Agere pulls out of opto, cuts 4,000 jobs

Communications equipment maker Agere Systems Inc. announced Wednesday its intention to get out of the optoelectronics business, and focus on making chips for communications networking products. The moves will result in plant closings and 4,000 job losses by the end of 2003, the company said in a statement.

Optoelectronics components transform electrical signals into visible energy, and vice versa. They are used in products such as electric eye sensors or optical-fiber components for long-haul networks.

"You don't have to be a genius to understand that the worldwide optoelectronics market is not a very good business right now," said John Dickson, president and chief executive officer of Agere, based in Allentown, Pennsylvania.

Telecommunications companies have been hit especially hard as the economy has slowed from the robust pace of expansion in the late 1990s, due to their rapid buildup of network capacity that sits mostly unused in the current economic climate. The "tremendous capacity" of the late 90s has not been realized, and large carriers are reducing capital expenditures and focusing on products that can deliver immediate profits, Dickson said. This does not bode well for the long-haul or MAN (metropolitan area network) businesses served by Agere's optoelectronics division.

Telecom equipment manufacturers are focusing on the edge of the network, and Agere's current lineup of integrated circuits (ICs) should fit in well with products for that market, Dickson said. The company is finding success making chipsets for 802.11b wireless applications for PC manufacturers, and will also focus on wireless components for embedded PCs, he said.

The company will close or sell facilities in Dallas; Irwindale, California; Alhambra, California; and Matamoros, Mexico. All wafer production will be centralized in Orlando, moving some fabrication operations from Agere's Allentown headquarters to Florida. All fab activities will be centralized in one location when the moves are completed in September 2003. This will provide significant cost savings for Agere, said Mark Greenquist, executive vice president and chief financial officer for the company.

Agere is looking to curtail its costly fab manufacturing business, concentrating on what it calls a "fab-lite" strategy. It will contract out for most IC production, but keep IC assembly and test operations in Thailand and Singapore, as well as a joint venture with Charter Semiconductor for wafer manufacturing.

By reducing Agere's workforce to around 7,200 from its current level of 11,200 workers, Agere will save US$70 million per quarter. The plant closings and restructuring, cost savings from the optoelectronics exit, and workforce reductions will save the company $190 million per quarter, Greenquist said. Agere will now need to generate $500 million in revenue each quarter to break-even.

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