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Executives

Jim Fanucchi – IR, Summit IR Group

Alain Couder – President and CEO

Jerry Turin – CFO

Analysts

John Harmon – Needham & Company

Paul Bonenfant – Morgan Keegan

John Gruber – Gruber & McBain Capital Management

Peter Right [ph] – AW Partners [ph]

Ajit Pai – Thomas Weisel Partners

Edward Zabitsky – ACI Research

Hamed Khorsand – BWS Financial

Bookham, Inc. (BKHM) F3Q09 (Qtr End 03/28/09) Earnings Call Transcript April 27, 2009 5:30 PM ET

Operator

Good afternoon and welcome to the Oclaro third-quarter fiscal 2009 financial results and company update conference call. At this time, I would like to turn the call over to Jim Fanucchi of the Summit IR Group. Please go ahead Mr. Fanucchi.

Jim Fanucchi

Thank you operator, and welcome everyone and thank you for joining us today for the introduction of Oclaro, the combination of Bookham and Avanex. We will also be discussing Bookham’s financial results for the quarter ended March 28, 2009. Please note that the slides accompanying today's presentation are available on the Investor Relations section of Oclaro and Bookham’s website at www.oclaro.com and/or www.bookham.com. The web cast presentation is available on the Bookham website under the web cast section in the investors’ portion of the website. As a reminder, this conference call is being recorded for replay purposes.

During the course of this conference call, we will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including but not limited to statements concerning future financial targets and financial guidance, potential synergies and costs savings after close of the merger with Avanex Corporation and restructuring costs, and Oclaro’s plan, objectives, expectations and intentions with respect to future operations, financial objectives, products and growth opportunities.

There are a number of important factors that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including the impact of continued uncertainty in the world financial markets and the resulting reduction in demand for our products, the future performance of Oclaro, following the closing of the merger with Avanex Corporation, and the inability to realize the expected benefits and synergies as a result of the of the merger with Avanex Corporation, increased costs and the lack of funding availability, as well as the factors described in Oclaro's registration statement on Form S-4, most recent annual report on Form 10-K, most recent quarterly reports on Form 10-Q and other documents we periodically file with the SEC.

The forward-looking statements included in this presentation represent Oclaro's view as of the date of this presentation. Oclaro anticipates that subsequent events and developments may cause Oclaro's views and expectations to change. However, Oclaro specifically disclaims any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this release. Those forward-looking statements should not be relied upon as representing Oclaro's view as of any date subsequent to the date of this presentation.

In addition, during this call we will be referring to Bookham’s non-GAAP financial measures with respect to any of these non-GAAP measures directly comparable, generally accepted accounting principal measures are set forth in a reconciliation of GAAP to non-GAAP measures and included in our earnings release as Bookham's earnings release, which is available in the Investor Section of both companies websites.

Our speakers today are Alain Couder, President and CEO, and Jerry Turin, CFO of Oclaro.

I would now like to turn the call over to Alain.

Alain Couder

Thank you Jim. Good morning, good afternoon or good evening. This is a very exciting day for us, you know, if you go to slide zero and click three times you'll see the Oclaro name happen, and then the tagline shining light on (inaudible) and then the ticker symbol, OCLR.

So, why a new name, you know, Bookham is a name, Avanex is a name. We could have been called Bookham Avanex. Jerry and I discussed that very early in the discussion of the merger, and the one thing we discussed is how to make the merger of two companies of similar sizes successful. And we thought that having a new name and a new company and having both teams excited, and to join the same exciting adventure was something quite compelling.

In fact, the feedback we have been getting recently about the fact that we will get a new name, also we disclosed it only today as a very positive inside of both companies. So why Oclaro? Oclaro has the notion of optical, the light appeals to the graphic, and also it has the clarity of vision that we're going to need as a new company. And in addition to that the tagline underlines the importance of innovation that we have been pushing for quite some time.

So moving to slide one, this is the safe harbor. We will let you read it. So let me move to slide number two. This is our agenda. Jerry will first talk to you about Bookham results, now Oclaro. We will also discuss the financial objectives of the merged company. As you know the Avanex results will never be published, but through the objective of the merged company, we will also give you some idea of Avanex results and how they contribute to the future of Oclaro.

Then I will explain our integration plan and how we can become a predominant force in the optical industry. So Jerry.

Jerry Turin

Thank you Alain. We're on slide three now. Before I even too deep into the numbers, let me highlight the key messages of the Bookham quarter. We held our gross margins over 20%, even through what we currently expect to be the low point of the economic downturn. We continue to improve our breakeven, and now believe we are modeled to breakeven on a non-GAAP operating income basis, and also achieve 30% gross margin at just over $60 million of revenues.

This gross margin metric should be kept in line later when we talk about achieving the Oclaro operating model target. I would also like to remind everyone that only two quarters ago, we did achieve $67 million of revenues in our September calendar quarter. From a balance sheet and financial leverage point of view, we held our cash at $37.3 million. We probably could have kept this over $40 million, if not for the Nortel receivables, (inaudible) in connection with their January bankruptcy filings.

In recent days, we extended the term of our $25 million line of credit for three additional years through August 2012. We have no amounts drawn under this line, no debt on our balance sheet, and we have a favorable ratio of current assets to current liabilities.

Now I will continue into more of the Bookham financial details for the quarter ended March 28, 2009. I will also refer you to the earnings press release we filed earlier today that is available on the investor relations section of the Bookham website at www.bookham.com and the Oclaro website at www.oclaro.com. This press release has more financial details, including a reconciliation of non-GAAP measures.

Moving on, our revenues for the quarter were $47 million compared to $50.2 million in our second fiscal quarter ended December 27, 2008. Revenues from (inaudible) were 19% of total revenues in the quarter, revenues from Nortel were 14%. Revenues from Nortel this quarter included $600,000 that we had reserved in the previous quarter in connection with Nortel's bankruptcy filing, and on which we collected cash this quarter.

We also collected and recognized revenues on $1.3 million of prior quarter billings through a contract manufacturer, which had also been reserved in the prior quarter in connection with the same bankruptcy filing. In the December quarter, we reserved a total of $5.4 million in association with the Nortel bankruptcy filing; 3.5 million of these billings remain uncollected. The timing and completeness of further collection, if any, will ultimately be a function of the progress in the Nortel bankruptcy administration process.

Our non-GAAP gross margin for the quarter was 24% compared to 19% in the prior quarter or compared to 27% in the prior quarter, excluding the impact of the Nortel bankruptcy in that quarter. Our non-GAAP gross margin would have been 21% this quarter, without the positive $1.9 million impact from the Nortel related collection.

