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Technology Stocks : Bookham Technology -- Ignore unavailable to you. Want to Upgrade?

To: tech101 who wrote (276)	9/22/2003 3:31:52 PM
From: tech101	Read Replies (1) \| Respond to of 376

Cash Burn Will Be down to $5 Million Per Quarter by the Year End ... Bookham Technology's Acquisition of New Focus 22nd September 2003 Interview with Dr. Steve Turley, Chief Commercial Officer, Bookham Technology. Why New Focus? It was a great opportunity that we became aware of to address a number of areas that we felt we needed to do something about. Firstly, it provides cash reserves of $100 million that will remain after the transaction is completed. In our second quarter results, our cash projections showed we are burning a lot of cash at the moment. However, this is due to our restructuring. We have for example just closed the Ottawa fab, and there were a number of costs associated with that - severance costs, etc. - as well as the costs of building up the new facilities. So we are in a couple of quarters of heavy cash burn. Beyond that, our operational cash burn at the end of this year will be more like $5 million per quarter. However, the market takes a more rudimentary view. They look at our cashburn, find out how much we have got left, divide one into the other, and assume that we will have about four quarters worth of cash left. We recently said that we have about $100 million and we are burning at the moment at about $28 million per quarter on that simplistic model. The reality is that even if we did not increase revenues at all, cash burn will be down to $5 million per quarter. We realised that our customers and the market generally has to have confidence in our future and one enabler of that confidence is to show that we have a good cash position to see us through. The deal also gives us the opportunity to be more adventurous in the market and to take part in further consolidation. So we see this deal as taking anyone's doubt about Bookham's ability to survive right off the table. As we go into the first quarter next year, our results should show that, but this is a way of making that point now. Why do you think New Focus wanted to sell? I think New Focus perceived that their business didn't have the bulk to be a real player in the market going forward. The company has a lot of cash, but no bulk. So management saw the advantage of teaming with a company that has more of a presence. Also, obviously, its markets are now non-telecom. We also have non-telecom markets, so there are synergies. How much of the $100 million you will get on completion will have to be spent on Bookham realising additional non-telecom markets? Very little - we will just concentrate on the businesses New Focus is in at the moment. New Focus currently does about $6.3 million as of last quarter in already existing markets. Its markets are in 'photonics' but just not in telecom, such as semiconductor equipment markets. Can this purchase be seen as a sign that Bookham is losing a degree of interest in the 'pure telecom' market and is positioning to become 'just a component supplier' regardless of segment? No, we are not losing interest, but we just need a balance to our business. This move makes us less reliant on telecom, though it will still be the dominant business within Bookham. Will you be able to keep up the $6.3 million that New Focus is currently achieving? Absolutely, we believe we will increase that, and some of the markets that New focus supplies to are likely to recover next year. We are optimistic about the prospects for growth, though I would not like to quantify that at this stage. What about the development of those markets - are you expecting to undertake major reorganisation at New Focus? We are not expecting to do any major restructuring, though there will be some overlap at a corporate level. New Focus has already completed a lot of restructuring itself to prune excess costs. It is now on one site in San Jose. Will New Focus continue to handle its markets out of San Jose? What we will do is look at what our own non-telecom sales force can do to supplement the one there, particularly in Europe. Vice versa, some of the channels at New Focus can accelerate our penetration into non-telecom markets. This is seen as an opportunity to increase channels to market in both areas. Do you see this as a purely business transaction and not something just to appease the financial markets with respect to your cash burn? We see this is a business that has potential going forward. The New Focus RF business has a lot of synergy with the business we do in Caswell. Did anyone ever suggest that Bookham return the remaining cash to the shareholders, rather than try to struggle through what is a very ugly market? I am not aware of anyone suggesting that! With the consolidation of the market that we have driven, we have put ourselves into a trajectory that will take us to leadership in the market. We have the best product set out there. What degree of overlap is there between the markets of New Focus and Bookham? We supply out of Zurich our diodes for pumping industrial lasers, and New Focus supplies products into that market as well. We also both supply military customers. For example, BAE Systems is one of its major customers, as it is one of ours. Does Bookham have any plans for the $100 million that will be available or will it just sit on a bank balance, keeping the markets happy? If we look at our cash projection going forward, we don't need it in our current business plan, beyond keeping customers and shareholders confident in us. But it gives us flexibility as to how and where we grow the business in the future. Were your customers worried about your cash position? All of our customers look at all of their suppliers and analyse their cash position. We take them through the logic, explain the difference between the operational cash burn and the cash that is being spent to get the business into shape, and then they understand the financial position of Bookham is sound. The cash burn that we project ($5 million per quarter from next year) should not be significantly increased as a result of this transaction. Not even by bringing New Focus into Europe? In the overall scheme of things, that should not be very expensive. This transaction seems very unlike the one you undertook with Cierra. In that case there was a definite technology that you needed, which was cheaper to buy-in than develop in-house. Cierra was a small company and a tight team - altogether a 'neat' acquisition. In this case there seems to be no over-riding need for Bookham, apart from the cash available? The cash is a major reason. We also said for a long time now that we wanted to accelerate the non-telecom business that is open to us. It also gives us a low-cost facility in China. How important is that last factor? There is continuing pressure on prices, and it is very likely that we will start to manufacture some of our products in low-cost areas, and this facility gives us that opportunity. It is a completely empty facility in a free-trade zone, which costs very little to maintain currently. Which part of New Focus's business do you think would be easiest for Bookham to grow? The semiconductor equipment market - this is due to start to come back next year. Also the RF products where New Focus concentrates much more on the packaging, whereas Bookham's capability is in the chip area, so this is a very synergistic opportunity also. How did the London market take the news this morning? It dropped a little first thing. But the deal is fairly complex in terms of understanding where the value is and it should pick up reasonably well once we have the full story out there and articulate where the value is. Are you surprised the markets didn't just look at the headline number of an extra $100 million, and just mark you up on that basis alone? No we expected it to take a while - there are a lot of other elements in the deal. They need to make a considered decision. This article is the copyright of Electronics International and Optical Keyhole. It may be freely distributed by any means in an unaltered form. opticalkeyhole.com