In February 2002, Bookham Technology reported financial results for 2001 that included revenues for the year ending 31 December 2001 of $32 million (£22 million), a fall of 17% from 2000 revenues. Cash-burn rate for the fourth quarter 2001 stood at $22 million (£15 million), a reduction from $44 million (£30 million) for the fourth quarter 2000. Bookham listed cash reserves of $270 million (£185 million) at end December 2001 - projected to be sufficient to carry the company into 2005.

Bookham's patented ASOC platform enables incorporation of multiple functions onto a single chip. Products developed to date include arrayed-waveguide grating (AWG) devices for the WDM market, such as a 40-channel 100 GHz multiplexer. More complex devices developed by the company perform additional functions, such as switching and channel monitoring.

Bookham started out as a developer of products, such as single fibre transceivers, targeting the access market, with a view to supplying components for fibre-to-the-kerb and fibre-to-the-home applications. Low price, combined with high volume production capability, are crucial for this market, where device speed is of lesser importance - 155 Mbit/s representing a typical requirement. The failure of this market to take off, at least outside of Japan, has resulted in the company broadening its product range. Acting on this strategy, Bookham Technology recently acquired the optical components division of Marconi.

Marconi Optical Components

Bookham Technology acquired Marconi's optical components business (MOC) in December 2001 through an all-share deal valued at approximately $24 million. This acquisition delivers to the company a number of products that are either market-ready or in final development stages, including tunable lasers, optical amplifiers and laser modulators. Bookham believes that these are extremely competitive devices that will effectively complement its existing product portfolio.

Mr. Green said that Bookham will continue development of MOC devices, whilst also seeking to closely integrate them with Bookham's existing product range, both from a technology and a marketing standpoint. Looking ahead, in the medium term, expertise held by Bookham Technology will be utilised to increase production efficiency of MOC products - an example is the reduction of packaging costs through the incorporation of aspects of Bookham's ASOC platform technology. Robert Green was careful to point out, however, that this did not denote an intention to transition all MOC devices to the ASOC platform.

Marconi's optical components business was built up from what was the Caswell Research Laboratory under GEC. Approximately two years ago, Marconi opted to develop the laboratory into a commercial optical components business. Under the direction of David Parker the business was transformed into a leading player in the optical industry, through the addition of technology capabilities in areas such as packaging, plus commercial production and marketing expertise.

The substantial capital investment associated with this strategy was underwritten by Marconi - the fall from grace of the company, following on from the market slowdown, resulted in an inability to maintain this funding. At this point Bookham Technology stepped in, seeing in MOC an opportunity to gain valuable resources and realise significant synergies - ranging from the world class III-V facility of MOC to the close geographic proximity of the companies operations in the UK.

Mr. Green noted, "With the acquisition of MOC, we have realised a very good deal for our shareholders - acquiring the company for a low price, accompanied by a strong order book and IPR portfolio. In addition, Marconi committed to the purchase of a pegged quantity of components from Bookham Technology - valued at approximately $44 million (£30 million) over eighteen months."

A key component of the acquired MOC product range is seen to be a tunable laser device, which will facilitate Bookham's rapid entry into a segment of the DWDM market expected to show major growth in the near future. Mr. Green believes that the device is a market leader, offering higher power output and smaller form factor than competitive tunable laser products: "Integrated with the modulator component this will be a winner for us."

Bookham Technology has already witnessed significant interest from customers for the tunable laser device. Robert Green stated that sample products have been with customers since early 2001. It is anticipated that the device will generate considerable revenue for Bookham Technology, commencing late 2002.

Commenting on the Bookham Technology approach, Mr. Green said, "Silica is fine as a basis for AWG functionality, however, it soon runs out of steam when adding complexity by incorporating multiple functions onto a single chip. As an example, it is very difficult to achieve hybridisation onto silica of III-V devices. In addition Bookham Technology has developed high speed semiconductor junction devices, as utilised in our electronic attenuators and optical switches. Companies using silica are only able to achieve similar capabilities through the use of thermal structures, which are inherently slow and unable to address a number of the key applications feasible with silicon devices. Silicon waveguide devices can be made significantly smaller than equivalent silica devices, as a result of the ways that silicon can be manipulated. All in all, the future for silicon is very bright."

Mr. Green commented however that the barriers to entry for companies seeking to develop silicon-based devices are high.

"At Bookham Technology we spent eleven years developing the ASOC platform. Our patent portfolio is a testament to the extent of the work carried out, also to the fact that we are keen to protect our position. We anticipate the silicon platform becoming a core technology in the future - in the longer term we expect to begin licensing out the technology."

Regarding technology gained through the MOC acquisition, Mr. Green stated that expertise - in fields such as high-speed GaAs modulators and InP tunable lasers now compliments Bookham's Silicon know-how. Mr Green confirmed that these technologies will continue to be developed at the Caswell site (previously MOC).