Given the magnitude of our revenue drop over the last two quarters, we were pleased to hold our margins over 20%. This is a reflection of a lot of hard work done to control costs and to manage our supply chain and related material inflows during this slowdown. The only difference between our non-GAAP gross margin for the quarter, and our GAAP gross margin for the quarter was approximately $300,000 to stock compensation expense, which is excluded from the non-GAAP gross margin.

Our R&D expenses were $6.2 million compared to $6.9 million in the December quarter. Our SG&A expenses were relatively flat at $9.2 million compared to $9 million in the December quarter. Our cost reduction efforts continued to reflect positively on our operating expense results, although this was somewhat offset by professional fees, and certain marketing and trade show costs and credits through our SG&A line in this quarter.

Our R&D expenses for the quarter included approximately $200,000 of stock compensation, and our SG&A for the quarter included approximately $500,000 of stock compensation. Our net loss for the quarter was $13.3 million compared to $6.5 million in the prior quarter. A good deal of this difference is associated with one-time charges and/or non-operating gains or losses.

Our results for the quarter include a $4 million charge for impairments and intangibles. This represents the final refinement of an impairment charge of $7.9 million taken in our December quarter, which we described last quarter as a preliminary estimate subject to completion of related valuation work. We also had a $3.7 million charge in this quarter for a legal settlement and related legal fees.

In the prior quarter, we had a $9.9 million gain on foreign exchange, primarily related to translation of our inter-company balances. In the current quarter, currency exchange rates stabilized, and we had a loss of $600,000 in this area.

Our adjusted EBITDA for the March quarter was a negative $650,000 versus negative $3.3 million in the December quarter. Excluding the pickup of the $1.9 million from the collection of previously reserved billings described earlier, our adjusted EBITDA would have been a negative $6.2 million.

Over to the balance sheet, we ended with $38.3 million of cash, cash equivalents, short-term investments and restricted cash compared to $44.7 million at the end of December. If not for the $3.5 million of prior quarter billing, still hung up in the Nortel bankruptcy on which future collection remains uncertain, and which I discussed earlier, we probably would have held cash over $40 million.

Our accounts receivable went up to $35.5 million from $33.1 million at the end of December. Our billings in the current quarter were more heavily weighted towards the last couple of weeks of the quarter than typical, so more of the related collections will get carried over to the next quarter.

Even with our lower revenues this quarter, we were able to manage our inventories down with a $2 million dollar decrease from the end of December. Quick reaction by our operations people early in the December quarter at the first signs of the downturn have allowed us to minimize the negative impact of the slow down, and the related revenue volume decreases on our inventory balances.

Our operations people are also largely to credit for the current quarter decrease in CapEx to $1.5 million from $3.5 million in the prior quarter. CapEx has been running high due to a committed capacity build out. You may recall that we expected this to continue at a fairly high level through March, with significant decreases not coming until June. We have managed this area quite well, and have been able to take down CapEx more quickly than expected.

Our current liabilities remain relatively consistent at $35.4 million compared to $36.6 million last quarter. To conclude on the balance sheet, not only do we continue to have an outstanding debt, but the ratio of our current assets to current liabilities was healthy at approximately 3.75 to 1.

Now I would like to move away from Bookham standalone financial results to our Oclaro guidance for the quarter ended June 27, 2009. Let me first set the stage by pointing out that our results for this coming quarter will include the results of the Bookham business for the full fiscal quarter, plus the results of the Avanex business from April 28, 2009 through the end of the fiscal quarter. In other words, the quarterly results will include approximately 2 months of Avanex results.

Let me also add that we will not be reporting on the specific financial results of Avanex for the March quarter, either now or in the future other than pointing out that Avanex’s revenues were around the middle of the $24 million to $31 million revenue range that Avanex guided to in their earnings press release at February 5, 2009.

Now on to Oclaro, for the quarter ended June 27, 2009, we expect revenues to be in the range from $67 million to $75 million, non-GAAP gross margins to be in a range of 17% to 23%, adjusted EBITDA to be in the range of negative $5 million to breakeven. At the end of June, we expect to have approximately $185.6 million of Oclaro shares outstanding, which is approximately $158.4 million on a quarterly weighted average basis.

The message from our guidance is that we believe we can execute the initial steps of our combination without any significant solution to the March quarterly results of Bookham. This is with our anticipated synergies not expected to have a significant positive impact on the bottom line in these two combined months of our June quarter.

So, we think our June quarter represents a reasonable foundation to start from with synergies being able to kick in more significantly from there, along with taking advantage of the potential strategic opportunities of the new Oclaro, which Alain will describe later. Before Alain takes things in that direction, I would like to use our combined Oclaro guidance as a jumping off point for talking about the Oclaro financial model.

And here if you can move to slide four, the figures on this slide are similar to what we presented a couple of months ago. Our 12-month business model is targeted towards 30% gross margins, 12% R&D spend, 12% SG&A, and 6% operating margin. We have modified the target for the end of our first full quarter together by a gross margin percentage point, but otherwise it generally holds with our initial expectations.

These targets will be subject to further refinement as we move forward together, although we feel pretty good about where they stand as of now. Long-term, our model still holds at 35% gross margins, 13% R&D, 12% SG&A, and a 10% operating margin. As we have said before, the 12-month targets are somewhat a function of revenue levels and we implicitly assume a recovery of combined revenues to something around a range of Bookham plus Avanex back in the September calendar 2008 quarter, say about $110 million to $115 million.

In addition to clarifying the revenues implicit in these targets, we have often asked another question about our 12-month target. How do we get from current gross margin to let us say 20% to the mid-range of our June guidance up to 30% at the end of the fourth full quarter together? This is an important question, and we would like to provide a roadmap of how it can happen.

If you move to slide five, on this next slide, we have a GAAP analysis showing the actions and opportunities by which we believe we can eliminate that gap. Internal sourcing of components like laser pumps into Avanex products, leveraging contract manufacturing relationships with a larger company, having only one supply chain, leveraging procurement opportunities as a larger company, shifting from lower margin products to higher margin offerings, pure math [ph] suggested a 2% improvement from each opportunity would get us there.

And that isn't to say we expect to deliver exactly 2 points from each opportunity or that we are prepared to quantify the specific gross margin dollar improvements possible from each opportunity. Whether case-by-case specific opportunity can and will deliver 1%, 2%, 3% or more of less, we really aren’t prepared to make those sorts of precise commitments today, nor we like to give that specific in the future. Beyond this the actual results will be a function of execution, changes in product mix, the economy at large and many other factors.

But all that said, we hope that this clarifies the pathway we see that has the potential to get us to that 12-month financial target. There is one other thing you should keep in mind. On top of these opportunities, you cannot overlook the margin upside implication of the Bookham vertically integrated manufacturing model, a model which drives margin improvement based on sales volume growth alone, you'll note that this is not one of the opportunities noted on the slide, and they represent further incremental upside.

