News Article

Underutilized Chip Fab Hits Bookham Finances

Optoelectronic chip manufacturer and module supplier Bookham says that its bottom line for the third quarter will be much worse than it previously expected.

Despite hitting its revenue target for the quarter that ended on April 1, 2006, the high cost of Bookham's compound semiconductor fab in the UK is still proving to be a big drain on its resources.

The San Jose, CA, company said that underutilized production capacity at the Caswell facility was largely to blame as it forecast a loss before tax and other deductions of between $10 million and $12 million.

Previously, Bookham had been expecting this figure to be near-breakeven for the quarter.

Although the company's sales will be in line with prior expectations at $53 million, the problem appears to be with Bookham's product sales mix.

As it shifted to new products and lower production volumes, Bookham sold more lower-margin products compared with recent quarters. That transition impacted the key gross margin figures that go a long way to determining the company's profitability.

CEO Giorgio Anania indicated that this trend would be set to continue, saying: "We now believe our gross margin results in the next few quarters may be impacted due to the change in product mix, lower fab utilization and costs associated with introducing several new products."

On top of this, Bookham said that costs associated with the transition of its packaging and testing operation from Paignton, UK, to Shenzhen, China, had been worse than expected.

Unsurprisingly, Wall Street reacted negatively to the news, with Bookham shares tumbling by around 30% in value to just over $6. In recent weeks, the company's valuation had been at a year-high, with shares trading at around $10 for the first time since mid-2004.

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