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Optical components

Bookham Trims Again

It's not over.

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

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Pete Baldwin 12/5/2012 | 3:54:54 AM
re: Bookham Trims Again On the tunable laser stuff: Anania indeed says they're sold out through the September quarter. He says they are intentionally not ramping the iTLA quickly, because it's a complex product and needs to be ramped "in an orderly way."

Test capacity, for one thing, takes 5-6 months to get fully online, he said.

Thoughts?
Byron 12/5/2012 | 3:54:52 AM
re: Bookham Trims Again Craig,

It would have been great if someone pushed him on that a bit. He also used the words modest ramp. If the market is so big, why not more effort. If it isn't so big, then why spend so much time on it.

I interpret his comments as they have finally gotten the product close to being ready after more than 5 years. It is a tough product and this is the best they can do.

The test capacity is a bit more complex, but it doesn't take that long to get test rigs built tested and deployed. In any case, they have known for a long-time the need was coming. In short, their technology is probably pretty nice, but it is tough as heck to get to volume. The work is done largely in Caswell and they haven't introduced many new products in quite some time.
DZED 12/5/2012 | 3:54:50 AM
re: Bookham Trims Again Byron's right, it doesn't take 5-6 mths to get test eqpt together, this would have been planned to intersect the launch date anyhow.
Ananias comments are patently false.

The real answer is they can't work out how to make a profit on the thing, which is why they have no choice but to restrict volume.
Its a typical Anania product, very sexy, high price, but difficult to make and inevitably low volume because the market just doesn't want many of them -> No return on investment let alone a profit even if it had a positive gross margin by itself, which it probably doesn't.

Its amazing the market swallows the hogwash Anania comes out with.

There was a lot of disussion within Bookham about whether the market ever really wanted a tunable laser in any kind of quantity.
Either its used for dynamic wavelength switching, in which case tunability is needed - how many networks require this and how many lasers do they need?
Or its used to reduce inventory - in which case cost needs to be very close to a non-tunable for the figures to work.

Now they have admitted they are having problems with yield in China it does call into question the competence of the people who made the decision to go. Cost of closing Paignton, cost of setting up in China, disruption to the business, screwed yields - where is the plan? Where were the sums?

Now Bookhams product mix is clearly screwed, they are not making the widgets customers want to buy, it looks like there is no prospect of a turnaround.
Nortel_engineer 12/5/2012 | 3:54:49 AM
re: Bookham Trims Again Very disappointing results by Bookham last week. I don't see any strong indicators going forward for this firm.
Nortel_engineer 12/5/2012 | 3:54:49 AM
re: Bookham Trims Again Does anyone know if they have introduced anything new in the past 2 years? I think the products have not changed in many years and most of them were developed 10 years back custom for Nortel Networks.
Nortel_engineer 12/5/2012 | 3:54:49 AM
re: Bookham Trims Again Does anyone know if Bookham has ever posted a quarterly profit in the company's lifetime ? I believe that they have never shown a profit in the past 6 years (24 quarters) since going IPO but would be interested to hear expert opinions.
DZED 12/5/2012 | 3:54:48 AM
re: Bookham Trims Again Profits - No, never. It has squeaked above 0% gross margin occasionally

New Products - The iTLA is new, as I think is the optical module which is part of it. Otherwise variants of existing products, which can be harder than you think, eg Ex Temp XFP, LR XFP.

Disappointing - Certainly.

A strong indicator would be if Anania, Abeley and Dr 'I don't think MSAs matter' Turley were given the boot by the board. Disappointingly it won't happen.
austin_powers 12/5/2012 | 3:54:48 AM
re: Bookham Trims Again I wouls like to see it acquired by Avanex or Finisar but fully realise that this is more difficult to realise than it sounds. In that way, there would be a new management team run the show. It is definitely time for some changes at the top.
A lot of good people have left BKHM or were pushed out by the old cronies. Leadership and execution are severely lacking at BKHM. Bring on some changes please!!!!







Vent 12/5/2012 | 3:54:47 AM
re: Bookham Trims Again very
The new layoffs at paignton suggest that it is only a matter of time now until the next disaponting results ) before bookham pull out completely. There is not much sense in leaving long term the package design and some supprt staff down in south west england. Expect consolidation in Caswell.
The tunable laser ramp up looks more like chip yield problems at caswell to me


vent
whyiswhy 12/5/2012 | 3:54:44 AM
re: Bookham Trims Again "Its a typical Anania product, very sexy, high price, but difficult to make and inevitably low volume because the market just doesn't want many of them -> No return on investment let alone a profit even if it had a positive gross margin by itself, which it probably doesn't."

You would be amazed how many companies get this screwed up.

It's easy to sell from a datasheet, hard to deliver to a datasheet.

It's true that you have to have a top line (sell)in order to get a bottom line, but you have to be able to deliver something that can survive the usual 60 days (not DOA) between delivery and billing.

Anania is good at the first, lousy at the second.

Not alone in that regard.

-Why
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