As one final frame of reference, at Bookham we believe we are on track for a 30% gross margin in the December 2008 calendar quarter prior to the downturn. And in the first two quarters of calendar quarters of 2008 Avanex had achieved margins in the 30% range on a stand-alone basis.

Now if you move to slide number six, we layer these gross margin opportunities on top of the expected operating expense synergies. Together these synergies on the left should help us to get us to the financial targets on the right. Here we have something also that I would like to highlight. While we have stated that our profitable twelve-month targets are premised on revenue growth, we are also managing the business to be non-GAAP operating margin breakeven at the end of 12 months, even if revenues were to continue flat, saying in the $80 million a quarter range for the next 12 months.

That is not to say that we expect revenues to continue to be flat. Our June quarter in fact reflects higher revenue expectations from the March quarter for both Bookham and Avanex, however, we are not prepared to count on an economic recovery as the basis for driving Oclaro to profitability.

From a synergy point of view, you can see that we have revised our expected synergies from $7 million a quarter to a range of $7 million to $9 million a quarter, and that our expected restructuring cost estimate has moved consistently from $7 million total to a range of $7 million to $9 million. Maximizing the synergies of this combination, maximizing the profitability of Oclaro will continuing to be an ongoing process.

As of now, as you can see at the end of the first full quarter together that this range of synergies corresponds to an additional $28 million to $36 million dropping to the bottom line on an annualized basis. Before I move away from the financials and hand the ball back over to Alain, I want to point out that Oclaro starts out in a sound, stable financial position.

As of the end of the march, we bring a total of approximately $70 million in cash to the table. In addition to recovering the restructuring costs, we probably will have to pay out around $7 million in deal related costs and fees etc. Our customer combined cash balances in Oclaro has a $25 million line of credit I described earlier, no outstanding debt and a healthy ratio of current ratios to current liabilities at over 3 to 1 at the end of March.

With this, I will let Alain expand on the investment pieces of Oclaro, and describe the exciting opportunities we have ahead of us.

Alain Couder

Thank you Jerry. So as this previous slide demonstrated to you that Oclaro is financially stable, and I will discuss that we believe it is now a tier 1 company. Going to profitability is climbing a mountain. We put one foot in front of the other, but I think the results that we got in the March quarter are demonstrating our ability to execute and profitability will continue to be an overriding priority for the company.

So Bookham wants to become a number one or number two in the market, and we have given a new name to that, Oclaro. And Oclaro will be a market setter. We think we are already number one as Oclaro in the telecom, metro and long-haul market, and we are projected to grow in the (inaudible) market, both in telecom and non-telecom by leveraging our technical and telecom technology investment.

We have very talented employees, which are over the size [ph] of Avanex before the merger, and we are quite a strong management team. So, I think Oclaro has an even more diversified customer base than Bookham and Avanex standalone. So we're very excited about the opportunity, and it is better for all of us at Avanex and Bookham, and we have now have called both of us Oclaro.

So if you move now to slide number eight, you know, and you click first time, you will see some staff is disappearing in the consolidation of the industry. Many of them are struggling to get the cash they need. If you click second time, you will see Oclaro and Avanex merging to become one company and to become a tier 1 company.

If you move to the next slide, slide number 10, you can use the comparison of revenue between the optical component company for the 2008 calendar year, and as you can see Oclaro is part of the tier 1 pack. In addition to that, we have several areas where we have excellent technology and are now taking market share to enable in particular, but also to enable dispersion compensation, laser and WSS [ph].

So this positions us very well in the long-haul metro market. I should use the slide at the announcement time. It does clearly demonstrate that in this market, metro and long-haul we should be really growing, because it is where the core bandwidth of the network is needed, and it is where the optical technology makes it contribution to Oclaro, and we assume that they should.

And the customer feedback is very clear, you know, they are now happy that we now have an alternative to JDSU. Our two products lines have similar coverage with a few differences, for instance JDSU has a large extensive coverage of the WSS space with 1.8 and above. We have only 1.2 for now, and on the dispersion compensation, we clearly have to enable dispersion compensation as a very competitive product and growing quite faster.

At the same time, we're not neglecting some tough foreign competitor, for instance if you look at the transponder market, Finisar and (inaudible) are formidable competitors, and at the same time there are also buying some components from Oclaro. And there are many design wins, as we are also now (inaudible) winning technology, as I said, since we are gaining market share and that's why it is an exciting time.

So how do we motivate all the employees of the company? How do we give a clear vision of where we're going? So the slide 11 is the discussion that we had had the new executive teams. Everybody today is in the starting block and this morning by voting positive the merger, both the Avanex shareholder and the Bookham shareholder have (inaudible) started to run are now everybody in the company is running.

So we are now facing our action to be very simple but very fundamental values, ready to be help, inventive and respectful. Ready to help and respectful I think is really important to the successful in an integration, because the two teams don’t know each other. They need to learn each other, and listening, having respect, and ready to help whoever has difficulty is a key success factor.

But ready to help and respectful are important for our customer as well. (inaudible) of doing business and continued to do that, and obviously good technology and being inventive in everything we do is important. The progress we made at Bookham in the past 2 years has been through inventiveness in everything we do. I was in Shenzhen two weeks ago, and clearly we have improved the infrastructure cost. I've seen some outstanding innovation for instance, we are using the xenon gas, and we are replacing with more powerful cheaper gas. We are using very expensive test and equipment, as the engineering team there was able to create say a testing box, which is much cheaper but even more precise for what will want to do and so on. This is in everything we do, we are inventive and we will continue to be inventive.

So moving to the strategic peers, I've discussed with you in the past the ease of doing business and innovation. And we have added two more. So ease of doing business is clearly, extremely important. As I said in the past, I think, the ease of doing business (inaudible), it is easier to do business with Oclaro than its competitors. I think we'll attract more business, and that of course will be maximized and innovation derived gross margins. That is how we get better margin and the combination of the two is what leads to profitable growth.

We have added to that integration and consolidation. I think integration and consolidation are key strategic pillars of being a successful integration and being a successful Oclaro company, and in addition to that I will give you an example of vertical integration of Oclaro. I think we are uniquely positioned.

Moving to the last one, which is architectural clairvoyance. As we are becoming a tier 1 company, we can influence the industry even more, and it can be done successfully only if we are the clairvoyance of future architecture. So, I have elected to listen to our customer, and the customer of our customer, and imagine how their need could be better fulfilled by new or improved technology is crucial.

This slide gives an example of success in the past from both companies. One example, outside of telecom is VCSEL, polarized VCSEL. Polarization allows a mouse to work on shining surface, and I'm sure many of you have used an optical mouse was very upset, because on the glass it was not working. You have to put up piece of paper. So this is a good example, and simple example of imagination of user’s need when you got a new technology.

