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