Turning an unsettled communications equipment market to its advantage, Intel Corp. last week swooped in on three component makers that will constitute the core of a new business dedicated to optoelectronics.
The three companies -- Cognet Inc., LightLogic Inc., and nSerial Corp.-- will be combined with optical operations obtained through Intel's prior acquisition of Giga A/S and Level One Communications to form the Optical Products Group (OPG).
"We obviously are watching what we are doing in the short term, but these are strategic moves. These are the times when we need to really get our resources aligned to come out even stronger in the future," said Mike Ricci, an Intel vice president who will serve as general manager of OPG.
The new unit will be part of the Intel Communications Group (ICG),
which was created in March under the direction of executive vice president Sean Maloney.
"Intel is moving up the food chain-chips, components, optical modules, and subsystems," said Sterling Perrin, an analyst at IDC, Framingham, Mass. "By integrating the different pieces of the optical puzzle, they create more value for the end customer. Controlling all the pieces is the best way for them to make money in optics."
The well-timed acquisitions are part of an optical shopping spree in which Intel has spent roughly $2 billion; impressive, say analysts, but not yet enough to contend with the market's leaders. Still, between its initial and latest optical purchases, Intel waited out a sharp spike in valuations, and may have won better terms than some of its more hasty rivals.
"Clearly Intel is going to be strategically acquisitive in this downturn," said Eric Ross, an analyst with Thomas Weisel Partners LLC, San Francisco. "They are trying to build away from the PC, to what they think will be supplying the Internet."
The acquisitions will allow Intel to increase its position in the optical market from primarily a chip-level company to a supplier of optical modules and transponders, according to Ricci, and also provides new competencies in CMOS-based optical design. Intel estimated sales in the optoelectronic industry totaled more than $16 billion last year, and will grow to $48 billion by 2004.
"If you look at what's driving the optical market, it's really the same drivers we're seeing in the overall communications segment-the build-out of the Internet," Ricci said. "There's really no other solution other than optical to build out the communications infrastructure."
Specifically, Intel now will be able to more effectively address the fastest- growing segments of the optical market, he said. The Giga acquisition already gave Intel entry into the long-haul and ultralong-haul markets addressed by Sonet 10Gbit/s and 40Gbit/s Ethernet connections. The additions of Cognet, LightLogic, and nSerial will allow Intel to more deeply penetrate the metropolitan and enterprise markets, addressing connections from Sonet 10Gbit/s down to 1Gbit/s Ethernet
Cognet, Los Angeles, develops components that process electrical signals within optical modules after the signals have been converted from light waves. Santa Clara, Calif.-based nSerial is designing 10Gbit/s Ethernet components that convert electrical signals between optical devices and system interfaces into the protocols used by networking devices. Both are developing chipsets using a CMOS manufacturing process to reduce cost and power consumption.
The acquisition of LightLogic, Newark, Calif., for $400 million brings Intel a supplier of optical transponders for the metropolitan market. The devices integrate high-speed optics and electronic components into a single device that converts optical signals into formatted digital signals.
Intel has also begun investing in new semiconductor process technology aimed at the optical market. In February, the company announced an investment in Communicant Semiconductor Technologies AG, Frankfurt, Germany, which is building a fab to manufacture components based on silicon-germanium-carbon technology.
Additional reporting by Jeanne Graham