So, now moving now to slide number 14, this is the architecture of our telecom network, moving to a agile [ph] network, where phased division switching (inaudible) is increasingly important, and there the technologies that Oclaro masters like tunable laser, modulator, WSS new modulation technique, software in order that this creates excellent opportunities for growth to exploit the growth of the telecommunications network.

So that really our vision. We think we can through that we can become a prominent force in the optical industry of the fiber-optic industry, specifically in telecommunication, I think we can do more than telecommunication. So how is the new company organized to succeed and execute through that.

So you have that on slide number 15. So as you can see the customer and the investor are being served by the strong management team and I will describe, which is working in a metric way that means helping each other as I mentioned before. We have two telecommunication divisions, one transmission division and one regeneration and optical switching division, and I would describe them later on in more detail, and one advanced photonic solution that is using telecom technology to create new growth outside of telecom in adjacent markets.

Those divisions are helped by a CTO office around innovation and technology, and are helped by business development and planning function to maximize the growth, the internal growth first, but also some potential external growth as well. And then in term of execution, delivering on-time quality products to our customer continues to be an extremely important operation.

We will continue to do (inaudible), I am sure. Sales and MarCom has been merged into one organization as of today, and as you can imagine the need to grab the orders as quickly as possible, and obviously we also have an corporate function of legal, finance, and HR with special attention to people and the HR function.

So my analogy with this organization is a rugby team. The three division managers are there in the front line to grab the ball and become big competition. And everybody else is pushing as hard as possible towards the soft line and catch the ball. So, we will win at this game. I think we have demonstrated the ability of the management team at Bookham before, and we have enforced this management team with excellent people coming from Avanex.

So that is very exciting for us. So what is the transmission division all about? Transmission division is basically a (inaudible) of the core component and subsystem that goes the electronic world to the optical world and from the optical world to the electrical world. So obviously 40 G and 10 G optical component will continue to be very important, but now in addition to indium phosphide, we can add some state of the art modulator from (inaudible) technology.

In terms of 10-Guidance transponder, we continue to improve our small form factor, where the number of design wins is increasing, and we have other electronic dispersion compensation that allows to compensate both for fiber and optical components limitation or efficiency, and we are also adding new features, and since it being able to avoid our software without disrupting the traffic in an optical network.

The tunable transceiver has always been important and now (inaudible) tunable in the market. We introduced the X2 external last year, and we are working on the XFP-E form factor to tunable transponder using monolithic integration.

The 40 G transponder as I mentioned in several calls before, we are suppliers to most of the companies shipping for 40 G transponders today, but we are clearly working on integrated photonic integration to make 40 G cheaper using DQPSK modulation, and we've very exciting opportunities in terms of us there, and we think we have some interesting technology there.

And photonic integration is our first. We believe that putting more on a chip is a way to go to reduce costs. For us really the challenge of the transmission division, and Adrian has been doing an outstanding job before, and will continue in his larger transmission responsibility to really do wonderful work and beat our competition, and (inaudible).

So, next division is Regeneration and Optical Routing division with three product lines. One around amplification with component, gain block, control amplifier module, and subsystem. These are extremely high performance subsystems, which relying on very sophisticated software platform and high speed electronics.

And then the other one is dispersion with fixed compensation and tunable dispersion compensation. To enable tunable compensation is working extremely well, and then the wavelength (inaudible), where right now the 1x2, which has probably the lowest number of component, and to reference customers. So that is the second very exciting telecom division.

The third division, we are targeting an example of vertical integration that you can see on slide number 18. This is applicable to the amplification in optical routing, but we've got a similar example around the transmission division and transponder. Here this is the example of a ROADM on a blade 1x2 switch and an amplifier on the same plane, but the control logic and control stuff has been shared by both. Therefore the cost has been reduced.

As of now, we are adding to that as the component coming from Bookham, and in particular the pumps and the filters, and this vertical integration gives us opportunity with very good performance through also an excellent cost, and being able to compete in a highly competitive world. So the third division, as I was mentioning before is the optical photonic solution division. It is the same as non-telecom or Bookham before. It has high-power laser and VCSEL, but with new (inaudible) the mission of those people is to become number one and number two in their respective market segments.

So, high power and VCSEL and then the other one is photonics tools and filters. There we're leveraging our technology investment in telecom, both from Zurich and from California.

So with this organization, these divisions of portfolio of technologies and products and subsystems, what are our top priorities for the next hundred days, and make sure that we achieve the financial objectives that we mentioned to you in terms of restructuring, and more important of becoming as quickly as possible a profitable and growing company that (inaudible).

So, our first priority is to ensure business continuity for our customer. When there is a merger like this one, the first concern of a customer is there any integration problem, are they going to be inward focused instead of serving the customer. So we told everybody as we travel around the world, in whatever you do, whatever decision you make a customer is number one. You need to give everyone as good or better service than before.

Besides that we need to quickly and to take calculated risk. As I told them, you know, it is better to run in disorder than to stand still in order. We will correct a mistake very quickly if we are quick, and we will have speed, which is absolutely essential in an successful integration.

So, at the same time what is our dream? The new management team has met several times and said, who do we want Oclaro to become? And reflecting on that, I think the closest example that we could get of the past is Intel, and becoming the Intel of the optical world. So why do we say that? Because we believe that we can also have the best chips in the world, but we also think that they are excellent design teams that can design around the chips, and even can get reference designs to help our customer use our chip or even sell subsystems to those people and we can do that, we also have software and high speed electronic capability that can control those designs, and the dream is to be able to use software and high-speed electronics to compensate for the deficiency of optical components.

(inaudible) price to performance, cheap optical component that you compensate with software and high speed electronics, and if you want the best performance, then you get the best optical component and the best software in high-speed electronics, and I think Oclaro is fully equipped to be able to achieve that dream. But as I said before, we won’t get there tomorrow. We are climbing a mountain, and the notion of progress and inventiveness in everything we do is absolutely crucial to our success.

So our conclusion, why invest in Oclaro? Thank you to all of you who invested in Bookham and Avanex in the past. We certainly want to make sure that we are there for our shareholders. We have a management team in the starting blocks here. (inaudible) vote this morning, and we are already running now. The integration of two companies will be done swiftly, and we will achieve the targets that we expect to achieve in what Jerry presented to you before.

You are now an investor in a company that has become a market leader in telecom and long-haul, but also one to become a number one and number two in other adjacent markets. And we think we can do that because we have a broad portfolio of products based on leading technology, and we are taking market share as well as design wins, and we think that we have the correct size and innovation capability to become a market setter.

Profitable growth is our way ahead. We can do it with financials as Jerry discussed earlier, and again thank you to all investors for your support, and let us now open for questions. We also have Giovanni Barbarossa, the CEO of Avanex; and Mark Weinswig, the CFO of Avanex with us, so that we will be able to answer all your questions for ex-Bookham and Avanex and now Oclaro.

