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Optical/IP

Bookham, Avanex Shore Up

Avanex Corp. (Nasdaq: AVNX) and Bookham Inc. (Nasdaq: BKHM; London: BHM) keep inching their way towards stability, as both companies continue the financial maneuvering to outlast a tough components market.

Bookham today completed a stock placement that raised roughly $50 million. And Avanex managed to extend its contract with (NYSE: ALA; Paris: CGEP:PA), its largest customer, last week. (See Bookham Raises $50M, Bookham Offers 10M Shares, and Avanex, Alcatel Extend Pact.)

Both companies are counting on profitability by moving manufacturing activities to Asia where they can cut costs. But at the same time, they've had to stabilize their cash situations before time runs out.

In September, Bookham's 10-K filing noted the company "will need to raise between $20 million and $30 million prior to December 2005 in order to maintain [its] planned level of operations." The company believed it would need another dose of cash by August 2006 to comply with the minimum cash requirements of notes held by (NYSE/Toronto: NT), the filing says.

Bookham seems to have received that cushion, though it's taken a combination of one-time tricks: This week's stock offering, a recent $15.5 million sale of land, and a bizarre transaction involving Deutsche Bank AG and the tax writeoffs of an aircraft leasing operation. (See Bookham Sells Land and Bookham Bags $11.9M).

But the key step of moving test and assembly to Shenzhen, China, appears to be "up and humming," analyst John Harmon of Needham & Co. wrote in a report earlier this month. Harmon recently toured Bookham's Shenzhen digs and was impressed, calling the site "an elegant, state-of-the art facility that is well positioned to take on the volume of current generation components and modules."

For Avanex, some extra assurance came with the renegotiated supply agreement that has Alcatel committed as a customer through October 2007. Avanex acquired components divisions from Alcatel and Corning Inc. (NYSE: GLW) in 2003, a deal that included Alcatel committing to Avanex to supply 70 percent of its needs for certain components for three years.

"[Avanex CEO] Jo Major has said to look at this as an extension of the current agreement between the companies," says analyst Dave Foré of SurTerre Research. Avanex isn't disclosing details of the revamped agreement yet, but Foré says it's likely to have the same 70 percent figure.

Avanex's press release promises the deal is part of a "series of transactions" with Alcatel.

Bookham made a similar move by renegotiating its prices to Nortel -- a customer that represented nearly half of Bookham's business -- which lead to Nortel's commitment of $100 million in purchases. The deal doubled Bookham's stock price in one day. (See Bookham Soars on Nortel News.)

The Alcatel contract is a nice spot of good news for Avanex, which recently lost its CFO, received a warning from Nasdaq about a sub-$1 stock price, and was called out in SEC documents for its dire cash situation. (See Avanex CFO Leaves , Nasdaq Warns Avanex , and Avanex Concerns Continue.)

Avanex also seems close to completing its own transition to Asia. "They're 80 percent there, and they're starting to get some design wins in Asia," Foré says.

— Craig Matsumoto, Senior Editor, Light Reading

optigong 12/5/2012 | 2:56:58 AM
re: Bookham, Avanex Shore Up That's a lot of money for Bookham, congrats.
Nortel must be relieved...
Pete Baldwin 12/5/2012 | 2:56:58 AM
re: Bookham, Avanex Shore Up CFO Steve Abely did tell us they'd be raising funds through various means. With the stock placement, I think Bookham has now used up all the possible mechanisms I'd heard discussed about a few months ago.

So -- is it enough? Anybody feeling sunnier about Bookham (or Avanex) as of this week?
OSXman 12/5/2012 | 2:56:57 AM
re: Bookham, Avanex Shore Up What strikes me about Bookham is that they have no gross profit. Almost all of revenues are consumed by cost of goods. Not a good sign.
o-man 12/5/2012 | 2:56:54 AM
re: Bookham, Avanex Shore Up Why Question is:
Does Bookham and Avanex both get "not for profit" status for taxes :)
optigong 12/5/2012 | 2:56:44 AM
re: Bookham, Avanex Shore Up It is fascinating to see that Nortel and Alcatel are artificially keeping both companies alive with big $. This is happening several years after the Nortel-Bookham and Alcatel-Avanex deal. Why is that? Critical technologies ? Products ?
DZED 12/5/2012 | 2:56:26 AM
re: Bookham, Avanex Shore Up "Why Question is:
Does Bookham and Avanex both get "not for profit" status for taxes :)"

Bookham did have a huge tax advantage, from the gigantic losses over the years, running into hundreds of millions of dollars. Anania had commented he did not expect tax to be a problem for about ten years.
Why then did they throw it away by re-incorporpating in the US? Thats an enormous company asset given away. Does he know Bookham will never turn a profit?

As for cost of goods sold exceeding sales price, that has always been the Bookham business model.

The critical products are likely being designed out as we type.
With staff either being fired or walking out to pastures less crap, little R+D is happening.

And given the calibre of the execs, no new ideas in the last 4 years, Bookham's dodo glide is likely to be just that.
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