"Optoelectronics is no longer an attractive business opportunity for us," said John Dickson, president and chief executive officer at Agere, based here. "Optoelectronics represented 10 percent of our revenues in the quarter ending in June 2002 and we expect it to slip further."

The decline is due in part to Agere's focus on long-haul applications. In the go-go days of the telecom sector a build-up in capacity in the core of the network was common, but the core became overbuilt and the problems in the broadband sector have led to a decrease in spending in the edge/access sectors. As a result, revenues from long-haul components have declined and the move to new technologies like OC-768 (40 Gbits/second) have been pushed to 2004 or 2005, Dickson said.

Agere has optoelectronics manufacturing facilities in Alhambra and Irwindale, Calif.; Dallas; Matamoros, Mexico; and Breiningsville and Reading, Pa. The company had earlier announced plans to consolidate the Pennsylvania facilities to its headquarters in Allentown, but these moves have been halted and the facilities will be prepared for sale. In addition, Agere said it will discontinue or sell its operations in California, Texas and Mexico, Dickson said.

Under Agere's restructuring plan, the company's remaining IC fabrication operations will be consolidated at its facility in Orlando, Fla., and this operation will also be placed on the selling block, Dickson said. If the facility is not sold, however, Agere will continue to manufacture ICs in Orlando until at least September 2004, said chief financial officer Mark Greenquist.

It is not clear Agere will be able to sell its optoelectronics operations, but company executives appear skeptical. "We're assuming a worst-case scenario — that there could be no money from a sale," Dickson said. The Agere CEO called the optoelectronics sector a "miserable environment" right now.

Customer support to continue

While Agere plans to shut down its opto work, it will continue to meet the requirements of existing customers, Dickson said. Agere is maintaining these relationships because many of these customers also purchase Agere's networking ICs. "We want them to stay as IC customers," Greenquist said.

Once the opto business is sold or disappears, Agere will focus on developing ICs for communications, computing and storage applications. On the communication front, the company focus on wireless LAN markets and on metro, edge and access applications. "Sonet and Ethernet will be important going forward," Dickson said.

Agere expects to reduce its quarterly break-even point from about $700 million to about $500 million by the end of 2003. Of the 4,000 workers to be laid off, 2,500 will come from the optoelectronics operation, 500 from the consolidation of manufacturing operations in Orlando, and the remaining 1,000 from restructuring efforts. The company plans to keep its assembly and test facilities in Thailand and Singapore, as well as its wafer manufacturing joint-venture operation in Singapore with Chartered Semiconductor.