Agere to dump optoelectronics unit, lay off 4000

Agere Systems today announced it is cutting its losses in the fading optoelectronics sector and focusing on the integrated circuits in an effort to make the Lucent spin-off profitable. The massive restructuring will cost Agere an additional $1 billion to $1.1 billion; consolidate all of the component maker’s manufacturing in one plant and trigger 4000 job cuts.

If all goes according to plan, Agere hopes to break even by the second quarter of next year.

Considered Agere’s prime asset when the company first announced its departure from Lucent, the optoelectronics business has become Agere’s albatross. Optoelectronics main customer are the long-haul carriers, which use Agere’s optical components and laser pumps to power their globe spanning fiber networks. But with the fallout in the telecom sector, long haul found itself with an enormous glut, carriers such as Williams Communications and Global Crossing found themselves in bankruptcy court, and those that escaped Chapter 11 found themselves with no capital budgets to build out networks.

“We’ve talked often about our strong optoelectronics capabilities,” Agere CEO John Dickson said at a briefing this morning. “We continue to have those capabilities. The issue is the telecommunications industry has changed so dramatically that these technological capabilities are no longer an attractive business opportunity. We believe the optoelectronics business has changed fundamentally and for the long term.”

Revenues from Optoelectronics accounted for only 10% of Agere’s sales in the second quarter and the company expects that number to decline further. Instead, Agere will move its focus from the network core to the edge, concentrating on its integrated chipset and semiconductors products for wireless data and LAN, identity storage modules and metro, enterprise and access multi-service applications.

Mark Greenquist, Agere’s CFO, estimated the company can save $190 million per quarter from selling or closing the optoelectronics arm and consolidating its remaining operations, allowing the company to turn its first profit next year. Meanwhile Agere expects the total integrated circuit industry to grow form $34 billion last year to $58 billion this year.

Unloading the optoelectronics business won’t be easy though with little likelihood another vendor would be interested in buying into such a stagnant component division. Agere itself admits it doesn’t expect to recover much if anything from a sale.

If no buyer is found, Agere plans to shut down the unit by next June. It will shut down its optoelectronics fabrication facilities in Alhambra and Irwindale, Calif., Matamoras, Mexico, and Dallas, and it will consolidate all other manufacturing in its main plant in Orlando, Fla, closing all of its Pennsylvania facilities while leaving Allentown as its corporate headquarters. Most of the 4000 job cuts will come from the closing facilities.

The $1 billion-plus in restructuring costs come on the heels of an additional $278 million in restructuring charges it has incurred since a smaller consolidation in January.