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For its fiscal second-quarter 2008 (to end-December 2007), optical component, module and subsystem maker Bookham Inc of San Jose, CA, USA has reported revenue of $59.0m, up 9% on fiscal Q1’s $54.3m. This represents continued recovery following the low of $45m in both fiscal Q3 and Q4/2007 (after expiration of a long-term supply deal with Nortel Networks). Nortel represented 15% of revenue, followed by Cisco (11%) and Huawei (9%).

The latest growth is due to increasing sales of new products launched in the last 18 months, including 980nm pump and amplifier business (up 24%, including starting shipping submarine products to a second customer) as well as iTLA (integrated tunable laser) and TTA (tunable transmitter assembly) products together with small-form-factor (SFF) transponders (which started volume shipment in December) up 66% sequentially (on top of 33% growth last quarter).

R evenue from industrial products rose 5% sequentially and 21% year-on-year to $14.2m, including record sales of thin-film filters (extending their applications to tier-1 life-science customers), as Bookham leverages it telecom technology and investment. This includes now using its telecom chip fabrication facility in Zurich to produce high-power laser chips designed for the materials processing segment.

“The strong second quarter results were driven by continued sales growth with many of our newer products, including tunables, 980nm pumps and amplifiers, ongoing marketshare gains in selected areas and increasing revenue with several important customers,” says president and CEO Alain Couder.

However, despite increased revenues, non-GAAP gross margin of 24% was flat on last quarter due to: (i) a shift in product mix to new products (which will incur lower margins until reaching larger-volume production); (ii) the lower yield of early-stage production; and (iii) higher-than-expected inventory charges and overhead costs.

During the quarter Bookham achieved $8m of savings through its latest restructuring plan (initiated a year ago). Restructuring is now essentially completed (with restructuring costs already having fallen from $1.2m in fiscal Q1 to $652,000 in Q2).

Nevertheless, non-GAAP net loss was cut from $8.0m ($0.10 per share) to $1.1m ($0.01 per share), and down from $18m a year ago.  

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $329,000, an improvement from minus $2.5m last quarter and minus $10.4m a year ago (a $2.8m improvement via a $4.7m revenue increase). It is also the first time in eight quarters (the December 2005 quarter) that the firm has achieved a positive adjusted EBITDA. This reflects the leverage in the vertically integrated business model, the firm says, which allows rapid product innovation.

During the quarter, Bookham completed a public stock offering that raised about $41m. Cash reserves hence almost doubled from $34.4m to $64.7m (after repaying $4.3m drawn in the September quarter from the firm’s existing $25m credit facility). This gives the firm the resources to expand business, says chief financial officer Steve Abely. Capital expenditure should be maintained at $3m per quarter for the next two to three quarters, he adds.

“Going into the March quarter, the market environment is becoming more unpredictable due primarily to the uncertain general economic conditions,” says Couder, cautioning that the firm is taking a conservative approach with its short-term forecast (particularly the March quarter). Couder says that, in the last few weeks, Bookham has seen ongoing uncertainty in customers’ forecasts, particular for legacy products (which, as higher-margin products, have a greater impact on overall gross margin).

For its fiscal third-quarter 2008 (to end-March), excluding restructuring and other non-recurring charges, Bookham expects revenue of $56-60m (up 3-10%), non-GAAP gross margin of 21-25%, and adjusted EBITDA of between minus $3m and +$1m.

Abely estimates that Bookham needs to generate $65m per quarter to break even and generate cash from operations. Nevertheless, Couder says that Bookham remains confident in its medium- to long-term growth expectations, due to: (i) bandwidth demand (e.g. for video over the internet) growing faster than new capacity is coming online); (ii) 10-40Gb/s applications being forecast to grow at a compound annual growth rate of 21% through 2009; (iii) growth for tunable products is accelerating as carriers replace older fixed-wavelength products to keep up with increasing bandwidth demand, and the pump market should be a good opportunity to quickly add additional sales (with the number of competitors falling, especially for submarine pumps, reckons Couder); and (iv) continued shortening of lead times at customers suits the flexibility of Bookham’s vertically integrated structure.

Abely also confirmed that the firm is still aiming to achieve a gross margin of 35-40% in the next few years.

See related items:

Bookham raises quarterly revenue guidance

Bookham prices offering of common stock to raise $41m

Bookham begins fiscal 2008 buoyed by 20% revenue increase

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