Santa Rosa division of fiber optics maker JDSU begins new era as Viavi Solutions

A pioneering Sonoma County business, whose breakthrough discoveries have shown up in spaceships, fiber optic networks and the currency we carry in our pockets, is poised to begin a new chapter in an era of tech company breakups.

The Santa Rosa division of JDS Uniphase, whose beginnings here go back six decades, this weekend was renamed Viavi Solutions. New signs, which were under wraps last week on Northpoint Parkway, mark the change as the parent company splits into two entities.

JDSU, a fiber optics component whose fortunes soared and fizzled at the start of the millennium, is dropping its name as part of the separation. Three of its divisions, including the Santa Rosa-based Optical Security and Performance unit, have been renamed Viavi. A fourth division has been split off and given the name Lumentum Holdings.

Former JDSU CEO Tom Waechter, the new CEO of Viavi, said the change will make it easier for the separated companies to seek out new opportunities, adapt their operations and become more profitable.

“We want to pick up the pace of our growth,” Waechter said.

For the Santa Rosa division, the split will mean becoming a bigger part of a smaller company. Under the past configuration, Waechter said, the local unit was “somewhat buried inside JDSU.”

“They’re going to get a lot more visibility, both internally and externally,” he said.

On Monday, the new companies will conduct their first day of business. Also that day, investors will receive one share of Lumentum stock for every five JDSU shares owned as of July 27.

The stockholders are expected to receive about 47 million shares of Lumentum, while Viavi will retain nearly 12 million more. JDSU stock will be converted into Viavi shares, which will begin normal trading Tuesday on the NASDAQ Stock Exchange.

The JDSU separation is reminiscent of other recent tech breakups, including last year’s split of Santa Rosa-based Keysight Technologies from Agilent Technologies. Often spurred by investor concerns, the breakups typically are portrayed as a way to make companies more nimble and focused, as well as to make them easier for investors to understand and value.

Dick Herman, president of 101 MFG, a Petaluma-based alliance of manufacturing executives, said taking risks is part of the fast-changing and “disruptive” tech industry. But JDSU has some basis on which to bet that the separated businesses can succeed in the years ahead by creating and marketing valuable products.

“They’re doubling down on their tremendous record of innovation,” Herman said.

The transition is expected to be relatively tame for the local division, especially compared to the heady days when it was first acquired.

Before it became part of JDSU, the business was Optical Coatings Laboratory Inc. OCLI, as it was known, opened its doors in Santa Rosa in the early 1950s as one of the county’s first tech companies.

Over the decades, the business created high-tech coatings for spacecraft windows; special mirrors for the Polaroid SX-70 instant camera; color-shifting pigments used on the currency of more than 100 nations to thwart counterfeiting; and a 1-millimeter-wide optical filter that allowed communication companies to vastly increase the amount of data that could be sent over a single fiber optic line.

It was largely for that last breakthrough that JDSU acquired OCLI in 2000 for $6.2 billion in stock, a purchase price that soared along with share value in the months between the deal’s announcement and its consummation. At the time, OCLI was the world’s largest producer of thin-film filters for fiber-optic networks.

The OCLI buyout remains the second largest in county history, behind only the 1999 purchase of Petaluma-based Cerent by Cisco Systems for $7.3 billion.

However, the expanded company’s fortunes soon changed. JDSU sales and stock value plummeted in the dot-com tech bust that began later that year. The stock, which sold for more than $1,000 a share in mid-2000 when adjusted for splits, could be had for less than $3 in the fall of 2008.

The stock price ended Friday at $11.09 a share.

As a new business, Viavi will be headquartered in Milpitas, with annual revenue of about $950 million, 3,200 employees and 45 offices worldwide. The Santa Rosa facilities employ about 430 workers and contribute about $200 million in annual revenue. Viavi’s products include software, instruments and systems for the development, operation and optimization of data and communication networks. Its 4,000 customers include AT&T, Amazon, Bank of America, Ford, Costco, Microsft and Cisco.

Lumentum, meanwhile, makes optical components for the telecommunications market, as well as commercial lasers. The company has 1,500 workers and also will be headquartered in Milpitas.

Last year, 12 telecommunication and information technology companies announced spinoffs, an increase from seven in 2012, according to a recent report from Deloitte LLP.

The breakups are expected to continue “as a spin-off’s value proposition can be quite compelling for companies trying to enhance shareholder value while continuing to grow and innovate in the rapidly evolving technology marketplace,” the authors wrote.

Richard Shannon, a senior research analyst in Minneapolis with Craig-Hallum Capital Group, said splitting up companies not only makes it easier for shareholders to gauge business performance. It also can bring about cost savings. For example, JDSU announced that the split would allow it to cut its operating expenses by about $50 million.

“Those are the reasons most investors prefer this,” Shannon said.

For Viavi, Waechter said, it will be easier to adapt and grow in the fast-changing world of technology with Lumentum split off and the focus on just two remaining businesses: the communication network division and the Santa Rosa division.

“It was just very complex with three very different businesses inside JDSU to do that,” he said.

Looking ahead, Waechter said some of Viavi’s top opportunities involve the optimization of communications networks to efficiently move and analyze data. Much of the demand is due to three trends: Big data, the analysis of extremely large data sets; the Internet of things, the often-wireless connection of all sorts of gadgets to the Internet for both operation and data collection; and cloud-based applications, which don’t take up space on local computers and can allow the off site storage of vast amounts of information.

Specifically for Santa Rosa workers, Waechter spoke about opportunities in four areas. First, in anti-counterfeiting, the division has produced “optically variable magnetic pigment,” which can produce more sophisticated shifts in images and is now used on the U.S. $100 bill.

Second, the division’s coated optics are used in night vision goggles and in optical components for satellites.

Third, the division is placing thin optical coatings on wafers used in smart phones and tablets.

Fourth, it has developed a hand-held spectrometer that can allow police to identify whether a suspicious substance is, for example, heroin or bath salts.

Shannon, the analyst with Craig-Hallum, noted that the same reasoning for splitting up JDSU could some day be used to justify breaking off the Santa Rosa division from the rest of the company.

“If you take that principle,” he said, “You can also apply it to the remaining parts of Viavi.”

Waechter acknowledged that was a fair observation and noted that his role is to consider what will bring shareholders the most value. However, he emphasized that “we don’t have plans” for a further breakup of Viavi.

Earlier last week a JDSU spokeswoman said no changes are planned for the Santa Rosa division following the separation.

Shannon also predicted the breakup of JDSU won’t bring much immediate change for the local workers.

For the operation and workers here, he said, “I think they’re just kind of steady as she goes.”

You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com. On Twitter @rdigit