Nortel washes hands of optical components

After sitting on the auction block for months, Nortel Networks has finally sold off some of its optical components business to U.K.-based optical component developer Bookham Technologies.

Bookham will pay $108 million in debt, common warrants and cash for the optical transceiver and receiver and optical amplifier businesses. The price, however, boils down to a stock purchase with the acquisition of $50 million in debt and a payment of $10 million in cash to Nortel to handle the associated transaction costs.

The deal would make Bookham, which designs and manufactures integrated active and passive components, the third largest component developer, following JDS Uniphase and Agere, according to Giorgio Anania, president and CEO of Bookham. It also lands Bookham a guaranteed $120 million ongoing deal with Nortel.

“One of the main drivers for the combination [is that] our customers--Nortel, Lucent, Siemens and Marconi--are increasingly becoming systems integrators, which means they really want to work with fewer suppliers, a handful at most,” Anania said. Additionally, those customers must find ways to develop lower cost systems, which means new technologies, he said.

“The [new technologies] need to be independent of competing systems companies so they are not financing their competitors or taking a supply risk when they buy from these entities,” Anania said.

Through the deal and existing relationships Bookham has, the new company will have preferred provider relationships with both Nortel and Marconi. When combined, those two companies account for 25% of the purchased optical components worldwide, Anania said.

Terms of the deal call for Nortel to purchase at least $20 million worth of components from Bookham each quarter.

“We have a take or pay agreement [whereby] Nortel [will] purchase 50% to 80% of their needs from Bookham,” Anania said. “We need to thrive in the downturn because it might not be ending any time soon.”

He believes the company will be able to accomplish that goal because of the shrinking number of players in the market, overhead reduction and the fact that customers want to deal with far fewer players.

Of the 1300 Nortel employees involved with the businesses, 1000 will be transferred to Bookham. The deal is expected to close by the fourth quarter of 2002. The involved businesses are located in Paignton, UK, in Ottawa, Canada and Zurich, Switzerland.

Of added note is Nortel’s recent shut down of its Coretek business, which focused on tunable lasers. Nortel bought that business in March 2000 for $1.43 billion.