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Avago to Acquire CyOptics

Zacks Equity Research

Avago Technologies Limited (AVGO) recently announced a deal to acquire CyOptics, Inc. – a leading manufacturer of Indium Phosphide (InP) optical chip and component technologies – for $400 million in cash. This transaction is expected to close by third quarter 2013.

CyOptics serves the data communication and telecommunication markets. With this acquisition, Avago will boost its fiber optics portfolio for emerging 40G and 100G enterprise and data center markets leveraging CyOptics' single-mode InP laser, receiver and photonics integration capability. Earlier, in 2012, CyOptics generated revenues of $210 million, up 21% year over year. Consequently, the acquisition is expected to augment the top-line of Avago once the integration is complete.

The transaction is a win-win situation for both the companies. Avago is a leader in the strong wired infrastructure market. The acquisition will aid Avago's optical components business and enable it to serve growing segments of the access, metro and long-haul markets in addition to the enterprise and data center segments. On the other hand, CyOptics will derive benefits of the leadership position of Avago, thus benefiting its own customers.

Avago is a premier designer, developer and global supplier of a broad range of analog, mixed signal and optoelectronics components and subsystems. The company serves three primary target market segments: wireless communications, wired infrastructure, and industrial and other.

Avago currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth a look now are Exar Corp. (EXAR), Anadigics, Inc (ANAD) and Atmel Corporation (ATML), each having a Zacks Rank #2 (Buy).

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