Bookham Set for Trouble

The shares are down 20% following a profit warning.
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Bookham's

(BKHM)

big run was in trouble Monday after the optical-components maker said an unfavorable product mix will hurt earnings in the most recent quarter and beyond.

Bookham pegged revenue in the quarter at $53 million, about $500,000 above the Thomson First Call consensus and within the range of $51 million to $54 million it previously offered.

Investors bailed, however, because the company said gross margin and earnings before interest, taxes, depreciation and amortization would be weaker than expected due to several factors, including higher obsolescence and production scrap costs related to the curtailment of production at a plant in Paignton, U.K.

"In addition, the third-quarter results were affected by a change in product mix towards lower-margin products compared with the prior quarter as the company transitions to new products, and related lower production volumes, which caused underutilization of the company's semiconductor production capacity."

As a result, third-quarter gross margin is expected to be 10% to 12% and adjusted EBITDA is expected to be negative $10 million to negative $12 million. Previously, Bookham had seen gross margin of 23% to 27% and adjusted EBITDA of positive $1 million to negative $3 million.

"We are disappointed with the gross margin and adjusted EBITDA results in the March quarter and 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, which will have lower initial margins. However, while these internal issues are a disappointment, we continue to see strong market demand and expansion of our revenue to non-

Nortel

customers," it said.

Bookham shares closed at $8.74 on Thursday, up 53% from the start of the year. The stock spent much of last year under $5. In premarket trading, the shares were down $1.84, or 19.9%, to $7.