Thank you very much.

Question-and-Answer Session

Operator

Thank you sir. (Operator instructions) And our first question is from the line of John Harmon with Needham & Company. Please go-ahead.

John Harmon – Needham & Company

Hi, good afternoon and congratulations.

Jerry Turin

Thanks John.

John Harmon – Needham & Company

Okay. I'll ask a couple and then let us and turn it over. I guess, first of all Bookham dealt with the issue of competing with its customers before in making tunable lasers and transponders but in combining with Avanex the situation, you know, does get larger in the sense that you are putting the largest amplifier maker together with a leading maker of pump lasers, and then certainly you put the two transponder businesses together with the supply of tunable lasers and modulators. How are you going to deal with these issues in the future?

Alain Couder

I think we are going to be able to deal with that by delivering to our customer whether they are partner, competitor, or the other customer good service, and good quality and more innovation, you know. I lived in the past in you know, in the computer industry what has been called competition and has been – and is still broadly existing, and I think by helping each other with that technology in the end the customer benefits. We have discussed the merger with many of our partner and customer, and they think, and we think that we can have long-term partnership with mutual respect that I discussed before.

John Harmon – Needham & Company

Okay, thank you and to the extent you are able to answer this question, because it deals with a legal issue. I saw that Bookham settled the law suite with JDS Uniphase prior to the close of the acquisition, but I know that Avanex got a very broad amount of intellectual property from (inaudible), and then the transponder business that acquired. Was there anything on the IP that you are about to acquire that sort of made a difference in this lawsuit?

Alain Couder

We cannot disclose the details of the negotiation but independent of this lawsuit, we think it is a good settlement and give us at least, (inaudible) in such a way that we compete in the market and not on the cost, you know. I think the portfolio of the Oclaro is now standing IP portfolio and specifically in this downturn everybody is worried about this IP and that's one of the element of Oclaro that I forgot to mention. So thank you for your question.

John Harmon – Needham & Company

Thank you. You're welcome. And just the last one. If you take the ending cash for the quarter from Bookham, and add it to the cash that Avanex has last reported, you get about $75 million and you said the combined company would have about $70 million of cash. Does that assume some kind of severance payment or does that mean Avanex burnt $5 million in the March quarter?

Alain Couder

Jerry. You want to answer that.

Jerry Turin

I think that we both burnt some burn cash certainly in the quarter. I think that sounds about right for the Avanex number. You know, we finished with you know, $38 million and change Avanex finished with something in the order of $32 million. So our starting point at the end of March is $70 million.

John Harmon – Needham & Company

Great, thank you.

Operator

Thank you. Our next question comes from the line of Paul Bonenfant – Morgan Keegan. Please go-ahead.

Paul Bonenfant – Morgan Keegan

Yes hi. Thank you. I was wondering if I could start with a housekeeping question, if you could give us for Bookham, your revenues for the quarter in Telecom and non-telecom segments.

Jerry Turin

Yes. Revenue in non-telecom was $10.4 million, and then you back that off from $47 million to get telecom.

Paul Bonenfant – Morgan Keegan

Okay, and the tunables in the quarter?

Jerry Turin

We are not disclosing product by product. A few quarters ago, we were giving the people a sense of the ramp, but for a couple of quarters now we backed away from that and similar to our other product lines, we don't break it down at that level.

Paul Bonenfant – Morgan Keegan

Okay, wondering if you could give us an update as to the status of the inventory bleed down that you have been talking about over the last couple of quarters. I think it was specific to three customers.

Alain Couder

Yes, we clearly are seeing some progress there. Most of the three customers have now started to reorder. So I think the inventory situation is much better than it was 6 months ago.

Jerry Turin

I'll even add Alain. In going back to the last quarter, you know, we gave some indications that we thought March was probably going to be the, you know, probably going to be the bottom for us on the Bookham side, and a part of that we are seeing some of those orders likely to pick up in June. So you know, we are effectively guiding upwards from March, not dramatically but upward. That's part of it. We are seeing some of that comeback.

Paul Bonenfant – Morgan Keegan

Okay, and that begs my next question. Can you talk to the pricing environment and visibility beyond the June quarter without being quantitative, maybe just talk about it qualitatively? Has it improved appreciably?

Alain Couder

Yes, and I think we need to distinguish between telecom and non-telecoms. In telecom, we are clearly seeing signs that we have reached the bottom, you know, and that we are going to have something growing, not very fast but growing for the rest of the year, and in relation to that we had quite a few design wins 3 to 6 months in both companies, you know. In the non-telecom, in semiconductor equipment for instance, the situation is still, I would call it dramatic for the next year or maybe more but – and also we have seen recently some weakness in material processing in printing for high power laser business, and we don't know whether we have reached the bottom either. I think everything that we did to capital equipment is not ready to restart yet, you know, while in telecom the bandwidth demand is there, and I think we're in better position plus even if the weakness in the rest of the world [ph] is there, we have globally some very positive dynamics. So it depends on the market you know, but globally at Oclaro, I think we are well positioned to go but as Jerry mentioned, we want to be on the conservative side. So basically, we are putting an integration plan in place that will restructure the combined company Oclaro, in such a way that we can start making money at $80 million in revenue.

Paul Bonenfant – Morgan Keegan

Okay, and one more question if I may. I think you mentioned that we should not expect any upside in the June quarter from synergies. Should we expect to see the restructuring charges begin to accrue in the June quarter?

Jerry Turin

I think you will see some synergies not – you know, I wouldn't say significant relative to the, you know, total target, and the other will be you know, some restructuring cash flow during that period. I don't have a specific estimate of that number for you right now.

Paul Bonenfant – Morgan Keegan

Okay, thank you for taking my question.

Alain Couder

Thanks Paul.

Operator

Thank you. Our next question is from the line of John Gruber with Gruber & McBain Capital Management. Please go-ahead.

John Gruber – Gruber & McBain Capital Management

Hi guys. Good presentation. Question on – you said that Avanex was in the middle range, which would put it at 27.5, above that and maybe 28, and then they will be up yet and you take 70% of that and you get 20,21, I guess, why at the low end of your guidance supplies, why Bookham wouldn't be up. So I don't – I thought you said Bookham has bottomed. So why is the low-end of the guidance so low, I guess was say 67 to 75?

Jerry Turin

I think John, you know we tend to guide, you know, towards the middle of the range, which with upside and some risk in that. I don't think that looking at the bottom end of the range is the right you know, right reflection point. I think the bottom end of the range more or less equates to flat, and so if you have a range starting from there going up to, you know, the $75 million that's upwards from there.

