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2 February 2007


Insufficient non-Nortel sales force extra $6-7m cost cutting at Bookham

For its fiscal second-quarter 2007 (to end-December), optical component, module and subsystem maker Bookham Inc of San Jose, CA, USA has reported revenue of $56.3m (at the low end of its $56-59m forecast stated in November). This is also level with $56.4m the prior quarter but down from $60.7m a year ago.

Revenue from Nortel was $14.5m, level on the prior quarter but down from $34.3m a year ago (which included $13.8m of last-time buy revenue). Non-Nortel revenue was $41.8m (unchanged from the prior quarter but about 58% up on a year ago).

Under generally accepted accounting principles (GAAP), gross margin has fallen from 27% a year ago and 17% last quarter to 15%. GAAP net loss was cut slightly from $22.9m last quarter to $21.3m, but still almost double $11.9m a year ago. Non-GAAP net loss (excluding non-cash stock and option-based compensation of $1.9m) rose from $15.7m last quarter to $18m. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) has fallen from +$0.7m a year ago and negative $7.7m last quarter to negative $10.4m. Cash reserves have fallen from $58.2m at the end of the prior quarter to $51.5m.

“For several quarters we have discussed that our sales to Nortel would decline significantly in the March quarter, due mainly to the completion of the guaranteed purchase agreement at the end of December. Based on current forecasts, we believe revenue from Nortel will account for between 5% and 10% of our total March quarter revenue, compared with 26% in the second quarter, resulting from a higher than previously expected inventory build-up and the completion of the purchase agreement,” says Dr Giorgio Anania, president and CEO. “We expect modest sequential growth in our non-Nortel revenue in the third quarter because of normal seasonality and some inventory draw-down at selected customers,” he adds. “While non-Nortel revenue continues to grow, the anticipated increase will not make up for the expected decline in Nortel sales in the March quarter,” he warns.

“Given these recent developments, we are immediately undertaking an aggressive overhead cost reduction plan which, when fully implemented, is designed to save an additional $6-7m per quarter in the September 2007 quarter. The savings will come mainly from reductions in our workforce, consolidation at our UK semiconductor operation, and shifting more development activities to China,” adds Anania. “By taking these additional actions, we believe our adjusted EBITDA quarterly break-even level can be achieved at a quarterly revenue level of approximately $55-57m.”

While Bookham has lowered its March-quarter revenue forecast, Anania believes it will be the low point in calendar 2007 and that revenue will rebound over the remainder of the year. “We believe that the continued strong interest and design-in activity we are experiencing for our new products, and an expected rebound in Nortel revenue as the inventory situation is worked through, will drive revenue recovery over the next few quarters,” he says. “Taking into account our planned overhead reductions, we expect to achieve adjusted EBITDA break-even by the end of the September quarter, assuming our revenue goals can be achieved.”  

For fiscal Q3/2007 (to end-March), excluding restructuring and other non-recurring charges, Bookham expects revenue to fall to $44-48m, non-GAAP gross margin of just 8-12%, and adjusted EBITDA of negative $12-16m.