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Turn Around Series: Jerry Rawls, Finisar (Part 7)

Posted on Wednesday, Mar 14th 2007

Dramatic changes in the market had forced major fiber optic giants like Lucent into tough decisions. The market also proved to be volitile and unpredictable. Nortel, in desperation, offered Finisar its optics business.

SM: Nortel had interest in survival. JR: Yes. We spent two weeks in Ottawa trying to figure out how we could assume this division, and could we operate it and turn it around and make it profitable when it was only going to start with $23M in sales. We concluded the risk was too high for a little company like us and our shareholders.

There was going to be so much cash required because the business had big fabs in Ottawa, huge manufacturing facilities in the UK, and a cost structure that was so bloated that we did not think there was any chance we could have enough cash or raise enough cash to support it. We could not get Nortel, at that time, interested in putting enough cash into the deal that we thought we could see with certainty, the other end. They decided to shop it around, and they got Bookham to take it from them.

SM: In hindsight was that the right decision? JR: Absolutely. Bookham is still suffering negative cash flow trying to operate this business and trying to get it to recover today. It has been a long, difficult time for them. I think we did exactly the right thing. We knew at the time that as this market had collapsed and revenues had come down, that there was enormous capacity in the industry for optics, and I don’t know what the typical investment in optics in the 90’s was from venture capitalist, big corporations and from the public markets, but it had to be in the trillions.

SM: It was enormous. JR: It was an unbelievable time, and the Chinese had pushed hundreds and hundreds of bright young men into the optics Ph.D. programs in their Universities because the country viewed optics as a strategic technology, so there was a flood of Chinese guys with Ph.D.’s in optics who are now in the world, and it was, I don’t know, a joke at that time when I heard that a Ph.D. in Optics was a cottage industry. Almost any venture capitalist would invest in optics, and the idea that we can do anything.

It changed overnight; it was the most dramatic collapse I have ever seen in anything. I wasn’t there in 1929 during the crash of the market, but even then there were very few companies that lost 98% of their revenue in 6 months.

[Part 14]
[Part 13]
[Part 12]
[Part 11]
[Part 10]
[Part 9]
[Part 8]
[Part 7]
[Part 6]
[Part 5]
[Part 4]
[Part 3]
[Part 2]
[Part 1]

This segment is part 7 in the series : Turn Around Series: Jerry Rawls, Finisar
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Sramana Mitra on Strategy » Blog Archive » Turn Around Series: Jerry Rawls, Finisar (Part 8) Thursday, March 15, 2007 at 7:55 AM PT