February 27, 2001, 4:27 PM — JDS Uniphase announced early this month that it will sell a huge components plant to Nortel Networks for $2.5 billion. The move has opened the way for JDSU to finish the purchase of SDL Inc. It also gives an enormous boost to Nortel's own component plans.
The sale of the 980-nanometer pump laser facility used in dense wavelength-division multiplexing (DWDM) gear was an anticipated part of JDSU's plan to purchase SDL, which has now been approved by the U.S. Department of Justice, JDSU says.
Nortel seems thrilled with the buy. "This transaction strengthens Nortel's supply chain for critical optical modules, adds to its presence in Europe, and expands our customer base," said Greg Mumford, president of Nortel's Optical Networks group in a conference call with analysts Feb. 6. He said the Zurich plant had approximately 40% of the market share for 980-nanometer pump lasers.
While the components industry is far removed from enterprise customers, issues of supply and price trickle down to their level.
Terms of the all-stock deal call for Nortel to purchase the plant with $2.5 billion of its common stock. Also, Nortel has committed to accept a certain level of component supplies from JDSU, and if it cannot take that supply it will pay another $500 million to JDSU by December 31, 2003. Mumford said the supply agreement covers JDSU products "across its entire line."
In return for its payout, Nortel gets the Zurich manufacturing plant as well as an office in Poughkeepsie, N.Y., which specializes in designing automation for the Zurich plant. Both facilities will become wholly owned subsidiaries of Nortel, and personnel in both locations will stay put. Stephen Reilly, general manager of the Zurich plant, will report to Liam Nagle, VP of operations for Nortel's High-Performance Optical Component Solutions.
Besides opening the merger of JDSU and SDL, the deal is interesting on several other counts, analysts say. Its huge contribution to Nortel's component-making capabilities raises the question of when Nortel will proceed with the planned spin-off of its microelectronics unit.
Nortel says the news doesn't signal any specific plans for the spinoff, but it should help buttress an IPO for that unit later this year. "We're clearly on a path of increasing the value of our components unit," Mumford says. He also told analysts that the company would pursue any further investments and acquisitions it needs to strengthen its microelectronics unit.