Bookham Still Bleeding
Bookham missed analysts' expectations badly, thanks to the expense of running dual assembly and test lines -- Paignton, U.K. and Shenzhen, China -- combined with the U.S. dollar's sagging value against the British pound sterling.
For its second quarter ended Jan. 1, Bookham reported losses of $41.1 million, or $1.23 per share, on revenues of $45.8 million (see Bookham Losses Continue in Q2). Pro-forma losses were just 99 cents per share, but that still undercut analysts' expectations of 80 cents per share and revenues of $46.4 million, according to Reuters Research.
Bookham previously reported first-quarter losses of $38.3 million, $1.16 per share, on revenues of $43.6 million. For the December quarter of 2003, Bookham reported losses of $10.6 million, 49 cents per share, on revenues of $40.6 million.
Bookham stock held even at $3.50 in after-hours trading following the earnings call. That must have been a relief to executives after seeing components competitor Avanex Corp. (Nasdaq: AVNX) get pulverized after its earnings call Monday, which included a forecast of flat revenues for the March quarter (see Avanex Slips on Tepid Outlook ).
(Bookham stock was down 31 cents (9%) at $3.19 in midday trading today -- a tough blow, but not as bad as Avanex's 15 percent plunge yesterday.)
The difference could be that Bookham offered a glimmer of hope, including gross margins that might turn positive by June. Still, with gross margins of negative 8 percent -- down from negative 5 percent the previous quarter, thanks to the exchange rate -- Bookham clearly has to cut costs.
Bookham announced not one, but two restructuring plans last year, which combined could save the company $16 million to $20 million per quarter. Both plans are expected to finish by the end of 2005 (see Bookham Opens in China and Bookham Adds to Layoffs).
Another important move is the shift of Bookham's test and assembly to Shenzhen, China, from the Paignton facility. Certainly this would lower costs, but the key is for Bookham to get it done -- because the transition is a cash sink right now.
CEO Georgio Anania explained the situation in a conference call with analysts yesterday. The transfer of products to Shenzhen costs money by itself. On top of that, Bookham has to continue running Paignton as a backup to Shenzhen. Anania noted this "triple spending" -- Paignton, Shenzhen, and the transfer costs -- is keeping operating expenses high for the time being. Significant savings from the move to Shenzhen won't surface until the June quarter, he said.
Anania seemed happy with the progress of the transfer, as 9 percent of Bookham's revenues last quarter -- $4.1 million -- came from products that went through Shenzhen. But with $78 million in cash and investments, Bookham can't keep up this triple spending for long. Last quarter, the company ate through $24.7 million in operating cash, and it consumed a like amount the previous quarter.
Bookham does continue to find ways to prop up its cash position. Last quarter, the company completed a $25.5 million debt conversion, and it negotiated new deadlines for the loans it owes back to Nortel Networks Ltd. (NYSE/Toronto: NT). (See Bookham Closes $25.5M Placement and Bookham Extends Nortel Note).
Despite the cash burn, Anania was upbeat on the call. Bookham is seeing orders increase, with some new customers coming on board. "We're getting booked up not just for this quarter but for next quarter," Anania said.
Thus, while competitors such as Avanex and JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) are bemoaning the lack of visibility in the market, Bookham took the bold step of forecasting revenues for the next two quarters. Revenues should grow slightly, to between $46 million and $48 million in the March quarter, and should increase another 5 to 10 percent during the June quarter, officials said. Gross margins should improve as well, to the point where they could be positive by June.
Orders are growing fast enough that Bookham can't keep up, Anania claimed. The company fell short on manufacturing capacity for some products, because any excess capacity is tied up by the duplicated efforts associated with the Paignton-to-Shenzhen transition. "Had we been able to meet demand, we would have been over $50 million in revenues" for the second quarter, he said.
Anania noted that Bookham is getting "traction with new customers," but the company still relies on Nortel for much of its business. Nortel represented 44 percent of second-quarter revenues, with no other customer representing more than 10 percent of revenues.
— Craig Matsumoto, Senior Editor, Light Reading