John Gruber – Gruber & McBain Capital Management

You know, the other question I had was the original guidance on Bookham of 43 to 50 million for this March quarter does that includes Nortel. I was in the impression it did not?

Jerry Turin

It did not include Nortel.

John Gruber – Gruber & McBain Capital Management

Is it then –

Jerry Turin

So in a normalized basis you know, we hit 47 million of revenue, but that's more like 45.1 on a, you know, continuing basis versus the one-time pickup.

John Gruber – Gruber & McBain Capital Management

You know, I was under the impression that the, you know, some of these over inventory customers had come back and started ordering. So why wouldn’t that have pushed it toward the middle or the higher end versus the lower end?

Jerry Turin

I think we're pretty clear John that you know, coming out of the December quarter, when we discussed the state of the economy and the state of you know, the inventories and customers that you know, we saw some of that potentially coming back in June, which is why last quarter, you know, we were comfortable enough in saying we thought March would be the bottom and June we’d see a little bit of upside from that.

Alain Couder

We have few of the customers that the inventory build up in the March quarter, but I think we also continue to see some of the bankruptcy effect and things like where our revenue is slower than it was last year, you know.

John Gruber – Gruber & McBain Capital Management

Last one, congratulations on Wallway [ph] 19%, the build up in China of the three major networks. Obviously, their were higher, but do you expect the Wallway revenue to be up again in June?

Alain Couder

Do you have that with you Jerry?

Jerry Turin

Wallway continues to be strong, you know, and that part of the world continues to be strong. So you know, we don't want to get into guiding by customer, but you know, certainly we don't see any issues with Wallway.

John Gruber – Gruber & McBain Capital Management

Thank you very much.

Operator

Thank you. Our next question comes from the line of Peter Right [ph] with AW Partners [ph]. Please go-ahead.

Peter Right – AW Partners

Hi, I just want to go over a couple of things you said if I may crisply, first you said the fully diluted share count 185 million?

Alain Couder

Yes.

Peter Right – AW Partners

But then you said something about an average share count being 165 million.

Alain Couder

Yes, the weighted average. So that is a very – it is an unusual quarter Peter because –

Peter Right – AW Partners

$185 fundamental number.

Alain Couder

$185 is fundamentally the number. It is just the math of the date of the merger and how many days within the quarter. You count the Avanex shares as part of the total. So that is why there is a delta between the average and the total.

Peter Right – AW Partners

Okay, and the cash from Bookham alone went from $44 million to $38.3 million sequentially?

Jerry Turin

Correct.

Peter Right – AW Partners

And then you said that when you closed what's the total amount of cash you have –

Jerry Turin

About 70. So at the end of March Avanex brings 32, we bring about 38 million. So it is roughly 70 combined.

Peter Right – AW Partners

And then you talked about restructuring the $7 million and $9 million for some payout. Could you flush out where you think cash might be or range of cash might be at the end of June and where you think the bottom in cash be?

Jerry Turin

Now we can’t get out, you know, to forecasting, you know, ending cash balances, you know, quarters out there, but you can see from our guidance range that you know, EBITDA breakeven is the top end of the range. You know, we see synergies coming in and you know, in significant numbers for the September quarter. You know, we specify the other $7 million to $9 million of restructuring cost was $7 million of other cost, so that you know, that map you know, should –

Peter Right – AW Partners

Let me just make sure I understand. Restructuring $7 million to $9 million and then other costs of another $7 million, and that these are like banking fees and attorney fees.

Jerry Turin

Correct.

Peter Right – AW Partners

So what you're saying is $14 million to $16 million of cash costs associated with the merger.

Jerry Turin

Correct.

Peter Right – AW Partners

So one should to say okay, you know, whether it all transpires by the end of June basically at $70 million, it is $55 million when you accrue the liabilities, it may adjust losses plus or minus CapEx, plus or minus working capital too?

Jerry Turin

Correct. If you look at it over the course of the year, that adds up to roughly $14 million, $15 million. If you figure out the synergies within the year that's probably about $20 million of synergies, $28 million –

Peter Right – AW Partners

But that's in your model of what you expect you’re operating.

Jerry Turin

Correct. It has factored into the –

Peter Right – AW Partners

Basically or effectively if all those $15 million got hit in the June quarter, you’d be at $55 million of cash minus any EBITDA loss minus any CapEx for the quarter?

Jerry Turin

Correct, plus or minus anything you pick up from working capital.

Peter Right – AW Partners

Okay, and then when you put on the chart, the fourth-quarter model of 30% gross margin, 12% SG&A, 6% non-GAAP, and 110 to 115. Was your point of reference December ‘09 or June 2010?

Jerry Turin

It is a fourth full quarter together. The first full quarter together will be –

Peter Right – AW Partners

You’re talking June 2010, right.

Jerry Turin

June or September.

Peter Right – AW Partners

Okay, well June 2010 would be the fourth full quarter, right.

Jerry Turin

No, June 2009 is just only two months together.

Peter Right – AW Partners

Right, the first full quarter will be September.

Jerry Turin

Correct.

Peter Right – AW Partners

December will be the second, and March will be the third, and June 2010 will be the fourth? Right.

Jerry Turin

Yes, correct.

Peter Right – AW Partners

Okay, I can do arithmetic, can’t count before. That’s about it.

Jerry Turin

Thanks Peter.

Peter Right – AW Partners

Okay, so and that is based on 110 to 115, and then when you said breakeven of $80 million that is also breakeven of $80 million for four forward quarters or in shorter time?

Jerry Turin

Certainly in the fourth quarter forwards, if we saw $80 million is the, you know, the rate we expect quarter-on-quarter on quarter, you know, you can trust that we would react to that. That is the point of that frame of references. It is a combination of synergies and other things we would do as we would ensure that if we saw that sort of reality looming, that we have managed the business towards it.

Peter Right – AW Partners

Okay, and so you are going to start, I guess in the middle your range $8 million or so below that breakeven level, but for some reason your EBITDA is going to be only about $1 million or $2 million or close to breakeven. Why is that for the June quarter?

Jerry Turin

Sorry, I'm not sure I followed. So –

Peter Right – AW Partners

You said breakeven in the fourth quarter is going to be $80 million, and you're telling me revenues are going to be $67 million or $75 million in the first quarter as combined. Oh, I guess part of that is because there is only two months of –

Jerry Turin

There is two months yes, and the timing of synergies coming in and you know, so on and so forth.

Peter Right – AW Partners

So, I don't think we’re in off for a long way away from that, but we are not going to count on revenue growth as being the target of breakeven.

Alain Couder

In fact, if we were full quarter we would be in the range of $80 million in June, you know.

Peter Right – AW Partners

I got it, in other words if you're going to do $32 million in Avanex per quarter that means you're missing $10 million or so from the first month and you would have been some $75 million to $85 million or something like that.

