Bookham, Inc. (BKHM) reported Q2:FY08 revenues of $59 million, a 9% sequential and 5% y/y increase. The company achieved 24% non-GAAP gross margin in Q2, impacted by new product mix, inventory reserve change and higher overhead. BKHM recorded positive adjusted EBITDA for the first time in the last 8 quarters. Loss per share narrowed to $(0.01), versus consensus of $(0.06).
The top three telecom customers in the quarter included Nortel Networks Corporation (NT), Cisco Systems (CSCO) and Huawei, accounting for a total of 35% of Q2 revenue. Industrial revenue also grew 5% sequentially, with growth in industrial filter products. BKHM saw strong demand for its iTLA and TTA products and started volume shipments of small form-factor transponders towards end-Q2.
Going forward, the company expects Q3 revenue in the $56-$60 million range, with non-GAAP gross margin between 21%-25%. We maintain a Hold rating on the stock with a six-month target price of $2.25. Although it appears that the optical component industry is back on track, as the inventory correction appears to be over, companies in the sector are still struggling to establish their viability in the overall weak telecom sector demand for optical components.
As the company executes and the business environment continues to improve, we believe the company's valuation multiple, which was at the low end, will continue to expand. Even if there is an economic recovery, the telecom industry may continue to languish for several reasons, including consolidation, pricing pressure and excess capacity. Our sales growth assumption of BKHM hinges on the recovery of the telecom industry.
In addition, carriers have known to abruptly cancel or push-out certain programs, which could cause quarterly fluctuations. We should note that our reduced price target of $2.25 is based on roughly 1x sales, whereas some of its peers are trading close to 1.3x, meaning there is moderate upside for BKHM even if it reaches our price target.
Read the full analyst report on BKHM.
Read the full analyst report on NT.
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