Optical networking equipment manufacturer Alcatel-Lucent ( Lumentum ) received an acquisition bid from Metel on Monday, and on Wednesday, it faced selling pressure along with the overall market decline during this round of trading – the decline was mainly concentrated among those companies that had previously benefited from the expansion of AI data centers. However, investors should not overlook a key factor: Alcatel-Lucent may still attract other bidders, or Metel might increase its cash offer and raise its acquisition price.
Maverick proposed to acquire朗美通 (Lumentum) in a all-stock deal; as of Tuesday, the transaction valued Lumentum at approximately $80 billion. This acquisition has also prompted the market to re-evaluate Lumentum's core position in the AI infrastructure sector. Lumentum produces optical devices such as lasers, which can transmit data faster within and between data centers compared to traditional copper cables; with the AI explosion in computing power, the demand for high-speed data transmission has become increasingly urgent.
Wall Street is not optimistic about this deal. A major reason is that the chip design company needs to issue approximately 50% more outstanding shares in order to complete the acquisition. Even before the sharp decline on Wednesday, since the acquisition news was leaked a week ago, Myriel's stock price had already fallen by 32%, which directly reduced the valuation of the acquisition from $115 billion to $78 billion; after the selling off on Wednesday, the valuation further dropped to around $71 billion. (Myriel previously communicated its corporate value, while朗美通's net cash was only about $500 million, so the difference between its market value and corporate value is almost negligible.)
On Wednesday, Longmetong's stock price fell by 10%, continuing the weak trend seen in recent weeks, as the market is concerned about a slowdown in the pace of data center construction. The current stock price is $610, which is about $100 per share lower than the acquisition offer made by Mellonair, reflecting investors' skepticism about the successful completion of this acquisition.
However, regardless of the outcome of the acquisition, the value of朗美通 itself remains high. Even though there are bans on building new data centers in various states and investment has cooled down, leading to a weakening demand related to AI,朗美通 and other optical interconnection manufacturers can still maintain growth, although the pace may slow down. Even for non-AI computing power and ordinary cloud hosting services, enterprises are still seeking higher performance and greater bandwidth; as optical networks continue to become more widespread,朗美ton's position as a core component supplier will not be shaken.
David Vogt, an analyst in UBS' semiconductor network sector, stated: "Over the next decade, NVIDIA GPU will become faster with each generation, shifting from copper cables to optical and photonics technologies, which will bring long-term benefits to all optical equipment manufacturers."
Other companies may also submit competitive bids. Potential buyers include AMD, Intel, and even NVIDIA. All three produce data center chips and server interconnection chips, so acquiring optical technology could bring synergistic benefits.
Jim McGregor, co-founder and analyst at the technology research institution Tirias Research, said, "It's important to understand that these manufacturers are now selling complete rack-level solutions, not just individual components." He is referring to the transformation of chip manufacturers: from selling chips separately to delivering complete server racks, along with the necessary networking hardware, integrating multiple chips together.
McGregor also mentioned that although these manufacturers could certainly acquire other optical equipment companies, such as Coherent and Applied Optoelectronics, Lumentum's laser products are unique, as it even supplies high-end lasers to other optical companies in the industry. For example, in addition to developing its own lasers, Coherent also purchases some lasers from Lumentum; Coherent's core product is the finished optical module, which is responsible for converting electrical signals into optical signals for fiber optic data transmission.
Wall Street analysts predict that by the fiscal year ending June next year,朗美通 (Lumentum)'s revenue growth rate will soar to 122%. An increasing number of companies need to transmit massive amounts of data at high speeds between servers, replacing the current mainstream copper cables, which in turn leads to a surge in Lumentum's optical components sales.
In comparison, analysts expect Coherent to have a growth rate of 50% for the same period, while Applied Optoelectronics is expected to have a growth rate of over 100% in the coming years. However, LantauMed's gross margin is close to 50%, which is significantly higher than that of the other two companies, and therefore it enjoys a valuation premium. According to data from S&P Global Market Intelligence, at the close on Tuesday, LantauMed's forward revenue multiple was 8 times, whereas for Applied Optoelectronics and Coherent, it was only 3 to 4 times.
Langmeitong's premium status, combined with the market's lukewarm attitude towards Mywell's proposal, may attract competitors to bid, potentially outbidding Mywell's all-stock offer. If bidders can offer a combination of cash and shares, they are likely to gain the favor of Langmeitong's shareholders, which in turn may force Mywell to modify their proposal to include a cash component as well.
Of course, NVIDIA's willingness to participate in the bidding is relatively weak. Earlier this year, NVIDIA had already invested $2 billion each in Mellanox and Broadcom, securing product procurement agreements with both companies, and it already holds shares in both firms.
Maverick's clients include giants in capital expenditure such as Amazon and Microsoft (AI). It will not give up Lumentum easily. Maverick is competing with Broadcom for large technology client orders, and clients wish to reduce their dependence on high-priced (NVIDIA AI) chips; McGregor believes that acquiring Lumentum will help Maverick gain an edge in this competition.
“Broadcom has end-to-end solutions that extend from network devices to co-packaged optics, with almost every component being self-developed; even if they don’t develop everything in-house, they have mature partners, and their scale is much larger than that of Marvell,” said McGregor. “The two companies directly compete in multiple areas such as network chips and custom silicon chips, and Broadcom is a giant in the industry. Therefore, it’s very logical for Marvell to want to expand its optical networking business.”
McGregor's acquisition of Mywell from朗美通 is analogous to Cisco's expansion during the internet bubble in the 2000s: back then, Cisco achieved rapid growth through a series of acquisitions. "There are cycles in industry mergers and acquisitions, and the optical technology sector has been relatively calm until now, but that situation is likely to change soon."
The core suspense lies in whether Mywell has sufficient funds to compete with the opponent's bid of cash plus shares. This pure share-exchange offer may not be attractive enough to the shareholders of Longmeitong.
