Bookham Technologies : A Rule Breaker.
Bookham Technologies (NSDQ: BKHM) quote.fool.com
90 Milton Park
Abingdon, Oxfordshire
OX14 4RY UK
Tel: 011 44 1235 827200
Fax: 011 44 1235 827201
bookham.com
Also :
2055 Gateway Place
Suite 400 San Jose
CA 95110 US
Tel: 1 408 451 3940
Fax: 1 408 441 9152
Closing Price (5/5/00): $ 69
Average daily volume: 2,075,000 shares
Market Cap: $8.2 billion
Here is why I think Bookham Technologies is a Rule Breaker according to the 6 Foolish criteria :
Top dog and first-mover in an important, emerging industry.
The important, emerging industry in question is Optical Fiber networks.
Internet traffic is growing 1000 percent per year, with an estimated half a billion people online by 2003. This activity is fuelling relentless growth in the world's network and communication infrastructure as ISP's try to keep pace with the demand for bandwidth. The market for optical communications components and modules will grow from $5.5 billion in '99 to $21.3 billion in 2003.
Bookham Technology designs, manufactures and markets optical components based on silicon that generate, detect, route and control light signals in optical communication networks. These products allow fiber-optic networks to be constructed efficiently with advanced capabilities to combine, manipulate and process light signals to meet the demands of the internet. Their products, based on their patented technology ASOC (or Active Silicon integrated Optical Circuits), allow optical networks to be constructed efficiently with advanced capabilities to meet the growing demands of Internet traffic. The turnaround time for manufacturing optical components are the quickest in the industry. As owners of the ASOC process, they also claim one of the lowest cost, and highest volume production capability for integrated fibre optic components.
Bookham has demonstrated that the ASOC process is universally applicable to other fibre optic components by successfully developing bi-directional transceivers and WDM (Wave division multiplex) components using the ASOC process. The goal of Bookham is to eventually integrate every kind of optical component, (eg. Erbium-doped fibre amplifiers, transimpedance amplifiers, DWDM's, etc.) into SOI wafers.
Customers include the major telecommunications equipment companies in the US and Europe, who incorporate their products into optical systems which they in turn sell to telecommunication operators. Bookham Technology is based in the UK with additional offices in US, France and Japan. The company is supported by an international network of distributors and agents. Bookham Technology trades on the NASDAQ National Market under the symbol 'BKHM' and on the London Stock Exchange under 'BHM'.
Competition for Bookham includes JDS Uniphase, LightPath Technologies, and Lumenon. However, the competition with JDS Uniphase may no longer be that clear cut. Recently, E-Tek Dynamics (being acquired by JDS Uniphase) signed an agreement with Bookham whereby Bookham would manufacture a 100 GHz, 4-channel arrayed waveguide chip and E-Tek would provide the packaging and worldwide distribution of the arrayed waveguide chips.
Sustainable advantage, gained through business momentum, patents, visionary leadership, or incompetent competitors.
Bookham believes they are the first company to integrate light processing functions on a silicon chip using high volume semiconductor manufacturing methods, and as far as I know are years ahead of the competition with their technology. The ASOC proprietary technology is patented, and they believe that every important optical network will rely on ASOC. Their key competitive advantage is the knowledge gained in satisfying volume-driven optical product opportunities, which they are now applying to the high yield production of more complex and higher speed devices. While traditional fiber-optic component manufacturers combine discrete elements, such as lasers, lenses and filters, in manually assembled devices, Bookham achieves the same functionality in a single integrated chip with their proprietary silicon based optical circuitry. Drawing on a combination of automated assembly techniques and standard silicon fabrication technology, Bookham is able to significantly reduce the cost, time and complexity of designing and manufacturing fiber-optic components.
Revenues jumped 53% from $575k in 1997 to $882k in 1998. In 1998 a $10m manufacturing plant was added, escalating revenues an impressive 523% to $5.74m in 1999. Q1 results for 2000 are due May 16th. Bookham raised about $300m from its IPO, and plans to spend around $26m this year and next on creating more manufacturing capacity.
Bookham plans to develop further strategic partnerships with market leaders to optimize their competitive advantage. The aim is to become the global leader in the design and manufacture of integrated optical circuits.
Smart management and good backing.
Dr. Andrew Rickman (Founder and CEO) bookham.com
holds an honours degree in Mechanical Engineering from the famed Imperial College (London, England), an MBA, and a Ph.D. in integrated optics. He was awarded the O.B.E. by the Queen for services to the telecommunications industry in 1999. His visionary leadership in the early days of the Internet has placed Bookham in a unique position from which it (and its shareholders) can prosper mightily if they manage to keep up with the growing demand for its products. It is rare indeed to find a CEO with such excellent technical qualifications also to be a Master of Business - or vice versa.
Professor David Simpson (Chairman) was president of Gould Corporation - a manufacturer of electronic equipment and components, and was awarded the CBE by the Queen for services to the electronics industry. Also on the board of directors is Jack St. Clair Kilby - the inventor of the microchip. A must read: ti.com
All senior management staff are highly qualified and experienced in their fields. So Bookham certainly qualifies as boasting a highly distinguished and smart management team.
Management hires the cream of the cream of top students from top Universities, and reward them well, including stock options. There is a strong sense of team loyalty and commitment within the company - engineers have been spotted working away at 2.00 am (shades of Iomega in their glory days ?).
Backing by big name companies which have made equity investments into Bookham include Intel Corp (~5% stake), Cisco Systems (~5% stake), NewBridge Networks (~5% stake), Scientific Atlanta, and Bookham's own President and CEO, Dr. Andrew Rickman, who owns 25% of the company. Intel's interest in Bookham lies in their unique ASOC process using SOI wafers. Cisco's interest lies in Bookham's strategic position as a provider of components used to build an optical network.
Strong management and backing? Yessir.
Excellent past price appreciation, measured by a relative strength of 90 or greater.
Bookham's IPO hit the markets on April 11th 2000 - in the middle of the largest weekly decline in Nasdaq history. Priced at $15, it closed the day at $48, then was dragged down by market sentiment to $27 by week's end - still a solid gain over its IPO price. It has since outperformed most if not all Nasdaq stocks to close last Friday at $69 - a whopping 360% increase from the IPO price in one of the Nasdaq's most volatile months. This is not a long period to consider past price appreciation, but could be viewed as giving the Rule Breaker investor an opportunity to get in relatively early (for a change !). There is obviously great underlying Institutional support and belief in this company for such a strong start.
The greater the consumer brand, the better.
It is doubtful that any Rule Breaker readers have ever heard of Bookham, or that, now that they have, they would rush out en masse to buy their chips. However, Bookham's name is gaining recognition in the halls of customers of Optic Components such as Nortel, Allied Signal, E-Tek, Fujitsu, Lucent, Marconi, Scientific Atlanta and Visteon.
Bookham could be capable of becoming the Intel of Europe. And with an exceptional management team and backing, I for one would not bet against them….
A recent constituent of the financial media has recently called the company "grossly overvalued."
Well - the company is simply too young in the public markets to have garnished any major financial media attention. So - like the Fool did with Celera - I propose to break the Rules of this Rule Breaker - and call it overvalued myself. A market cap of $8 billion for trailing 12 month revenue of $6m ? Give me a break. And yet I maintain the success of this company is all but cast in stone - the competition is years away from developing similar technology, and Bookham's opportunity in this Rule Breaking industry is theirs to take.
Disclosure : I am long on Bookham, and intend to be for a very long time. |
