Agere pulls out of optoelectronics

Communications equipment maker Agere Systems has announced its intention to get out of the optoelectronics business and focus on...

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

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

Telecommunications companies have been hit especially hard as the economy has slowed from the robust pace of expansion in the late 1990s, because of the their rapid buildup of network capacity that sits mostly unused in the current economic climate.

The "tremendous capacity" of the late 1990s has not been realised, 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 metropolitan area network (MAN) businesses served by Agere's optoelectronics division.

Telecom equipment manufacturers are focusing on the edge of the network, and Agere's existing lineup of integrated circuits (IC) 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 several facilities. All wafer production will be centralised and Agere will move some fabrication operations. All fab activities will be centralised 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 11,200, Agere will save $70m (£46m) per quarter. The plant closings and restructuring, cost savings from the optoelectronics exit and workforce reductions will save the company $190m (£124m) per quarter, Greenquist said. Agere will now need to generate $500m (£327m) in revenue each quarter to break even.

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