Record Quarterly Revenue of $84.2 Million, Up 15.8% Sequentially; EPS Improves to $0.04 GAAP and $0.06 Non-GAAP per Diluted Share

Opnext, Inc. (NASDAQ:OPXT), a global leader in the design and manufacturing of optical modules and components, today announced unaudited financial results for the first quarter ended June 30, 2008.

Financial Highlights for the First Quarter Ended June 30, 2008:

• Sales increased $11.5 million, or 15.8%, to $84.2 million from $72.7 million in the quarter ended March 31, 2008. The increase was broad based across most communication product lines, including XFP, 300 pin tunable, XENPAK, X2, and SFP form factors. Sales of 10Gbps and above products increased $9.3 million, or 15.5%, to $69.4 million, while sales of less than 10Gbps products increased $1.4 million, or 17.1%, to $9.6 million, and industrial and commercial product sales increased by $0.8 million, or 18.2%, to $5.2 million.
• Sales increased $16.4 million, or 24.2%, from $67.8 million in the quarter ended June 30, 2007, primarily as a result of increased sales of 40Gbps, 300 pin tunable, XFP, X2, Xenpak, and SFP products, partially offset by lower demand for 300 pin fixed wavelength modules.
• Sales to Cisco and Alcatel-Lucent represented 44.3% and 10.2% of total sales, respectively, as compared to 45.7% and 14.3% for the quarter ended March 31, 2008, and 35.0% and 23.0% for the quarter ended June 30, 2007. Revenue diversification improved as sales to the balance of top ten customers, including Juniper, Hitachi, Huawei and Fujitsu, grew 58% sequentially and represented 31% of total revenue for the quarter ended June 30, 2008.
• Gross margin was 32.2%, as compared to 32.9% for the quarter ended March 31, 2008 and 35.0% for the quarter ended June 30, 2007. The decrease in gross margin includes the negative effects of foreign currency exchange fluctuations and the settlement of forward contracts used to hedge yen exposure. At constant foreign currency exchange rates, gross margin improved 150bps sequentially and 240bps over the quarter ended June 30, 2007.
• Operating income was $2.2 million, or 2.6% of sales, as compared to an operating loss of $0.8 million, or 1.1% of sales, for the quarter ended March 31, 2008 and operating income of $4.0 million, or 5.9% of sales, for the quarter ended June 30, 2007. Non-GAAP operating income, which excludes stock-based compensation expense, was $3.3 million, or 3.9% of sales, as compared to $0.2 million, or 0.2% of sales, for the quarter ended March 31, 2008 and $4.1 million, or 6.0% of sales, for the quarter ended June 30, 2007. At constant foreign currency exchange rates, non-GAAP operating income improved 590bps sequentially and 390bps over the quarter ended June 30, 2007.
• Net income was $2.6 million, or $0.04 per diluted share, as compared to $0.9 million, or $0.01 per diluted share, for the quarter ended March 31, 2008 and $6.0 million, or $0.09 per diluted share, for the quarter ended June 30, 2007. Non-GAAP net income, which excludes stock-based compensation expense, was $3.7 million, or $0.06 per diluted share, as compared to $1.9 million, or $0.03 per diluted share, for the quarter ended March 31, 2008 and $6.1 million, or $0.09 per diluted share, for the quarter ended June 30, 2007. At constant foreign currency exchange rates, non-GAAP diluted earnings per share improved $0.05 sequentially and $0.03 over the quarter ended June 30, 2007.
• Cash and cash equivalents decreased by $7.1 million to $214.6 million at June 30, 2008 as compared to $221.7 million at March 31, 2008, primarily as a result of $3.8 million short-term yen-denominated loan payments, $1.8 million of payments on capital lease obligations, $0.5 million of additional capital investments and a $1.2 million negative effect from foreign currency exchange rates, partially offset by $0.1 million of cash from operations. Cash from operations includes a $5.6 million increase in accounts receivable to support revenue growth, while days-sales-outstanding decreased to 65 days from 70 days at March 31, 2008. During the quarter, $2.0 million of additional capital lease obligations were incurred to further expand production capacity.