Alain Couder

Yes, exactly and that’s why we are taking $80 million as the base and the consolidated (inaudible), and even if the market disrupts for 12 months, we have an integration plan that will allow us to break even and have stability in cash.

Peter Right – AW Partners

And I assume that now that you’ve done this acquisition, you want to make this work before you spend money doing anything else.

Alain Couder

This is a kind of answer we don't get to give at this time.

Peter Right – AW Partners

You don't have anything on your plate outside of making this work.

Alain Couder

(inaudible) we didn’t tell you and if we don’t have anything on the outlet, we don’t tell you that. They're all in the game in this business.

Peter Right – AW Partners

Okay, well I just want to get some of the numbers clear in my mind. Thank you.

Operator

Thank you. Our next question comes from the line of Ajit Pai with Thomas Weisel Partners. Please go ahead.

Ajit Pai – Thomas Weisel Partners

Yes, good afternoon.

Alain Couder

Good afternoon.

Ajit Pai – Thomas Weisel Partners

Yes, a couple of good questions. The first one is just looking at your gross margin, the change in target for gross margin. I think you've taken it down in the fourth, you know, fourth quarter after a full quarter about 100 basis points. Can you tell us what – why you brought it down to 100 basis points with the biggest contributor to your change in thinking as far as that was concerned?

Jerry Turin

We don't see that as a dramatic change.

Ajit Pai – Thomas Weisel Partners

But then why make a change unless there is something that changed your thinking?

Jerry Turin

Because we are constantly working together to revise the model as we understand more about how we are going to sit together, what the opportunities are. You know, I think the difference between the 30 and 31 really doesn't reflect anything dramatic, anything specific. It is just what our current visibility is to, you know, what our funds look like.

Ajit Pai – Thomas Weisel Partners

But if you were to sort of provide the single largest sort of determinant for that change, was it more pricing, was it synergies, was it volume? I mean what was driving that?

Alain Couder

Jerry, I think the point is that when we did announce, we clearly said that this 31% would be achieved out of the $110 million for the combined company. Right now, we are not sure that the market will grow that fast, you know, in the next 12 months, and although we increased the potential synergy to a range of 7 to 9, we think that with the forecast we have, we can see 70%.

Ajit Pai – Thomas Weisel Partners

Got it. And then when you're looking at the, you know, both companies I think have indicated would be sequentially up in the next quarter on a, you know, on a apples-to-applies basis. When you're looking at inventory in the channel and you're also looking at strength from the end market, could you give us some indication where you still think that there is inventory that satisfying demand in other areas where strength is, you know, much greater than what you are expecting?

Alain Couder

I don't know it is much different than we expected. You know just the normal evolution of forecast. We always start that forecast with – forecast for customer, but this is well the importance of a large diversified place, because we never finished a quarter with some forecast by customer, you know, and I think this is where vertical integration in manufacturing capability as announced in the past quarter in particular. They were able to react to those customer forecast changes, and at the same time get inventory down with the revenue going down. So I think this is – this is one of the capabilities that Oclaro has moving fall off.

Ajit Pai – Thomas Weisel Partners

Right. By product category, is that a particular product category, which is seeing the greatest inventory in like, you know, for example the transceivers, is it in some other category, you know that you are –

Jerry Turin

I think if you are looking at the, you know combined Oclaro revenues, you know, March versus June. I think you're seeing you know a whole lot of factors. There isn't one specific factor driving revenues up. You are seeing different things at different customers in different product areas between ourselves and Avanex. You know, you don't have tremendous, you know, product overlap, you know, for both companies to be bringing in revenue growth. You know, it doesn't imply, you know, one specific product area.

Ajit Pai – Thomas Weisel Partners

Got it, but in terms of any inventory overhang, the fact that you are seeing sequential growth in revenue, let's say the growth is broad-based as you know it's very tough to identify a particular geography but by product category, is there any area where you had excess inventory?

Jerry Turin

You are talking about ourselves versus from our customer point of view?

Ajit Pai – Thomas Weisel Partners

Yes.

Jerry Turin

I don’t know that there's anything specific we’re working through that's responsible for an appreciable part of the increase on either company side.

Ajit Pai – Thomas Weisel Partners

Got it. And at the customers, is there any particular product category that you believe that you have overshipped in the past that needs to be worked down?

Jerry Turin

I think the only thing there is what we talked about earlier in the December quarter that we were, you know, talking about some of the orders coming back that was probably more in the transmission area in general, but that was, you know, inventory adjustment two quarters ago that we're starting to see some comeback.

Ajit Pai – Thomas Weisel Partners

Got it, and then just to the previous round of questioning on the net cash balance, it is fair to assume I think like, you know, based on answers to the previous questions from the prior questioner that the $70 million that you have at the end of March fiscal year ‘09 that is actually not net of all fees, right. So it goes down to about $55 million net of all the closing cost, and then in addition to that you have about $7 million to $9 million that you would have as restructuring cost and that exclude whatever cash the operations lose. Is that fair?

Jerry Turin

No, you’re doubling up.

Ajit Pai – Thomas Weisel Partners

Okay, so the $55 million includes the $7 million to $9 million of restructuring cost and the investment banking fees, et cetera?

Jerry Turin

Correct, so $70 million minus $7 million for restructuring, minus $7 million for fees, and you know, plus or minus a million, you know for variability gets you to about $55 million.

Ajit Pai – Thomas Weisel Partners

Got it, and are there any charges that you anticipate to take in the future cash or non-cash for inventory of the two companies?

Jerry Turin

We don’t, you know, anticipate anything significant in the guidance we’ve given, but you know going forward in the long term as a function of, you know, market conditions as they evolve.

Ajit Pai – Thomas Weisel Partners

Got it. Okay, thank you.

Operator

Thank you. Our next question comes from the line of Edward Zabitsky with ACI Research. Please go ahead.

Edward Zabitsky – ACI Research

Thanks. Good afternoon. First of all congratulations at the combined website is up quickly and that's a good start on a long road, and I want to ask you about, one of the other tier 1 component vendors said that they are gaining share in this, especially in this environment as the equipment vendors consolidate around a few viable suppliers. Is that something you could see in the near term through your discussions with these customers?

Alain Couder

No, I think this is more of question of right now in the downturn, I think we are going to see some consolidation because some people are struggling, you know, and we see some customer who are losing confidence in some of our competitors, and that's good for us, you know. So that's really what we are seeing right now, and I think this is one of the reason why we are gaining market share. I think the announcement of the merger and the merger now, as the general tone of the discussion with mainly a strategic customer. We are talking about long-term strategy, long-term partnership, and certainly the Bookham situation was much better than three years ago, but we are still a tier 2 company, being a tier 1 has made a lot of difference in the customer visit I did in the past three months.

