Manufacturing mergers are notoriously challenging to effect without a raft of growing pains. For Oclaro, formed by the merger of Avanex and Bookham, the process has been one of growth, innovation and improved product performance. Edward Machin investigates
In April 2009, Oclaro ( i.e. optical and clarity) was formed by the merger of (i) Avanex, a leader in the production of systems integration, modules and subsystems and (ii) optical components manufacturer, Bookham. As a result of the merger, Oclaro is a best in class manufacturer of amplification, dispersion compensation, wavelength management and transmission products — including chips, direct modulated lasers and external modulators.
The merger has firmly enabled Oclaro’s position as one of the largest providers of optical components and subsystems to the fibreoptics, long-haul and metro markets. This continues the consolidation path previously established by Bookham which acquired, among others, Nortel Networks Optical Components and Marconi Optical Components in 2002.
Accordingly, says Steve Reilly, VP of Operations at Oclaro’s Caswell site: “The industry consolidation driven by Oclaro has helped us to assemble probably the best portfolio of technologies in the business. The mix of technologies and processes at Caswell gives us unsurpassed access to a formidable set of building blocks with which to create leading edge chips.” Coupled with this, Caswell is a long-established scientific Centre of Excellence, boasting the industry’s most advanced 3” indium phosphide wafer fabrication facility and 57,000 sq ft of cleanroom.
While extensive cleanroom space is not uncommon within the industry, acknowledges Reilly: “What differentiates Oclaro from the majority of our competitors is the nature of the equipment in our fabrication facilities. During the telecoms boom, for example, Nortel Networks spent well over a billion dollars acquiring the most advanced photonics technology, systems and equipment. The best of that equipment was subsequently transferred into Caswell. ” Coupled with manufacturing and R&D facilities in the USA, UK, Switzerland and Italy, the company made a strategic decision in 2002 to move its backend operations to an assembly and packaging site in Shenzhen, China.
Says Reilly: “We largely chose to open operations in China in order to maintain a labour cost advantage. Equally, however, it enabled the company to develop a low-cost supply chain.” In spite of the teething problems that many manufacturers encounter when moving to low-cost economies, Oclaro found that such an endeavour actually improved its products’ performance — including significantly better yields, improved cycle times and overall increased product efficiency. “It was something we hadn’t necessarily bargained on,” says Reilly. “Indeed, when undertaking such business critical changes one is naturally nervous about how smooth the transition will be in reality. That being said, it has been a great success, ensuring that the company can retain — and expand — its presence in our key fibreoptics, telecommunications and advanced photonics solutions markets.”
With the majority of Oclaro’s products assembled in China, the company, says Reilly, nonetheless looks to retain chip manufacturing facilities in Europe and North America. He explains: “Oclaro operates a vertically integrated model which, we believe, gives us a strategic advantage over our competitors, many of whom do not have front-end chip manufacturing facilities. Instead of buying chips on the volatile open market, we combine low cost assembly capabilities with frontend production. Resultantly, Oclaro has both the innovation potential and higher barriers to entry to ensure that we remain a world class manufacturer in our chosen markets.”
Coupled with its Caswell facility, Oclaro’s UK operations include a Centre of Excellence for Telecom package design in Paignton, Devon. Says Reilly: “During the telecoms boom, and prior to the opening of our Chinese facility, Paignton was a very high volume manufacturing site — employing approximately 8,000 staff on manual assembly operations. Nowadays, Paignton plays a vital role in ensuring that Oclaro remains ahead of the chasing pack in the development of next generation packaging” In June 2009, Oclaro undertook an exchange of assets with the Newport Corporation, a global leader in advanced technology products and solutions for sectors including life & health science; aerospace & defence; industrial manufacturing; semiconductors; and microelectronics.
Says Reilly: “With the transaction, we believe that Oclaro has become the largest merchant supplier to the high power laser diodes market. It also increases the utilisation of our wafer fabrication facilities, strongly positioning the company in terms of both innovation potential and the vertical integration of our manufacturing.” Vertical integration systems, explains Reilly, remain vital to Oclaro’s success: “In that we produce bespoke chips which maximise end product performance and drive costs.
With our model being fabrication facilities in the West and assembly sites in the East, the latter is where the majority of variable costs exist.” Oclaro thus seeks to drive yield loss to the frontend wherever possible, ensuring that the company is not manufacturing high-cost components only to discover a process failure when added to the circuit boards. Ultimately, says Reilly: “Where vertical integration adds value is in the fact that rather than an external assembly company specifying that they require a chip with any number of requirements, we pull a considerable amount of the yield loss back into the fabrication sites.”
Little over eight months since the merger, Oclaro is understandably looking towards a bright future. Says Reilly: “The company’s strategy is to remain a predominant supplier of both optical components and subsystems. The cost involved in any such project is significant, however, given that our fellow tier one suppliers are also continually seeking to innovate, remain competitive and strategically grow their businesses.” “That being said, Oclaro firmly believes that the future of our industry is in photonic integration, with economies of scale playing a central role in any such advancements.
While it would be naïve to assert that we are the only strongly positioned company in the space, Oclaro has both the technological breadth and front-end fabrication capabilities to ensure significantly faster turnaround than the majority of our competitors.” Further highlighting Oclaro’s dedication to advancing industry-leading technology is the launch of Caswell Science and Technology Park, a joint initiative between Oclaro and Fasset. “Our goal is to create a science and technology cluster whilst lowering our occupancy costs.
With 12 companies currently on the 22 acre site: “The venture is symptomatic of Caswell’s attraction as a leading scientific location.” says Reilly.