The Lightwave Blog

Posted by Stephen Hardy

While researching an article I'm doing for our July issue on the current funding environment, I've been talking to VCs about whether their community's ongoing lack of enthusiasm for the optical communications space (when it comes to photonics, it's all about green technology, photovoltaics, and sold-state lighting these days, they say) and the hostile IPO environment might finally drive consolidation, particularly in the components and subsystems space. It might, they say -- but some wonder whether the sector will see as much benefit as we've all assumed.

That's because most of the observers whose opinions on consolidation we hear about are focused on Western companies. Yes, moves such as the Finisar/Optium merger should be good for the industry. Indeed, other well-known companies will be looking to M&A; to increase their scale or broaden their product lines, taking smaller companies off the board.

But while the number of Western companies may start shrinking, the number of companies in the East, particularly in China and India, continues to grow. They're looking to be the next Fiberxon or Opnext, I'm hearing.

The trend may mean that the total number of companies in components and subsystems may not change much at all in the short term -- and the new entrants will be focusing on low-cost approaches that may continue to put margin pressure on the entire sector.

One VC described the phenomenon quite apply, I thought: "Scary."

Labels: consolidation