Edward Zabitsky – ACI Research

That was my question by the way, let us say, looking for positive kind of question. So are you already seeing that in your business flow or is it just coming into your order flow or you know, when should we expect that kind of effect if there is one to kick in?

Alain Couder

Yes, certainly one customer where you got the number, clearly in momentum to be a strategic partner with us.

Edward Zabitsky – ACI Research

Good. I had a couple of questions for Jerry. I'm unclear, I'm sorry if I didn't get these numbers. There are a lot of numbers coming out obviously. The non-GAAP OpEx in Q4, what would you expect it to be and then in Q1 or on a go-forward basis what would you expect it to be?

Jerry Turin

Well, we used the target metrics from a percentage point of view as far as our 12-month model. Other than that if you look at the stock compensation in the press release that should be a fairly steady run rate going forward. So, you know, there shouldn’t be much differentiation from the GAAP R&D and SG&A versus the non-GAAP offering expenses. If you take those two lines, stock compensation is basically only the only difference.

Edward Zabitsky – ACI Research

Right, but what would the actual dollar amount be. What would your estimate be of non-GAAP OpEx for Q4?

Jerry Turin

Yes, we won’t get that specific. I mean it is encompassed within the guidance ranges, but drilling down any deeper is, you know, a more refined level of guidance beyond what we provided.

Edward Zabitsky – ACI Research

Sure, and what about the 40 G tunable laser business. Have you seen any recovery in that business?

Alain Couder

Very clearly, we had many design wins in the 40 G space in the past three months. So 40 G is not at a point where I will be putting in volume. It will be next year. We are still in the designing phase in the volume deployment.

Edward Zabitsky – ACI Research

Oh, so the tunable laser business was really – your volume was mostly 10 G?

Alain Couder

And a few component to 40 G suppliers, of you know –

Jerry Turin

First of all there is two things. There is us flying into 40 gig positions today and there is us beginning to ramp and introduce our own 40 gig solution.

Edward Zabitsky – ACI Research

Right. Now here is the – the really confusing part for me is trying to understand. Obviously, there is a tremendous gross margin benefit from the in sourcing component from one company to the other as a combined entity, but what kind of revenue hit will you take from in sourcing, and over what period of time would you expect that kind of level of integration to occur?

Jerry Turin

We should be able to, you know, integrate a lot of the empty [ph] synergies fairly quickly. You know, I think you know, the margin impact from a dollar point of view, if you translate to the revenue line, it is pretty small on a percentage basis, but it does, you know, add a few percentage points that is expressible to the margin line. So I don't see it as being something that really impacts the general trends in our revenue line.

Alain Couder

Exactly, in other words to say is that Avanex was a very small customer for us.

Edward Zabitsky – ACI Research

Okay that's – I was trying to get a sense directionally of it. Thanks very much.

Alain Couder

That is a very good point.

Operator

Thank you. Our next question comes from the line of Hamed Khorsand with BWS Financial. Please go ahead.

Hamed Khorsand – BWS Financial

Hi congratulations. A couple of questions, trying to take this customer consolidation a little further, given that you guys now combine company, what kind of risk is there. One of your customers; we have too much exposure and they’ll cut back on your orderings with you.

Jerry Turin

I don't think there is a great deal of risk of that. You know, one of the nice things about the deal is that while we serve most of the same customers, we really didn't have you know, a significant share contribution in any customers that Avanex has, you know, traditionally had a significant share and or once where Bookham has just really been, you know, working into an increasing share and vice versa. So it is a very complementary customer base.

Alain Couder

The other thing is that beyond that is there was some of that despite of being a tier 1, and a long-term player in the industry, I know that clearly I think it is going to offset any of this effect, you know. I think one important point is that from a customer viewpoint, we have only one product at one customer, which is a duplicate, which is very unique to this kind of merger.

Hamed Khorsand – BWS Financial

Okay, with the combined company, who else will be a major customer. Would it just be (inaudible) big customer?

Alain Couder

But you can look at the number one and another two customer from Avanex, and you should look at the percentage they had, they can clearly become significant customers for us.

Hamed Khorsand – BWS Financial

So, were the customers of Bookham to –

Jerry Turin

Customers but not rising to the 10% level of significance.

Hamed Khorsand – BWS Financial

Okay, great. Thank you.

Operator

Thank you. Our next question is a follow-up question from the line of John Harmon with Needham & Company. Please go ahead.

John Harmon – Needham & Company

Hi, again, now that the integration – now that the merger is closed, maybe you could just talk a little bit about the integration plan. You said in an answer before that you could integrate components fairly quickly, but I'm more interested in – I mean I would assume you would probably move the Bookham’s amplifiers to Fabrinet with Avanex, and I'm curious what you – where you would put your transponder products.

Alain Couder

John you’re referring to manufacturing strategy there, you know, and very clearly you know, our number one product is customer continuity. So, on day one we are not going to change anything to make sure that we do provide customer continuity. Then over time, we will assess what is the most economical way and most efficient also from a cash standpoint, either to outsource or to get inside, you know, but clearly, we have seen in the past two quarters that having time control on all manufacturing in the downturn has been an advantage. If you look at our March quarter you know, inventory went down, CapEx went down, and all that in a situation where the top line was going down. So I think the best of those were is clearly what we will achieve over time.

I mean over time, it is several quarters, and we clearly do not tend to do any mess either to move from one to the other. The first priority is to make sure we have a customer continuity. In term of integration plan, what can happen very quickly is being one public company, and that’s probably in a year, you know, probably in the third quarter. Then you have one sales force, you don’t need two account manager to a customer. You don’t need two finance organizations, and so on, you know.

So there are lot of things we can do. Day one, that won’t have a direct impact to customer continuity, and I think we are already pushing a very strong message. I think many mergers have fallen because they get dissatisfied customers.

John Harmon – Needham & Company

Okay, thank you. In your space [ph], you talked about moving ahead versus some of the start-ups. Have you gained any market share recently in tunable lasers. I believe one of the market leaders might have scaled back operations recently?

Alain Couder

Yes, we have been gaining market share we think, you know.

John Harmon – Needham & Company

Okay, and finally how are you going to segment your revenues. Are you going to seg them according to those three categories.

Jerry Turin

I don't the answer John. I don’t have an answer to that.

John Harmon – Needham & Company

Fair enough, thank you.

Operator

Thank you. At this time we have no further questions. I’d like to turn it back to Alain for any closing remarks.

Alain Couder

I just want to thank all Avanex and Bookham investors for their support in this merger. I think the two management teams and employees are quite excited about the opportunity, and now we need to execute and deliver. Thank you.

Operator

Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you very much for your participation. You may now disconnect.

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Source: Bookham, Inc. F3Q09 (Qtr End 03/28/09) Earnings Call Transcript
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