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Bookham Rises on Nortel Assurances

Light Reading
News Analysis
Light Reading
7/28/2004

Bookham Technology plc (Nasdaq: BKHM; London: BHM) saw revenues from Nortel Networks Ltd. (NYSE/Toronto: NT) dip in the second quarter, as expected. But officials say that business will bounce back immediately, a statement that put some bounce in the company's stock this morning.

Nortel had been obligated to buy $20 million in components from Bookham each quarter, a condition of Bookham's acquisition of the Nortel component business. That condition ended in March, at which time Bookham predicted a 3 to 12 percent drop in revenues for its second quarter (see Nortel to Bookham: Timberrr!).

But on a conference call this morning, the numbers didn't look so bad. Nortel represented 43 percent of revenues, or roughly $16.7 million -- less of a decline than Bookham had expected. "There was a lot of worry that [the contract requirement] had been the pressure keeping Nortel's bookings with Bookham high artificially, and that was not the case," CEO Georgio Anania said on the company's earnings call.

He added that Nortel revenues "are expected to return to a normal level in Q3, driven by new products."

The news heartened investors. Bookham's U.S. shares were up 5 cents, roughly 7 percent, at $0.79 in midday trading, but the stock had gained as much as 15 percent early this morning.

Measured under U.S. generally accepted accounting principles (GAAP), Bookham's second-quarter net losses were $35.6 million, or 12 cents per share, on revenues of $38.8 million, compared with losses of $32.1 million, 7 cents per share, on revenues of $41.3 million for the previous quarter. Losses of 12 cents per share met analysts' estimates precisely, according to Reuters.

For its second quarter in 2003, Bookham reported losses of $30.1 million, or 15 cents per share, on revenues of $34.9 million.

Bookham's real worry isn't the loss of the $20 million quarterly guarantee, but its overall dependence on Nortel, analysts say. "The real problem could be Nortel's loss of market share in the optical networking space, especially in the long-haul area," wrote analyst Abdul Saleh of Ehrenkrantz King Nussbaum Inc. in a research note last month. "Any continuation of loss in Nortel's market share in 2004 may not bode well for Bookham given its exposure to the long-haul market with Nortel."

Bookham shareholders will vote Aug. 16 on whether the company should move its headquarters from the U.K. to the U.S., undergoing a 1-for-10 reverse split in the process (see Bookham to Reincorporate in US). Anania noted that 95 percent of Bookham's revenues come from the U.S., and 50 percent of its investors are there, up from 10 percent a year ago.

If the resolution passes, Bookham would be reincorporated on Sept. 10.

Separately, Bookham has shifted its fiscal year-end to June, from December.

— Craig Matsumoto, Senior Editor, Light Reading


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