Bookham gets that shrinking feeling - again

07 Feb 2007

Optoelectronic chip maker Bookham tells a familiar story of declining sales and aggressive cost-cutting measures - and this time its Caswell InP fab is in the firing line.

Bookham is to target its compound semiconductor fab in Caswell, UK, in a new round of cost-cutting measures aimed at rebalancing its dismal finances.

Company CEO Giorgio Anania revealed the latest move in a conference call to discuss Bookham's second-quarter financial figures, which made painful listening for shareholders and employees alike.

Although revenue in the three months until December 30, 2006, was nearly identical to the prior quarter, sales of components to Nortel are expected to nosedive in the current quarter because of a recent build-up of inventory at the network equipment vendor.

Ever since Bookham acquired its optical components business and 3-inch InP wafer fab from Nortel, the firm has represented Bookham's key sales account. In the latest quarter, sales to Nortel were worth $14.5 million – around 26 percent of total revenue.

But in the current quarter, that figure will drop to just 5 percent (around $2.5 million), and the modest sequential uptick in business expected from its other customers will do little to cover the shortfall.

"Given these developments, we are immediately undertaking an aggressive overhead cost reduction plan," Anania told investors.

As the CEO hinted, the cuts will be big, and this time they will affect Bookham's InP fab. Anania reckons that by implementing the measures, he can reduce company outgoings by some $7 million per quarter.

According to a Bookham spokesperson, the cuts will include a complete shut-down of the obsolete 2-inch diameter InP processing line at Caswell, so that all products will be made on the 3-inch platform acquired from Nortel four years ago.

The company's chip development activity in Ottawa, Canada, will also be closing down, with part of this effort switching to Shenzhen, China, and some moving to what remains of Bookham's Paignton plant in the south of England.

Other measures include moving some of its 2000 employees at its various locations around the world into fewer buildings than they currently occupy.

If the cost-cutting is successful, then Anania believes that Bookham could break even (before amortization, tax and other below-the-line costs are counted) on quarterly sales of around $56 million – similar to the sales figure that it posted in the most recent quarter.

The company will have to move fast, though. Net loss in the latest quarter came in at $21.3 million, only a small portion of which was attributable to one-off charges. On its balance sheet, Bookham lists cash and cash equivalents at $45.4 million.

Despite many previous restructuring efforts, Bookham is yet to post a break-even quarter after all financial outgoings are accounted for, and in recent years it has dreamt up a number of inventive refinancing measures and also sold off much of the property it owns – including the sale and lease-back of the Caswell facility.