Lucent Technologies announced yesterday that it will spin off its microelectronics business, which includes its optoelectronics components and integrated circuits divisions, into a separate company. The new business, which has yet to be named, will manufacture silicon chips and optoelectronic components such as lasers.
Due to the recent growth spurt in the communications infrastructure and semiconductor markets, the best way for Lucent to excel in those areas is through two focused companies, Chairman and Chief Executive Officer Richard McGinn said in a conference call.
The Lucent microelectronics business is poised to lead in a number of areas: communications semiconductors; digital signal processors for wireless network infrastructure; integrated circuits for SONET (Synchronous Optical Network) and SDH (Synchronous Digital Hierarchy) optical networking systems; wired communications integrated circuits, and modem integrated circuits for laptop computers, said John Dickson, executive vice president and chief executive officer of Lucent's Microelectronics and Communications group.
Lucent also plans for the new company to lead the optoelectronics industry in manufacturing automation, modulators for optical networking systems, submarine optoelectronics and lasers used in communications applications, the executives said.
"The new company will be much more focused and free of strategic conflict," Dickson said, adding that more than 75 percent of microelectronics sales currently come from outside of Lucent and, in fact, the company often sells to Lucent competitors. He expects the degree of revenue from these customers to increase as a result of the spin-off.
"It's a good move on Lucent's part, both for the parent company and the microelectronics company," said Kimberly Funasaki, a senior research analyst at International Data Corp. (IDC) in Mountain View, California.
Over the last 18 months, the Lucent microelectronics division has invested approximately $US1 billion in expanding manufacturing capability and almost $4 billion in acquisitions, according to Dickson. Recent acquisitions include Herrmann Technology and Ortel for optoelectronics and Agere and the design, marketing and sales teams of VTC for integrated circuits.
Lucent's new company will compete with JDS Uniphase in the optoelectronics market and Texas Instruments, Broadcom Corp. and ST Microelectronics in the integrated circuits sector, Dickson said.
The market for semiconductors will be more competitive now that there's no internal conflict, Funasaki said, adding that before the spin-off, Lucent did have conflicts in terms of selling to competitors.
The lack of resources from "big Lucent" may hinder the new company, although not very much so, Funasaki said. "They already have a lot of revenue and are able to focus on semiconductors without internal conflicts... I don't see any long term disadvantages," she added.
Murray Hill, New Jersey-based Lucent is planning an IPO (initial public offering) for up to 20 percent of the new company, which should take place by the end of the first calendar quarter of 2001. Lucent expects the spin-off to be completed by mid-2001, Lucent said.
Dickson will lead the effort to form the new company, Lucent said, but senior leadership will be announced at a later date.
The spin-off means that "Lucent will now be able to completely focus on the largest network build-out in world history, a more than $225 billion global opportunity in broadband and mobile Internet infrastructure," McGinn said.
This announcement comes on the tail end of Lucent's third-quarter earnings statement, which narrowly beat analysts' expectations but showed revenue from the optoelectronics business nearly doubling. It also follows last month's announcement of Lucent's enterprise networks spin-off Avaya.