Bookham Boosts Revenues in Q3

Bookham Inc.'s (Nasdaq: BKHM; London: BHM) third-quarter earnings report shows the company isn't out of the woods yet, but officials say their cost-cutting plans are starting to bear fruit.

For the quarter, which ended April 2, Bookham reported losses of $130 million, or $3.80 per share, on revenues of $49.9 million, compared with losses of $41.1 million, $1.23 per share, on revenues of $45.8 million in the previous quarter.

For the third quarter a year ago, Bookham reported losses of $31.5 million, $1.31 per share, on revenues of $41 million.

Bookham's revenues exceeded analyst expectations of $47.5 million, as tallied by Reuters Research. The immense losses included a $98 million writeoff of goodwill associated with past acquisitions; without that and a $3.8 million restructuring charge, Bookham's losses landed closer to $28 million.

Goodwill writeoffs come when an acquisition's value drops. In this case, Bookham wrote off all $30.9 million in goodwill from the acquisitions of Ignis Optics and Onetta, and $67.2 million of a total $87.2 million in goodwill from the purchase of laser manufacturer New Focus, officials said. (See Bookham Buys Some More, Bookham Buys Onetta, and Bookham Gets a New Focus.)

The good news is that Bookham's transfer of manufacturing to Shenzhen, China, is "on track," CEO Giorgio Anania told analysts on a conference call Wednesday.

Shenzhen shipped $3.1 million of Bookham's revenues in the third quarter, and officials expect that figure to increase to $10 million to $12 million in the fourth quarter.

The transfer is key not only because of China's lower labor costs, but because the transition is kicking Bookham in the pocket book. While China ramps up, Bookham's U.K. facilities have to continue churning out parts. This leads to duplication of effort and makes the losses even worse (see Bookham Still Bleeding ).

Bookham expects losses to continue but says they will dwindle. Earnings before income tax, depreciation, and amortization (EBITDA) could be as low as $2 million to $7 million for the first quarter, which ends in October, officials said. That's compared with an EBITDA of $17.9 million for the third quarter, not including the goodwill charge.

The improvement also comes from better gross margins, thanks to a renegotiated contract with top customer Nortel Networks Ltd. (NYSE/Toronto: NT), announced in March. News of the contract, which included a Nortel pledge to buy $50 million worth of discontinued products during the next four quarters, nearly doubled Bookham's stock in a day (see Bookham Soars on Nortel News).

Bookham is also loosening its dependence on Nortel, whose components group Bookham acquired in 2002 (see Bookham Buys Nortel's Components Biz and Nortel to Bookham: Timberrr!).

Cisco Systems Inc. (Nasdaq: CSCO) represented more than 10 percent of revenues for the first time. And while Nortel still represented 39 percent of revenues, that's down slightly from 44 percent in the prior quarter, while the absolute revenues from Nortel stayed roughly flat: $19 million in the third quarter versus $20 million in the previous quarter.

On a conference call with analysts, CEO Anania noted, as he did last quarter, that Bookham has had trouble shipping all its orders, due to the China transition. This does mean Bookham is getting business but isn't cause for cheer, Anania said: "Some people think it's a good problem to have, but our customers don't think so."

One possible glitch is that the Paignton, U.K., facility will have to stay open "six months longer than expected," a side effect of that $50 million in discontinued products being bought by Nortel. That means the cost savings of the China move will be delayed, but the Nortel business "will more than offset the added retained manufacturing costs," Anania said.

In fact, officials on the conference call revealed that the Nortel contract included another $50 million commitment, this time for newer products to be purchased during the next year.

— Craig Matsumoto, Senior Editor, Light Reading