Emcore Corp of Albuquerque, NM, USA, which makes compound semiconductor-based components and subsystems for the fiber-optic and space solar power markets, has entered into a definitive purchase agreement for NeoPhotonics Corp of San Jose, CA - a vertically integrated designer and manufacturer of both indium phosphide (InP) and silica-on-silicon photonic integrated circuit (PIC)-based modules and subsystems for high-speed communications networks - to purchase its tunable laser and transceiver product lines for $17.5m. This consists of $1.5m in cash at closing and a $16m promissory note from NeoPhotonics.
The purchase price is subject to certain adjustments for inventory, net accounts receivable and pre-closing revenue levels, which will increase or decrease the principal amount under the promissory note as applicable. The promissory note will mature two years from the closing date (subject to prepayments under certain circumstances) and will be secured by certain assets being sold to NeoPhotonics. The transaction is expected to close by early January.
The assets to be sold include accounts receivable, fixed assets, inventory and intellectual property for the external-cavity laser (ECL)-based integrable tunable laser assembly (ITLA), micro-ITLA, tunable XFP transceiver and integrated coherent transmitter (ICT) products for 10, 40, 100 and 400Gb/s telecoms networks. Emcore will retain its broadband fiber-optics product lines including cable TV (CATV) transmitters and modules, fiber-to-the-premise (FTTP) transceivers, indium phosphide (InP)-based lasers, photodiodes and modulators, RF over fiber satellite communications products, video transport equipment, and microwave and specialty photonics products (i.e. the firm’s broadband business).
In fiscal 2014, the tunable laser and transceiver product lines represented about 25% of Emcore’s overall revenue. However, the profitability levels from these product lines have not been positive historically. The sale of the ECL-based telecom products allows Emcore to eliminate losses and continued investments in these product lines, and to focus on its core broadband fiber-optics product portfolio. Emcore says that its core competencies in compound semiconductor-based products will remain the cornerstone of its Fiber Optics business, addressing high-speed fiber-optic broadband transmission for CATV, satellite and microwave communications, broadcast and professional video, and defense & homeland security applications.
“The sale of our tunable laser and transceiver product lines is an important step in transforming the company and paving our path to generating consistent positive cash flow,” says president & CEO Dr Hong Hou. “Following the closing of the previously announced sale of the company’s space photovoltaics business and the sale of the tunable laser and transceiver product lines, we expect improved operating results going forward with renewed focus on our broadband business,” adds Hou.
In December 2013, Emcore’s board of directors formed a Strategy and Alternatives Committee, and the committee retained Raymond James as financial advisor. Over the past ten months, the committee has been working to review a broad spectrum of alternatives. The sale of the tunable laser and transceiver product lines is a result of such strategic review process. Emcore says that the Strategy and Alternatives Committee and the board continue to work closely with Raymond James in reviewing alternatives to increase shareholder value.
In the meantime, Emcore’s management team has undertaken a review of the remaining operations and has implemented cost-reduction measures. The firm has seen an improvement in the financial performance and the market conditions of its broadband Fiber Optics business. Management believes that the remaining business can achieve EBITDA break-even by September 2015 with some restructuring of corporate infrastructure.
