Nortel Buys JDS Uniphase Diode Business

Stephanie A. Weiss

After months of negotiations and shareholder votes, two very close, very large photonics companies still hold more than 80 percent of the market share for 980-nm pump diodes.

Until last month, JDS Uniphase of Ottawa and SDL Inc. of San Jose, Calif., held that solid majority before agreeing to merge. In fact, JDS Uniphase may have held it all (or none of it) for a brief instant Feb. 13, as the pen swung between signing the contract to acquire SDL and the contract to sell Zurich-based Uniphase Laser Enterprises.

JDS Uniphase now shares its pump diode marketplace majority with the Zurich operation's new owner, Nortel Networks of Brampton, Ontario, Canada, a sometime rival and -- as is common in the incestuous world of photonics -- one of JDS' largest customers.

Nortel gave JDS Uniphase $2.5 billion in Nortel stock, a fair return on Uniphase's March 1997 investment in acquiring and expanding the former IBM operation. Nortel also significantly expanded and extended contracts with its friendly competitor, agreeing to give up an additional $500 million in stock if it doesn't buy a certain amount of product by Dec. 31, 2003.

JDS Uniphase officials said the purchase agreement covers a broader range of products, including some SDL devices, than previous contracts did. Neither company would provide details of the agreement. Officials said the new Nortel business would probably begin in the second quarter of this year.

JDS Uniphase officials said Nortel was the Zurich operation's largest customer. Greg Mumford, president of Nortel's optical Internet group, would not reveal how much of the Zurich operation would supply internal, captive demand, but he predicted that external amplifier demand will increase as more passive components join the all-photonic network.

"We'll need amplification to reduce the losses from those passive components," Mumford said. "More amplifiers will be required. We know that this is a strategic component." He added that the purchase should not suggest that Nortel is changing its strategy from providing system-level solutions to becoming a component supplier.

"Where we need to be in key strategic components because they enable the system values, we're there," Mumford said. "Where we can achieve our value propositions by buying components in the merchant market, we absolutely will buy in the merchant market."

Nortel gains about 400 employees at the manufacturing plant in Zurich and a handful of experts in automation design in Poughkeepsie, N.Y. JDS Uniphase officials said the employees won accelerated stock options and incentives to join the Nortel team.