Oclaro to halt WSS R&D as part of restructuring

Oclaro (NASDAQ: OCLR) will no longer invest in research and development of wavelength-selective switches (WSS), company CEO Greg Dougherty told attendees on an analyst call this past Monday to discuss the company’s fourth quarter 2013 fiscal performance (see “Oclaro ends fiscal 2013 on a down note”). The decision is part of Dougherty’s initiative to restructure the company to focus on core competencies and areas of growth.

Oclaro’s WSS activities received a boost in 2009 when it acquired Xtellus, which used both MEMS and liquid crystal technologies for its modules (see “Oclaro acquires WSS company Xtellus”). The company built on that foundation with a series of offerings, with a 1x23 WSS announced at OFC/NFOEC 2012 its most recent (see “Oclaro delivers 1x23 WSS with millisecond switching speeds”).

However, Dougherty said Monday that WSS development hasn’t kept up with market demands. “The platform itself is behind the market and it would require significant investment in terms of dollars and time to enable switching when using a flexible grid,” Dougherty asserted. Since he believes the company has spread its R&D resources across too many products and instead should be focused on areas where the company can achieve differentiation, “We’ve decided to no longer invest R&D in this product area,” he revealed. The company has shifted all of its existing WSS activities to its manufacturing site in Korea and closed its WSS work in New Jersey and Israel.

Dougherty began to lay out his vision for restructuring the company during the call. The most significant move so far has been the sale of Oclaro’s Switzerland GmbH subsidiary and its gallium arsenide laser diode business to II-VI (see “Oclaro sells GaAs laser diode business to II-VI”). II-VI also has purchased an option to buy Oclaro’s amplifier and micro-optics lines. Some of the $97 million garnered so far through these deals has been applied to paying off debt. The rest will be applied to a restructuring that will see the company “streamlined” and more focused, Dougherty said.

For example, the II-VI transactions and the WSS shuffling reduced the company’s facilities by four. More consolidations should follow, Dougherty said, although he added in response to a question that there are no current plans to sell any of Oclaro’s five remaining fabs.

As far as where product development emphasis would remain, Dougherty said that components R&D will focus on Oclaro’s indium phosphide and lithium niobate expertise, with tunable lasers (with and without integrated Mach-Zehnder modulators) and micro-iTLAs for 100G coherent applications as examples of the former and 100G coherent lithium niobate modulators as examples of the latter. He also cited support of 40- and 100-Gbps client-side applications, as well as TOSAs for tunable 10-Gbps modules as areas of strength.

On the module and subsystems end, Doherty says that the company has shown strong market share in 10- and 40-Gbps line-side applications, including 10G CPRI modules for mobile backhaul. (In fact the company just announced sampling of a new CPRI SFP+ transceiver: see “Oclaro sampling 10G SFP+ CPRI optical transceiver for mobile backhaul”). However, with the 40-Gbps market relatively mature, Dougherty said that R&D will shift from 40G to 100G coherent modules.

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