Bookham Confidential

Using Shenzhen as a base to produce in China through Hong Kong

Jim Haynes, Chief Operations OfficerAlan Hughes, Management Planning

Bookham Technology Plc.

Bookham Confidential

Bookham: Key Facts

Global supplier of optical components for telecoms & industrial applications

Annual revenues >$200M p.a.

C. 2,000 employees world-wide

Founded in 1988 – the Silicon Optical Chip company

1998: Intel and Cisco invest; first commercial products (transceivers)

April 2000: IPO, started trading on Nasdaq and London Stock Exchange

2002: acquisition & consolidation strategy to achieve volume manufacturing scale and reduced cost

– acquisition of Marconi and Nortel optical components divisions

2002 onwards: driving consolidation & cost reduction

Number 2 position worldwide in telecom optical components

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Bookham Worldwide:

Ottawa (Canada)• R&D: Discrete Laser &

Receiver; Sub-Systems

UKPaignton

• Discrete Lasers & Receivers, Modules, and Amplifiers R&D

• Assembly & TestCaswell

• Discrete Laser & Receiver R&D• InP wafer fab

Zurich (Switzerland)• Laser pump chips R&D• Laser pump chip wafer fab

Santa Rosa (Ca)• Thin-Film Filter

R&D & Manufacture

Shenzhen (China)•Assembly and test•Customer Applications Lab

Hong Kong•Sales Office

San Jose (Ca)• Headquarters• SFP, XFP Opto-electronic Modules: R&D &

Manufacture• New Focus Opto Test & Measurement

Components: R&D & Manufacture

16 hours time-zone span

8 am 4 pm 12 midnight

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World Wide Optical Transport

$0

$5,000

$10,000

$15,000

$20,000

$25,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Optical Switch

SONET/SDH-Multiservice

SONET/SDH-ADM

DWDM Metro

DWDM LH Terrestrial

Telecom Market boom & bust- drive for lower operating costs

• Telecom market peak c.$23bn in 2000• Major downturn 2001-2002• Optical component manufacturers world-wide

driven into big operating losses• Bookham applying an acquisition and consolidation

strategy to achieve volume manufacturing scale, and reduce cost.

• Strategic Operations model redefined:• wafer fabs consolidated into Europe• High labour content Assembly & Test move

to low-cost Far-East location

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Shenzhen / Hong Kong decision

Search for suitable locations narrowed to Malaysia or China

Final decision to move to China

Key factors in our decision were: Access to skilled and well-educated workforce Good infrastructure to support high-tech manufacturing operation Good logistics to avoid shipping delays in- and out-bound Acceptable environment for ex-pat secondees to live and work Ability to move fast to get the new factory up and running Good access for all our Far East customers, and especially China Existing sales office in Hong Kong

– 8 years experience of working in the region

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Shenzhen / Hong Kong

Operating Model

• Bookham Shenzhen manufacturing: State-of-the-art facility in Shenzhen Free Trade Zone

- Balance between availability of skills and lowest labour cost

• Hong-Kong sales office & logistics

- Bookham ship all Shenzhen products through Hong Kong Warehouse

- Global Logistics Centre- Efficient travel infrastructure - Major Customers have warehouse and

finance infrastructure in Hong Kong- Chinese customers handle local import

from Shenzhen Free Trade Zone via Hong Kong

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Shenzhen Facility

Being established as Bookham’s low-cost volume manufacturing plant

Acquired by Bookham Q1 2004

• 247k sq ft manufacturing & office space

• 70k sq ft clean-room• 40k sq ft labs etc

• US$20M invested in facility upgrades by previous owners

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Facility Start-up Preparation

– Engaged HK based consultants to prepare for business licence– Hired key management positions in preparation for start-up– Product transfer management process defined

Transfer Methodology– Transfer “as-is”: replicate in China what we have in UK– Transfer of simple products first (“Phase 1”)

• Establish basic skills, pipe-clean logistics

– Progression to more complex products later (“Phase 2”)– ‘Push-pull’ team approach with accountability shared between UK & China– Fast transfer of capacity from UK to China – avoid expensive duplication– Involve customers: share the plan, encourage customer visits & audits of

new facility

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Success of Shenzhen

Staff of >700 recruited & trained over 1.5yrs

Revenue growth to $30M /qtr (Q4’05)

Beating plan: better yields & productivity = even lower costs than target

Shenzhen Revenue

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Q2-2004 Q3-2004 Q4-2004 Q1-2005 Q2-2005 Q3-2005 Q4-2005

$M

Products fully Qualified to relevant international standards

BSI/ISO Approval: ISO/TL9000 awarded January 2005

Customer delivery and product quality standards maintained throughout aggressive growth

Phase 1 Phase 2

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Keys to our success

Intensive preparation and planning, working closely with the Hong Kong and Shenzhen authorities, and with local people experienced in setting up this kind operation

Recruitment of a strong local management team up front Driving the plan through, despite inevitable skepticism

amongst western management team “Transfer as-is” strategy: get it working then improve later if

necessary Involve the customers up-front, sell the advantages, and

demonstrate that the supply risk to them is understood and being tightly controlled

Strong local infrastructure and logistics, with proven gateway to our world-wide customer-base through Hong Kong.

Bookham Confidential