Market Observations and Guidance:

Commenting on the Company’s recent performance, Opnext, Inc. President and Chief Executive Officer Harry Bosco said, “Last quarter we stated that we were well-positioned to continue our growth in the 10G and 40G markets in fiscal 2009, while expanding our 40G portfolio to address broader applications. Our record top-line performance in the first quarter demonstrates our growth potential and speaks to the strength we are seeing across our customer base.”

“On July 9, 2008, we announced an agreement to acquire StrataLight Communications, a move to expand our 40G portfolio and address broader network applications. We are excited about the opportunities that will be created by the marriage of Opnext’s device and module technology with StrataLight’s subsystem expertise, and we believe the combination will define new leadership in the 40G arena and accelerate development of our 100G product family.”

“Over the last couple quarters, we have noted several reasons for cautious optimism. Our near-term outlook has not changed despite the strong growth experienced in the June quarter. While we believe the growth in broadband applications will drive growth in our business into the future, we continue to see fluctuations in customer spending in any given quarter due to their customers’ spending patterns. With that in mind, we expect revenue in the range of $84 to $87 million for our second fiscal quarter ending September 30, 2008,” concluded Mr. Bosco.

Forward-looking Statements:

Statements made in this press release include forward looking statements, including, but not limited to, those related to future revenues, growth of revenues, market position, acceptance of certain Opnext products, the general market outlook, the outlook for the industry and a pending acquisition. These statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. Among other things,

• projected sales for the quarter ending September 30, 2008 as well as the general outlook for the future are based on preliminary estimates, assumptions and projections that management believes to be reasonable at this time, but are beyond management’s control; and
• the market in which Opnext operates is volatile, implementation of operating strategies may not achieve the desired impact relative to changing market conditions and the success of these strategies will depend on the effective implementation of our strategies while minimizing organizational disruption.

In addition to the factors set forth elsewhere in this release, other factors that could cause results to differ from current expectations include: the impact of rapidly changing technologies; the impact of competition on product development and pricing; the ability of Opnext to source critical parts and to react to changes in general industry and market conditions, including regulatory developments; rights to intellectual property, market trends and the adoption of industry standards; the ability of Opnext to consummate the previously announced acquisition of StrataLight Communications; and consolidations within or affecting the optical modules and components industry. These factors are not intended to be an all-encompassing list of risks and uncertainties that may affect the Company’s business. Additional information regarding these and other factors can be found in Opnext’s reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K filed on June 16, 2008, as amended. In providing forward-looking statements, the Company expressly disclaims any obligation to update these statements, publicly or otherwise, whether as a result of new information, future events or otherwise, except to comply with applicable federal and state securities laws.

Conference Call:

Opnext management will conduct a conference call at 4:30 p.m. EDT, today, Wednesday, August 6, 2008, to discuss these results in detail. You may participate in this conference call by dialing 877-853-4940 (United States) or 706-645-9149 (International) prior to the start of the call and providing the Opnext, Inc. name and Conference ID# 57493059. A replay of the conference call can be accessed starting approximately two hours after the call through Wednesday, August 13, 2008 by dialing 800-642-1687 (United States) or 706-645-9291 (International) and using the Conference ID# 57493059. A live webcast of the call will be accessible on the Investor Relations section of the Company website at http://www.opnext.com. A replay of the webcast will be available following the conclusion of the call on the webcast archive page of the Investor Relations section.

(OPXT-G)

About Opnext:

From the latest communications networks to new security systems, and from major advances in medical systems to high-demand consumer electronics, Opnext (NASDAQ: OPXT) laser technologies add the spark of innovation to a world of new applications. The Company’s industry expertise, future-focused thinking and commitment to research and development combine in bringing to market solutions that are ready for the next generation of laser-based products. Formed out of Hitachi, Opnext has built on more than 30 years experience of advanced technology to establish its broad portfolio of solutions and solid reputation for excellence in service. For additional information, visit www.opnext.com.

Note (1) – Operating income includes stock-based compensation expenses of $1,102 thousand and $82 thousand in the three-month periods ended June 30, 2008 and 2007, respectively.

Opnext, Inc.
Doug Dean
Investor Relations
732-544-3212
ddean@opnext.com