The Lightwave Blog

Posted by Stephen Hardy

So where was I? Oh yeah -- scale.

According to Gertel, his customers were looking for Optium to supply a wider range of products, which the company wasn't set up to do efficiently. So merging with a large, complementary company like Finisar made sense.

Both Rawls and Gertel say that these days, size definitely matters. "We think this industry needs a dominant player that has all the answers for the customer," Gertel says. "I think the customer wants a broad supply from a stable company that has the infrastructure and the critical mass to supply all the R&D; that's needed to support them in the long run. We think that's what we've created today."

The merged entity certainly will be big. According to information presented during an analysts' call this morning, the two companies' annual revenue (based on the last reported quarter, annualized) would be $612 million, greater than $544 million JDSU would be expected to garner from its optical communications segment (computed the same way). It would also have the best gross margin 35.3%, non-GAAP) and EBITDA margin (11.3%, also non-GAAP) in the industry. The company would also have the broadest product line.

"All of our customers are big equipment companies, whether they're developing network equipment or telecom equipment. And the end users are all huge companies as well," Rawls concludes. "I think there will always be a place for little companies to get funded to develop a specific technology in a niche product that addresses some inflection point in the market. Those companies, though, if they're going to be successful with these huge customers, they're going to have to be bought or merged or something into some bigger entity. Because they won't be able to scale. It's very difficult for little companies to scale to satisfy the needs of these increasingly consolidated, large equipment companies."