Bookham Trims Again
Bookham Inc. (Nasdaq: BKHM; London: BHM) announced it's going to have to make yet more cuts as the company continues to wrestle with the transfer of manufacturing to its Shenzhen, China plant. The plan, expected to be fully in place by the December quarter, would reduce overhead by another $5 million to $6 million per quarter. (See Bookham Reports Q3.)
The news, delivered alongside Bookham's quarterly earnings yesterday, is just the latest adjustment for the components vendor, which like Avanex Corp. (Nasdaq: AVNX) and JDSU (Nasdaq: JDSU; Toronto: JDU), has struggled for years to right itself in the wake of the telecom crash. (See Bookham Ships More Jobs to China, Avanex Gets Slapped, and JDSU Sells More, Cuts More.)
It must be particularly disappointing to some investors, given that the optical sector was finally starting to look good again. Demand has been climbing -- albeit amidst threadbare margins -- and a certain TV pundit has been pounding the table, and everything else, with good words about optical. (See Smiles Abound at OFC/NFOEC, Optical Stocks Climb Again, and Bookham Basks in 'Cramer Effect'.) Bookham stock fell 88 cents (14%) to $5.40 in after-hours trading last night.
For its third quarter, which ended April 1, Bookham reported losses of $48 million, or 90 cents per share, on revenues of $53.4 million, compared with losses of $11.9 million, 28 cents per share, on revenues of $60.7 million the previous quarter.
For its third quarter a year ago, Bookham reported losses of $129.6 million, $3.86 per share, on revenues of $49.9 million.
Third-quarter pro forma losses of 34 cents per share turned out worse than analysts' none-too-cheery prediction of 27 cents as counted by Reuters Research .
Bookham's long-term plan has ridden on the transfer of manufacturing to Shenzhen, a process that's finally wrapping up. "Essentially all of our final assembly of telecom products now comes from our China facility," CEO Georgio Anania said on yesterday's conference call with analysts.
But now, Bookham has to wait for the Chinese operation to settle in, as it takes time for yields to climb and costs to stabilize. That transition is turning out to be tricky. Three weeks ago, Bookham warned that its third-quarter margins would turn out significantly lower than expected, due to an unexpected shift in the types of products shipping from China. (See Bookham Strikes Sour Note.)
And it's not going to stop right away. Bookham officials "expect the mix change will continue to negatively impact gross margins for the next few quarters," CFO Steve Abley said on the conference call.
Far from being disillusioned, Anania continues to stress the importance of the Chinese facility. On yesterday's call, he noted Bookham will be moving even more functions to Shenzhen, such as the "carrier-on-chip" manufacturing step that comes just before final assembly.
Meanwhile, Bookham is encountering a predicted revenue drop from flagship customer Nortel Networks Ltd. , which is finishing up last year's $50 million commitment to buy some discontinued parts. (See Bookham Soars on Nortel News.) Bookham had kept its Paignton, U.K., facility online just for those orders; officials said yesterday they'll now close the facility this quarter, moving Paignton's remaining R&D team to a smaller building.
Anania noted that in January, Nortel signed another agreement for $72 million to deliver in 2006, including some discontinued products.
Anania did try to point out some good things about the quarter, such as "steep revenue growth" from non-Nortel customers, including some outside the telecom area. Sales to Cisco Systems Inc. (Nasdaq: CSCO) rose "as an important new designed-in product started to ship," and revenues from Huawei Technologies Co. Ltd. rose 50 percent from last year, Anania said. Other Tier 1 customers including Alcatel (NYSE: ALA; Paris: CGEP:PA) are ramping up, he added.
"This is a case of most things going up. Were it not for the expected revenue drop from Nortel you would say this is pretty good penetration/performance here," he said.
Revenues from Nortel fell to $24.1 million during the third quarter, from $34.3 million in the December quarter, Bookham reported. Nortel revenues should drop further in June as sales of discontinued products continue to dry up.
Revenues from everyone else in telecom rose 13 percent to $20.1 million. Revenues to industrial customers rose 5 percent to $9.1 million.
Bookham's continued struggles might have some investors thinking about its cash situation again. That was the key question in late 2004, when it looked like Bookham wouldn't have the money to last another year -- but the company managed to shore up its bank account with creative and sometimes convoluted deals. (See Bookham Sells Facility and Bookham Bags $11.9M.) Bookham's cash and restricted cash totaled $66.9 million at the end of its third quarter, down from $81.3 million the previous quarter.
— Craig Matsumoto, Senior Editor, Light Reading