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Harsh medicine yet to cure Bookham

The optoelectronic component and module manufacturer rounds off another bleak quarter with a net loss of $24.3 million, although submarine pump lasers offer some hope.

Bookham has recorded revenues and net losses for the first three months of 2007 of $45 million and $24.3 million respectively, worse than the figures of $56.3 million and $21.3 million posted in the previous quarter.

Short-term expenses from its cost reduction efforts over this period came to $4.6 million, with a further $2.5 to $3.5 million in charges expected, spread over the next nine months.

Meanwhile, demand for Bookham s products is weak at its top customers, with big names such as Cisco Systems undertaking inventory reduction programs which the company anticipates “will continue into the June quarter”.

After the expiration of Bookham s long-term supply deal with Nortel in December, earnings from this customer provided only $3.1 million in the first quarter of 2007, compared with non-Nortel income for the same period which comprised $41.9 million.

Combine all these events, and temporary CEO Peter Bordui must be wondering how things could get much worse for the San Jose-based chip maker.

Yet hope for the company comes in the form of future products, including positive prospects for its 980nm submarine pump lasers.

In addition to a supply deal with Tyco announced in February, during the conference call to announce its results, the company s vice president of sales and marketing, Adrian Meldrum, said Bookham “expects to bring on a second customer in the second half of 2007.”

Meldrum also indicated that Bookham will have to show patience until it is fully able to exploit its pump laser innovations, saying that shipments into submarine customers would not begin until the September quarter.

Cost reductions will be pivotal to future profitability, especially after the $2.5 million saved this quarter, predominantly from the closure of the production line at the company's Paignton site, was more than offset by restructuring costs.

“Our cost reduction plan remains on track to achieve additional quarterly savings of $9 to $10 million from December 2006 levels,” explained chief financial officer, Steve Abely.

“We expect to see 60% of the savings in the June quarter, 80% in the September quarter and the full benefit by the December quarter.”

The consolidation at Bookham s Caswell plant saw the majority of scheduled redundancies occurring at the end of March, with the remaining costs savings to be completed by the end of October.

The closure of the company s Ottawa development operations and movement of its functions to Paignton and Shenzhen will provide savings beginning in June, with the shutdown finished by the end of August.

“Once these plans are implemented,” Abely said, “we forecast our breakeven level, on an adjusted EBITDA basis, will decline to $56-$58 million in quarterly revenues which will be achieved at gross margins of 23-25 percent.”

When asked if the breakeven level were attainable by the end of December 2007, the company declined to comment.

With flat revenues predicted for the upcoming three months, reduction of Bookham s quarterly losses to less than $12 million will rely upon the first of the cost cutting measures.

Bookham raised $27 million from a private stock placement in March to provide finances to ride out the intervening period, giving it a current cash position of $55 million.

Having recorded losses of greater than $20 million in each of the preceding four quarters, the company will hope that the bitter re-organisation pill it has swallowed takes effect in time to keep its cash-flow pumping.

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