Nortel deal gives Bookham some breathing space
Faced with dwindling cash reserves, optoelectronic chip manufacturer Bookham has been boosted by a $100 million minimum purchase commitment from its number-one customer "“ Nortel.
Reporting sales of $49.9 million for its third quarter - a 22% year-on-year increase - Bookham said that Nortel, which accounted for 39% of its revenue in the three months up to April 2, had also relaxed some of the terms of Bookham's loan repayments.
Thanks to Nortel's commitment, and what Bookham CEO Giorgio Anania described as "accelerating demand", particularly for laser transmitter components used in metropolitan communication systems, the company gave guidance predicting a strong upturn in revenue for its next two quarters. In fact, added Anania, Bookham had been unable to meet some customer orders because of limited capacity.
And the CEO was keen to stress that the company had widened its customer base, with the key system deployer Cisco now accounting for over 10% of Bookham revenue for the first time.
Half of the Nortel supply arrangement covers products made in Paignton, UK, that are due to be discontinued, while the remainder is for ongoing product lines that will be assembled and tested in Shenzhen, China.
Although the increased Nortel order should benefit the company overall, it does mean that Bookham will have to keep its UK assembly plant open for six months longer than it had originally expected.
That will hamper Bookham's ongoing cost-cutting measures as the company watches its cash reserves melt away.
So despite the improving demand and visibility, Bookham still looks like it could face a cashflow problem before long unless it can raise further capital, possibly through the sale of its Paignton site. On the company's books, the site is included as an "asset held for resale" worth $14 million.
Cash and cash equivalents now stand at $34.5 million, down from $69.5 million just three months ago. Bookham has also taken the opportunity to write down some of the reduced valuations of its 2004 acquisitions, with the net effect putting a further $100 million dent in the company's balance sheet.
The expected 15-20% increase in revenue in the current quarter, followed by a further increase of around 5% in the subsequent quarter, on top of the reduction in manufacturing costs, will inevitably slow down Bookham's cash burn.
But without some kind of financial injection, it remains to be seen whether the improving business climate will be sufficient to stave off a cash crunch. Bookham still expects to post a net loss in the next two quarters, and on top of that it will have to pay out a further $8 million-$12 million in costs associated with its restructuring.
