a steadfast
determination to be the easiest company in the industry to do business with.
One product that has helped Oclaro stay viable in a down economy is its full-band-tunable,
small-form-factor 300-pin MSA-compliant transponder.
Demand for bandwidth and low latency in the core network continues
to explode, with video services, cloud computing, voice over Internet protocol and
other services continually driving more network traffic through the core. Recently,
the telecom market has started to expand beyond the small number of very large OEMs
to captive networks, created solely for in-house use by large video services, and
search engine and cloud computing companies. In addition, the changing needs of
the Internet are driving an evolution in network topologies.
This evolution, combined with the dramatic increase in the need
for bandwidth and reduced latency, has created opportunities for new optical technologies
and component innovations. In addition, outside of telecommunications, new high-volume
applications are emerging for lasers, which have reached price points for mass adoption.
New markets include home and professional hair removal, laser surgery and other
medical applications, and the transition to optical interconnects, which are starting
to replace electrical interconnects in consumer and computer applications.
To capitalize on these industry trends, Oclaro (known as Bookham
back in 2007) recognized that we would require a complete product portfolio –
from components to subsystems – to drive innovation for our telecommunications
customers. And we needed to diversify and expand into adjacent markets to ensure
adequate scale to fully utilize our world-class fabrication and back-end manufacturing
facilities. We also had to leverage those capabilities as a source of competitive
differentiation. Finally, we endeavored to create a unique and compelling corporate
culture that would enable us to motivate, attract and retain the best and brightest
minds in the photonics industry.
The first step was the merger between Bookham and Avanex, which
united the components expertise of Bookham with the modules and subsystems expertise
of Avanex, establishing Oclaro as a tier-one leader in the long-haul and metro telecommunications
market. By the fourth quarter of fiscal 2010, we exceeded our gross margin and operating
margin goals that were set at the announcement of the merger. Next, to further
diversify our business and more fully leverage our manufacturing facilities, Oclaro
swapped the New Focus business for the Newport Spectra-Physics high-power laser
diodes business. The acquisition of the Newport Spectra-Physics diode line established
Oclaro as the largest merchant provider of high-power laser diodes in the industry,
a product line highly complementary to our single-emitter and bars products and
bringing new growth opportunities to us in the medical, printing and industrial
applications in Japan and North America.
To expand our product portfolio further and to deliver a complete
solution, late in 2009 we acquired Xtellus, bringing us a complete family of wavelength-selective
switches (WSS) that can power reconfigurable optical add/drop multiplexer (ROADM)
applications over the entire optical network, from the edge to the core. Combining
the WSS portfolio with Oclaro’s integrated subsystem design capability also
positioned the company well in the high-growth ROADM market.
The acquisition also further deepened our technology arsenal,
including liquid crystal and microelectromechanical systems capabilities. Finally,
in mid-2010, we purchased Mintera, a privately held leader in high-performance optical
transport subsystems solutions. That acquisition further broadened Oclaro’s
product portfolio for high-speed, 40-Gb/s telecommunications and positioned us well
to accelerate the development of 100-Gb/s solutions. It also bolstered our ability
to provide complete 40-Gb/s subsystem solutions to customers who want faster time
to market, and to continue to develop innovative 40-Gb/s optical components for
customers who choose to do their own subsystem design.
As a result of these acquisitions, Oclaro now has one of the most
complete product portfolios in the industry to serve the core optical network market,
with the scale necessary to fully leverage our manufacturing capabilities to achieve
our financial objectives, better serve our customers and invest in the next generation.
With the expanded product portfolio, we are well positioned to grow at a substantial
pace over the next two years.
In addition to expanding our product portfolio and addressable
market through 2010, we also restructured our balance sheet to position us for future
success. In one of the most turbulent weeks in the history of the stock market,
Oclaro completed an oversubscribed secondary offering of common stock, adding $77
million to our balance sheet – which today is very strong, with no debt –
and we are funding our own investments.
As a result of Oclaro’s financial stability and breadth
of portfolio, we are now a top-tier vendor and a respected partner of top-tier customers,
a status enjoyed by only a handful of optical component suppliers to the telecom
business. Through the integration process, we have established a powerful corporate
culture based on three core values: Be respectful, be ready to help and be inventive.
This culture is fully aligned to outdistance the competition by being the easiest
company to do business with; having architectural clairvoyance so we can anticipate
and drive the future directions of our markets; leveraging our vertical integration
from chips to subsystems as a key differentiator; and being innovative in everything
We believe that we are poised to outperform the overall market
as a result of our product breadth, deep customer relationships, technology innovation
and expertise, and manufacturing scale. We have set an ambitious goal to hit the
$1 billion revenue mark within the next two years. With the building blocks we now
have in place, Oclaro is well positioned to be the leading provider of photonic
solutions to the large and growing markets for lasers, optical components and subsystems.
Meet the author
Alain Couder is president and CEO of Oclaro Inc. in San Jose,
Calif.; e-mail: email@example.com.