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28 April 2009


Bookham and Avanex merge into Oclaro

Bookham Inc of San Jose, CA and Avanex Corp of Fremont, CA have closed their merger (announced in late January), creating San Jose-based Oclaro Inc (trading on the NASDAQ Global Market with the stock symbol OCLR). Each share of Avanex common stock was exchanged for 5.426 shares of Bookham common stock, giving a 46.75%:53.25% split in ownership between Avanex and Bookham shareholders, respectively.

Oclaro's president & CEO is Alain Couder, chief operating officer is Jim Haynes, and chief financial officer is Jerry Turin (all from Bookham). Couder is joined on the board of directors by three directors from Bookham’s board (Edward Collins, Lori Holland and Bernard Couillaud, who will be chairman), as well as Avanex’s president & CEO Dr Giovanni Barbarossa (who remains in a consulting capacity to assist with the merger) plus two directors from Avanex’s board (Greg Dougherty and Joel Smith).

“By uniting the best components expertise of Bookham with the best modules and subsystems expertise of Avanex, Oclaro has the necessary products and technologies under one roof to become a market setter in the future of the fiber-optic market,” claims Couder. The merger should make Oclaro one of the largest suppliers of optical components, modules and subsystems to the long-haul and metro telecom markets, as well as the fourth-largest tier 1 supplier to the fiber-optics market (after Finisar and JDSU, and on a par with Opnext), the firm reckons.

The firm is structured around three customer-facing operating units:

  • Transmission (under executive VP Adrian Meldrum, formerly general manager of Bookham’s Telecom Division) focused on 10 and 40Gb/s optical components, transponders, and tunable transceivers;
  • Regeneration and Optical Routing (under executive VP Richard Smart, formerly Avanex’s VP of Product Management) focused on amplification (components, gain blocks, controlled amplifier modules, subsystems), dispersion (both fixed and tunable dispersion compensation), wavelength routing (Wavelength Selective Switch, passives, interleavers, and subsystems); and
  • Advanced Photonics Solutions (under executive VP Yves LeMaitre, formerly Avanex’s chief marketing officer then Bookham’s VP of Telecoms Sales) focused on high-power lasers and vertical-cavity surface-emitting lasers (VCSELs), photonics tools and filters.

Oclaro reckons that now has the core technologies to capitalize on the anticipated growth in fast-growing telecoms markets where new applications such as video streaming, social networking, and cloud computing are driving increasing Internet traffic, with strong demand for more throughput and performance. It also aims to leverage its core technologies to expand into adjacent markets, including industrial, defense, life sciences, semiconductor, and scientific, with diversification providing both the potential for new revenue streams and strategic technological advantages.

The combined firm has about 2500 staff at 13 sites (providing economies of scale), with technology development and component manufacturing in the USA and Europe (including Bookham’s chip fabrication facilities in the UK and Switzerland and Avanex’s in Italy), R&D support centers in Asia, and assembly & test and contract manufacturing capabilities in Asia (China and Thailand - an administrative center near Avanex’s subcontract manufacturer Fabrinet).

“The completion of this transaction is a big step forward for the optical components industry, and one we believe will produce a company capable of thriving in a rapidly consolidating industry,” comments Andrew Schmitt, directing analyst, Optical, at Infonetics Research.

“The combined in-house and outsourced manufacturing operations are expected to give Oclaro significant production flexibility, which in turn is expected to drive gross margin improvement,” says Couder. “Overall, Oclaro is a well capitalized, liquid company,” he adds. “With substantial combined cash and no outstanding debt, Oclaro has a strong balance sheet from day one.”

*For Bookham’s fiscal third-quarter 2009 (ended 28 March), Oclaro has reported revenue of $47m (including $1.9m out of a total $5.4m deferred from shipments made to Nortel Networks and a related contract manufacturer last quarter). This is down 6% on $50.2m last quarter and 21% on $59.7m a year ago.

On a non-GAAP basis, gross margin was 24%, up from 19% last quarter and above the 23% of a year ago. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was -$0.7m, an improvement on -$3.3m last quarter and -$1.1m a year ago. Cash, cash equivalents, short-term investments and restricted cash has fallen from $44.7m to $38.3m.

“Despite the lower third-quarter revenues that were driven by the economic downturn, we held our adjusted EBITDA close to break-even,” says Couder. “We continued to execute throughout our business as we positioned ourselves towards achieving our goal of profitability,” he adds.

Bookham expects the merger with Avanex to further accelerate progress towards profitability. “Our combined companies are well positioned to leverage our complementary product portfolios, operational synergies and strong balance sheet to accelerate our progress to our long-term financial model,” Couder says.

For fiscal fourth-quarter 2009 (ending 27 June) - which includes Bookham’s results for the full quarter and Avanex’s results from 28 April through 27 June - Oclaro expects revenue of $67-75m, non-GAAP gross margin of 17-23%, and adjusted EBITDA between minus $5m and breakeven.

Oclaro expects that it will be adjusted EBITDA positive in the September quarter, the first full quarter after the close of the merger. It also expects to generate at least $7m of quarterly cost savings by the end of the fourth full quarter post-close.

See related items:

Avanex cuts workforce by 5% as revenue falls 16%

Bookham improves cash balance despite 25% revenue drop

Bookham and Avanex agree to merge

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