According to Robert Green, Bookham Technology basically offers a cost-effective solution at the module level, incorporating higher levels of integration than delivered by competitive products, giving superior functionality and specification for a comparable price. The company is seeing successes in the DWDM market, with design-in contracts for a number of major system vendors. Bookham has announced Marconi, Lucent and Nortel, amongst others, as customers. Strong growth is expected with devices for the DWDM sector as the market recovers.

Initially, Bookham developed a single fibre transceiver product, to showcase the functionality of its ASOC platform - specifically, laser hybridisation, receiver and waveguide functions, in a single device. The successful completion of development milestones resulted in several successful private financing rounds, culminating in a successful IPO in 2000.

The driver for this device is fibre-to-the-home, particularly in Japan, but the roll-out has proven to be significantly slower than was projected by NTT. Mr. Green noted that, despite the slow growth, equipment deployment is progressing gradually. The company has shifted its focus from this product line to concentrate on high value sub-systems for the DWDM market.

Custom solutions

Discussing Bookham Technology's approach to the market, Mr. Green said that standard, off-the-shelf, devices are not commonly delivered to customers. In the DWDM space, the majority of the devices supplied will be custom solutions, designed to conform to a particular customers requirements. Bookham Technology has evolved from a developer of components to a sub-system vendor, primarily in response to the changing demands of the market. Mr. Green said he believed that this strategy offers a realistic route to profitability for Bookham Technology.

In terms of product positioning, Mr. Green said that this will vary across the product range with Bookham bringing a broad scope of capabilities to the market. Mr. Green commented that in some situations, the company's unique ability to deliver a particular functionality has proved decisive in winning business; in other cases quality of service or pricing has proved the crucial factor. Bookham Technology prides itself on not only delivering on its promises, but also in exceeding customer expectations.

Optical telemonitor

Citing a specific example, Mr. Green mentioned the company's optical channel monitor device for which success has been attained through the simple fact that no other company had been able to deliver a product offering the required optical performance within specified delivery timing, size and price constraints.

With the switchable channel monitor system the company is able to offer a customer savings in terms of space requirements, arising from the placing of a blocking switch on each channel integrated onto a single silicon chip. This level of integration results in not only compact device size, but also improved reliability, through cutting down the number of system components and reducing the need for associated splicing and fibre management. Optical performance is also improved with regards to measures such as insertion loss, cross-talk, noise, and polarisation sensitivity.

Pricing

Pricing pressure is not considered by Bookham to be any more or less pronounced as a result of the current market climate. Mr. Green stated that to date, pricing requirements have aligned with company expectations, producing no surprises. He added that there is generally overcapacity in the optical industry, this can result in some players taking 'drastic' measures. However, against such tactics must be counted the fact that customers are seeking a supply chain able to support them in the long-term.

Intellectual property

Bookham Technology holds substantial intellectual property rights, comprising in excess of 500 patent filings, of which approximately 125 have been granted in Europe and 46 in the U.S. Mr. Green added that during 2001 the company, excluding MOC, filed over one hundred patent families - a rate of filing of optical component patents on a par with major vendors in the optical industry, such as Agere.

The rate and scope of patent filing has increased since the acquisition of MOC, particularly with regards to III-V technology. Bookham has also gained 'ready-made' IPR through the MOC acquisition.

The company has developed patents relating to fundamental generic technologies, expertise and configurations, as well as relating to specific devices - for example silicon waveguides. Also held are a limited number of 'historic' patents, which relate to technology outside of the fibre optics field. Mr. Green stated that the company does license in additional IPR where necessary and commercially desirable but such agreements are not disclosed.

Market share figures at a product-by-product level will vary dramatically - for example, with single fibre transceivers the company holds a large share of a very small market.

Customers

Bookham Technology has announced publicly very few customers to date due to non-disclosure agreements. Those announced include Lucent, Nortel and Fujitsu.

The UK base of Bookham Technology is not considered a handicap. "Firstly, we are playing in a global industry, and secondly we do have a presence in the major markets worldwide - including manufacturing facilities in Maryland in the U.S. The UK base can be advantageous when addressing the European market, simply as a result of geographic proximity."

Beyond this, the major hazard lies in the state of the market that the company is addressing, and more specifically, the timing of a market recovery. The industry consensus today is that recovery will begin in early 2003, possibly late 2002. Mr. Green noted that Bookham Technology has adequate funding to see out the intervening period. The company's positioning with respect to other players in the optical equipment market is viewed to be good in all respects.

Regarding execution of its business plan, the company is confident that it is capable of successfully implementing delivery to market of complex products at projected, competitive, prices. Bookham Technology now has to demonstrate to the industry at large that this can be achieved.