FiberGeneration

JDSU vs. EXFO : Something Really Going On ?

Some Spanish folk has been googling for "exfo jdsu". Maybe for some competitive analysis purpose ? *

* in this case, dear FiberGeneration reader from Madrid : go to otdr.com, and buy Agilent gear. Still the best out there.

JDSU vs. EXFO : How 'bout This One, T&M Folks ?

Silicon Valley-based Sunrise Telecom seems to enter a heavy disturbance zone. That's what you get when you do Product Marketing the wrong way (shall I add that Product Marketing and Business Development - hence sales - are part of the same virtuous circle ?). IMHO, SRT will be gone by end 2009 the latest, except if they decide to change their strategy and restart from scratch. Means that's one (small) player less on the Communications Networks Test & Measurement battlefront.

Now, think of this one : what if Agilent Technologies decides to come back on this market, as they did back in late '99 ? My bet : they would go with a couple of M&A deals. Agilent should buy EXFO. Because : a) EXFO' s products portfolio is complementary to the actual Agilent' s one (which is 80% on R&D and Manufacturing, whilst EXFO is 80% Installation & Maintenance), and b) EXFO' s model is HP Test & Measurement, aka Agilent Technologies.

Such a deal would definitely position Agilent as the number one leader on the I&M Testing marketplace, whilst JDSU and Anritsu would be forced to fight hard (read: innovate) to survive in between Agilent and Fluke+Tektronix.

JDSU vs. EXFO : Why It Doesn't Make Sense. And Why It Does.

Wow. This recent post is becoming such a hit that I'll have to update my top-ten most popular list (by the way, does it mean the shorter post the better hit ? ;-)

Here's the comment I left on NyquistCapital earlier today :

"I’m not convinced at all that it would make a lot of sense from a pure industrial perspective. Except a very few boxes in EXFO’ s product lineup, JDSU has it all. No need to add doublons to an already up & runing one-stop-shopping center. Maybe EXFO has some neat new technologies for emerging 40G or else, but JDSU has enough resources to do innovative R&D.

The only reason why JDSU should buy EXFO is to take over their North America installed base (plus a couple of key accounts here and there in EMEA).

Then, the acquisition makes sense. EXFO would be wipped out from the marketplace, full stop. Which would make the T&M landscape a bit more clear : three major players - Agilent, JDSU, Anritsu, plus an emerging one : Fluke/Tek.

The true Telecoms Test Powerhouse is this one : Danaher. Fluke + Tektronix. They cover the whole spectrum, with customer-friendly solutions.
My advice : if there is one single player to watch in the T&M field for the years to come, it’s Danaher."

Let's have a look at the actual financial situation of our two favorites gamble players of the day :

JDSU : $10.41, Market Cap: $ 2.28B (source : Yahoo!Finance)

EXFO : $4.35, Market Cap: $ 300.05M (source : Yahoo!Finance)

EXFO is small enough for JDSU to buy it without that much hurdles. Let's assume the objective of the deal is for JDSU to take over the north american positions (read : customer base - e.g. Verizon) of EXFO. $ 600M the NA marketplace is definitely not a big deal for JDSU's investors.

JDSU vs. EXFO : Rumor Confirmed (?)

Digging into the FiberGeneration' s stats of the day, it appears that more than one guy from Quebec, Canada, searched Google for JDSU + EXFO. Hum. Something in the air there, isn't it ?

T&M Industry : How To Get The Rumor Mill Started

Earlier today, someone from Canada googled "jdsu announcement exfo". Surprinsigly (well, not that much, indeed ;-), FiberGeneration went out as number one result on the first page (see here).

The interesting stuff is : JDSU and EXFO are two key players of the Telecoms Test & Measurement industry, EXFO being the #1 vendor on Optical Test gear. Guess what : EXFO is a canadian company.
Means that something is going on between the two rivals. Which wouldn't be surprising to me, provided that EXFO seems a bit isolated in the T&M field. Until now, we've got four major players : Agilent Technologies, JDSU, Anritsu, and Fluke+Tektronix, and a smaller yet leading one : EXFO. Not a sustainable position for the Quebec-based firm, as the market is booming again, thanks to massive FTTx rollouts all over the planet.

JDSU buying EXFO ? Quite an option for the earlier, who is made of a succession of M&As over the last 15 years or so : in the mid 90's Schlumberger T&M was sold to Wavetek, which merged a few years later with Wandel & Goltermann to form WWG, which got acquired by TTC/Dynatech to form Acterna back in 2000. Last, JDS-Uniphase bought Acterna in 2005, to form JDSU. The actual M&A' rythm of the T&M giant seems to beat on a 3 to 4-years timeframe : we are just in the right timing for the next one !

It's About the Test & Measurement Industry

In a recent post, I mentionned  a handful of  test & measurement players, silencing numerous companies. The reason is pretty simple : IMHO, Agilent Technologies, Danaher's Fluke+Tektronix, Anritsu, and JDSU are the only companies aimed to survive the forthcoming T&M industry shake-up. We are the verge of a new booming era in the Telecommunications, thanks to the enormous demand for bandwidth worldwide. Hence the mandatory consolidation in some sectors, Test & Measurement being one of the most vibrant.
That's why my take is, lots of the small guys will disappear one way or another. Mergers, acquisitions, banckruptcies, the whole range of possible futures is wide open for the EXFOs, the Spirents, the Ixias, and the one small firm somewhere down the Silicon Valley which I can't mention anymore (hint : they have a very very little useless subsidiary nearby the Leman lake, and their name is the opposite of the moon going dawn). Even the Yokogawas will face the big question someday...
In 10 years from now, I see only three survivors out of the Four-Tops above : Agilent, Danaher, and Anritsu. Don't ask me why : just a bit more than a feeling, from a 25-years presence in this industry. It has to do with their history, legacy, and roots, somehow.

Nevertheless, there is one thing I can tell : I'll do my very best to play a pro-active part in this shake-up, thru the Testing 2.0 adventure. See you in 10 years !

Test & Measurement Industry : The Consolidation Still Goes On

According to Lightwave earlier this week, Danaher Corp. and Tektronix Inc. announced they have reached a definitive agreement under which Danaher will make a cash tender offer to acquire all outstanding common shares of Tektronix for $38.00 per share. The aggregate purchase price is approximately $2.8 billion, including debt, transaction costs, and net of cash acquired.

With the acquisition of a venerable company, Tektronix, which is a reference in the T&M Test & Measurement world  together with Agilent Technologies (formerly Hewlett-Packard), the industry landscape is going to change once again. The alliance between Fluke - another pretty strong reference at every Telecoms & Datacoms network installer on the Planet - and Tek is creating a new  one-stop-shopping center covering the whole spectrum of typical applications, from lab & manufacturing (Tek) to installation & maintenance (Fluke), from low-end/high quality/mainstream test gear (Fluke) to high-end/high quality/advanced (Tektronix).

Whilst T&M market leader Agilent Technologies  has to face three major competitors : JDSU, Anritsu, and the new Fluke+Tek actor now, the French-Canadian firm EXFO is left alone as a small player in front of giants. EXFO, whose role model was HP Test & Measurement (aka Agilent) will most probably be set ready for a merger with another group.

   

Note that EXFO's stock slipped quite heavily yesterday, and that Tek's raised rose nicely at the official announcement.
Charts available at Yahoo!Finance here.

post-scriptum : For you who are not familiar with the Telecoms Test & Measurement, I'll publish a brief history of the sector, to show how the T&M folks are still surfing on the ripples of the Internet Bubble' implosion.