Fibertoday.com

Vol. 3, No. 229

December 5, 2000

Bookham Technology:

Dressed Up And Good Places to Go

Oxfordshire, U.K.‹It is hard to imagine a company better positioned to take advantage of future fiber optics growth than Bookham Technology, which is heavily concentrated in DWDM and the access market, considered two rapid growth market areas of the future.

The company is poised to grow rapidly in these areas using its own silicon platform, will soon launch a strong U.S. office that will include design engineering and manufacturing, already has nearly 1,000 employees using highly automated processes and is now supplying to the top five fiber optic component vendors in the industry, as our daylong talks with executives and tour of the facilities here yesterday revealed.

"We are the single largest integrated optics company," Bookham Chairman and CEO Andrew Rickman told fibertoday.com. While discrete technology has hung on longer than he might have thought, Rickman believes‹and many in the industry would agree‹that integrated optics will come into force.

The potential to do more when you have the capability to work up from a silicon base is very convincing. Of the four products the company has introduced in the past six months, it is probably most proud of its Multiplexer and Variable Optical Attenuator (Mux/VOA), and with good reason. The product is perhaps the most indicative of what integrated optics technology can do, deploying 40 individual channels with 10 dB variable attenuation range at low power levels on one chip. "We have taken the lead in multiple function devices like this,@ observes David Gahan, director of WDM products. "We don't believe others will be able to catch up," he adds.

"The technology is incredibly stable," says President Giorgio Anania. The company was able to make a highly complex device in a very short period of time to reach commerciability, a toolbox that will serve it well as other customer demands become apparent.

Coupled with the company's arrayed waveguide grating DWDM multiplexer/demultiplexer, Bookham would seem to be in a very strong position to take advantage of the products and processes that are most rapidly going to work in a DWDM system.

The company also believes it has a lead position as fiber to the home and office takes off. "We already have made thousands of components for the fiber-to-the-business and broader access market," says Rickman. "It is a huge opportunity and only a matter of time before it takes off."

With the company's DFB chip, FTTH applications can range from 50 Mbps to 10 Gbps. Bookham believes it is in a good position for the coming explosion.

In the meantime, as Anania explains, the company will pursue DWDM. Eventually the two strategies will converge, he predicts.

U.S. Presence Begins to Take Shape

The vendor is committed to a strong U.S. presence, with respected industry pro Andy Quinn at the controls. Bookham expects to announce its East Coast U.S. location in the near future, followed by rapid scaleup. The facility will be used for design engineering and manufacturing and expects hundreds to be employed there. "We need to be there," says John Kostibas, vice president of sales. "It is do or die." Adds Anania: "2001 is the year of the United States."

Rickman is absolutely convinced that silicon is the right platform, despite the boobirds who raise questions about its insertion losses, and a tour of the facilities would tend to validate his claims. The company is sparing no expense to use the latest silicon manufacturing equipment, which has itself reached a high level of automation. Bookham Technology has been working with the platform for 12 years and is using experts in the field to exploit its capabilities. "We don't have to invent the technology," says Peter Herman, wafer fab manager. "We can grow as the semiconductor industry innovates."

Automation, 24x7 Are Major Production Themes

The company already has an impressive emphasis on automation. " At some point, you have to say that either you are going to put it together in China or you are going to automate," says Anania. A major goal is increasing the output per employee. Most automated at this point are the company's mini-dil packages, primarily because that is what the company makes the most of.

Mini dil production takes place at the company's Swindon facilities, which was placed into operation this past July. While criticized for locating in an area with only one percent unemployment, the plant, under the leadership of Mike Cox, has already scaled to 370 and is headed for 24x7 work week output, according to Cox. The facility is ISO certified and clean room is at the 1000 level.

Bookham Technology is also in the process of automating fiber attachments and laser attachments as part of its chip integration, according to John Valentine, assembly & test operations manager.

The company's Oxfordshire production facilities, which are adjacent to the R&D labs and which produce the company's more sophisticated products such as the mux/VOA, are in major growth mode as well. The wafer fabrication facility is increasing yields by multiples of four or five on an annual basis, according to Herman.

The company has earmarked $165 million for capital expenditures in 2001.

Bookham has looked at a variety of potential acquisitions but thus far has passed. While an acquisition could help the company more rapidly reach its goal, it is not necessary to get there, Rickman says. While they sound exciting at the time, acquisitions can be "much more tricky" than people would like to believe, Rickman notes, and can end up being "a pain in the neck."

A major reason for such buys has often been to get talented employees, Rickman observes. Bookham already has been very successful in that area, he notes. "We are at critical mass now," he observes. "We have the muscle." The company has some 250 engineers.

While Bookham executives do not talk as enthusiastically about the company's E-Tek partnership as they did prior to its acquisition by JDS Uniphase, one very positive thing that has come from the relationship for them has been an understanding of packaging, a core competency they say has helped immensely.

With all the strengths the company has, a fair question is why Bookham isn't generating more revenues than $11 million, which is what it gained in its most recent quarter. Rickman points to the company's quarter-over-quarter growth rate of some 70 percent, noting that at such levels it won't take long to reach one hundred times that revenue size. But the company must continue to get new products to market, he stresses.

Bookham officials also acknowledge that it would be helpful to have a stronger commitment on the part of their customers to integrated optical devices, something they believe is inevitable but that may take some time.

"We are facing no new technological threat," says Rickman. "There is no new information today that would have made me change the things we have done to get to this point."

What else is in the future? The company has the potential to get into the small optical switch market, Anania says, and may pursue that opportunity.

With the opportunities that a chips-to-product approach says as Bookham's can offer, he also sees a new generation of products such as optical amplifiers that are made through automated processes and other components that will be much more integrated in scope.

Innovance Secures New $75 Million in Financing

Canada's Innovance has secured an additional $75 million in financing to bring the company's cumulative financing to $95 million. Investors include MorgenThaler Ventures, Thomas Weisel Partners, Azure Capital, KPL Ventures, Advanced Technology Ventures and Bank of America.

The company intends to use the money to hire engineers and "the materials to feed them," COO James Frodsham tells us. There is no question the company places a high level of importance on engineering, with Frodsham observing that more than 90 of the company's 100 employees are engineers.

Kevin Kalkhoven, former CEO of JDS Uniphase, is a non-executive board member.

Like Bookham, the company is patient and intends to adhere to its business plan. Frodsham candidly observes that it very well may not have a product to market when the company exhausts the funds in early 2002.

The concentration is next-generation fiber optics networking. One example: "There is plenty of innovation happening in the components industry," says Frodsham. "We intend to architect forward to take advantage of some of that thinking."

Sincerely, C. David Chaffee

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