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Bookham Strikes Sour Note

Just when things were getting good, Bookham Inc. (Nasdaq: BKHM; London: BHM) stock took a serious plunge this morning as the company warned of a weak third quarter.

After falling as low as $6.42, down 26.5 percent, Bookham shares were trading down $2.07 (23.7%) at $6.67 midday.

The misery spread to Avanex Corp. (Nasdaq: AVNX), which fell 37 cents (13.2%) to $2.43 midday. The rest of the optical sector wasn't hit as hard: JDSU (Nasdaq: JDSU; Toronto: JDU) was down just 13 cents (3.6%) at $3.55.

Bookham announced that for its third quarter, which ended in March, earnings before interest, taxes, depreciation, and amortization (EBIDTA) will fall between negative $10 million and negative $12 million. The original forecast was for positive $1 million to $3 million. Ooops. (See Bookham Lowers Q3 Forecast.)

Gross margins will be down accordingly: 10 to 12 percent, Bookham now says, versus the 23 to 27 percent the company had predicted.

Today's buzzkill is a reminder that optical components remain a shaky sector, despite the runup that stocks enjoyed in March. Tidbits of good news, a return to profitability by Finisar Corp. (Nasdaq: FNSR), and the OFC/NFOEC tradeshow combined to send shares soaring for the likes of Avanex and Bookham. But analysts and executives alike have fretted that stocks rose a bit higher than warranted. (See Finisar Ignites Optics Explosion, Bookham Basks in 'Cramer Effect', Optical Stocks Climb Again, and OFC: Optics & IPOs.)

Bookham's problems include new obsolescence and scrap expenses associated with the Paignton, U.K., fab, which is being shut down as Bookham moves manufacturing to Shenzhen, China. The Paignton facility's lifeline got extended a bit last year when Nortel ponied up $50 million in orders for discontinued parts. (See Bookham Soars on Nortel News.)

What Bookham really wants to do is sell its newer devices built in China. But there's another problem: Third-quarter sales were unexpectedly rich in older, lower-margin parts, officials say. This caused Bookham's semiconductor fabs to go underutilized -- and an underutilized fab is a drain on profitability. The desire to keep fabs full has led many optics firms -- Bookham included -- to start moonlighting in markets beyond telecom. (See Bookham Ships More Jobs to China and Valley Wonk: Optical's Options.)

On the plus side, revenues for the third quarter, which ended in March, will be around $53 million -- within the $51 million to $54 million range the company had forecast.

Bookham will release third-quarter earnings on May 4.

— Craig Matsumoto, Senior Editor, Light Reading

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optigong 12/5/2012 | 3:57:11 AM
re: Bookham Strikes Sour Note .. I don't recall the exact sales in Q2 but I believe north of 60M, Q3 is 53 ... that's not a plus!
Pete Baldwin 12/5/2012 | 3:57:10 AM
re: Bookham Strikes Sour Note By "plus," I mean that revenues are at least what they said they'd be. Pretty good, considering EBIDTA is getting kicked down into the mud... usually companies tank on everything at once: revenues, margins, RBI, ERA ....

But yes, revenues are down, and that's spoiled the party when Q2 was announced:
http://www.lightreading.com/do...

At least Bookham is still up about 160% from its 52-week low. But is it still overvalued? What's the over/under on where Bookham stock *ought* to be?
Pete Baldwin 12/5/2012 | 3:57:09 AM
re: Bookham Strikes Sour Note Their valuation is about $363M as of right now (well, with 20-minute delay), so... Are you saying they're actually undervalued?

$500M takes their stock price to about $9, from $6.50 now.

This is all Journalist Math, so somebody correct me if I'm botching something here.
optigong 12/5/2012 | 3:57:09 AM
re: Bookham Strikes Sour Note multiples of revenues should be 2 to 2.5X, that's approx. 400-500M valuation.
optigong 12/5/2012 | 3:57:06 AM
re: Bookham Strikes Sour Note What will weigh heavily upon BKHM stock is their ability to demonstrate a path to profitability.
They have just announced that it is pushed out by a few quarters, for them to get a 2-2.5X in revenue multiples, they have to show break even in the next 2 quarters.
DZED 12/5/2012 | 3:57:03 AM
re: Bookham Strikes Sour Note Depends on what you mean by share value.

The traditional view has always been 10x annual dividend, I think.
With Bookham never having paid a dividend, and never going to either, I guess the value is zero.

Otherwise simply the book value of the assets divided by the number of shares.
Bookham is fast selling off its assets, and has generated zero IP since Anania took over, so I guess thats close to zero also.

As for fixed assests, there are too many fabs in the world, so what is Bookhams worth? Maybe Avanex would buy it in order to close it.

This is the problem you end up with if you do your utmost to stifle innovation with a politburo style management and take every decision based on how you can maximise your own personal bonus. In the short term the CEOs pocket does well, but the shareholders lose their shirts.

Everything seems to creep up 'unexpectedly' on the Bookham management team every single quarter. How so? Doesn't Bookham have one of the best remunerated mgmnt teams in the business?

Vent 12/5/2012 | 3:57:03 AM
re: Bookham Strikes Sour Note Craig
Will you please stop refering to back end assembly operations as FABs. Paignton is only packaging R&D and assembly, the assembly going to China and the R&D ostensibly remaining though probably they will sell the site and move nearby. The only fab (singular) that Bookham has is at Caswell UK which serves both the old and new products so what that Gobbledygook about the semiconductor fab being underutilized due to old product is about I donGÇÖt know. The Fab is underutilized because they are not selling enough old or new products to fill it !!!!!

Venting

waverunner 12/5/2012 | 3:57:01 AM
re: Bookham Strikes Sour Note A company's true value is its worth to a private investor. How much is the private investing community willing to pay for Bookham? Given that the industry is still (its been six years now) wiping the red ink if its books, I seriously doubt any buyer is willing to take on this headache. In the absence of buyers the price will fall.

Stay away from "Matsumoto" analysis, its that type of investment thinking that has a good chunk of shareholders waking up to a -25% hit. You can't predict the ticker. There is only one way to make money as a passive investor buy good companies cheap and stay with them forever. Its a Buffet cliche but it works.

Why anyone is putting money in Bookham is mind boggling. There are liens on everything they own. Declining sales, declining earnings, declining cash, zero dividends, zero PV, no marketable IP. Its a castle in the sky ready to drop.

Stay away, stay away!

W
DZED 12/5/2012 | 3:57:01 AM
re: Bookham Strikes Sour Note Even the chip on carrier work, which Anania promised would never go offshore, is now going to China.
So Paignton is now R+D only, no assembly any more.
So Bookham will soon be selling its Paignton site and moving the remaining staff to a portakabin or similar.
optigong 12/5/2012 | 3:57:00 AM
re: Bookham Strikes Sour Note For clarification, BKHM owns two "semiconductor" fabs, one in Caswell, UK, one in Zurich, Switzerland.
Filling one such fab is hard already, now two ...
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