Nortel to Bookham: Timberrr!

When Nortel Networks Ltd. (NYSE/Toronto: NT) sneezes, Bookham Technology plc (Nasdaq: BKHM; London: BHM) catches a cold...

In its earnings report this morning, Bookham forecasts that its earnings will be down by some 3 to 10 percent next quarter, primarily due to anticipated lower demand in the quarter from Nortel Networks, its largest customer. Bookham stock nosedived in morning trading, losing more than one quarter of its value.

Nortel's financial woes have certainly played their part. Although Bookham has been trying to reduce its dependence on Nortel as a customer, Nortel still accounted for 48 percent of Bookham's revenues in the first quarter of 2004. And Nortel's recent woes have cast a disconcerting shadow on the company (see Nortel Stock Dives on Dunn Downfall).

But added to this is the fact that part of Nortel's purchase commitment to Bookham has come to an end. When Bookham acquired Nortel's optical component business in 2002, the pair entered into a three-year supply agreement, expiring in 2005 (see Nortel May Be Paying a Parts Premium). The agreement was twofold, comprising: a commitment by Nortel to purchase a percentage of certain types of components over the entire three-year period; and a minimum purchase of $20 million per quarter over six quarters -- which expired at the end of the first quarter 2004.

Whether Bookham's revenues were up or down in the first quarter depends on the currency in which they're measured. Revenues in U.S. dollars, the principal currency in which the company receives orders, were $41.3 million, up 2 percent from fourth-quarter 2003 revenues of $40.5 million. In pounds sterling, revenues were £22.5 million, slightly down from fourth-quarter 2003 revenues of £24.0 million. This anomaly can be blamed on the exchange rate, whereby the U.S. dollar declined 9 percent against the pound from the fourth quarter of 2003.

But whichever currency you measure it in, overall, Bookham reported a net loss: Under U.K. GAAP it amounted to £16.0 million ($29.4 million) or £0.07 per share; under U.S. GAAP it was £17.5 million ($32.1 million) or $0.07 per share.

Achoo!

— Pauline Rigby, Senior Editor, Light Reading