##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended April 2, 2006oro
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
 Commission file number 000-31581
 OPLINK COMMUNICATIONS, INC.
  Delaware
    
    No. 77-0411346 (State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
  (Address of principal executive offices) (Zip Code)
  þ o
 o
 o þ o
 o þ




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##### 



OPLINK COMMUNICATIONS, INC.
   PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed Consolidated Balance Sheets -- March 31, 2006 and June 30, 2005
    
    
    3Condensed Consolidated Statements of Operations -- Three and nine months ended March 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows -- Nine months ended March 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    35Item 4.
    
    Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    37Item 1A.
    
    Risk Factors
    
    
    38Item 2.
    
    Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities
    
    
    57Item 3.
    
    Defaults Upon Senior Securities
    
    
    57Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    57Item 5.
    
    Other Information
    
    
    57Item 6.
    
    Exhibits
    
    
    57SIGNATURES
    
    
    
    
    58EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
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PART I. FINANCIAL INFORMATION
 
 ITEM 1  FINANCIAL STATEMENTS
 OPLINK COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except
share and per share data)
(Unaudited)
 March 31,
    
    
    June 30,2006
    
    
    2005ASSETS
    
    
    
    
    
    
    
    (1)Current assets:Cash and cash equivalents
    
    $
    38,737
    
    
    $
    29,710Short-term investments
    
    
    90,735
    
    
    
    95,696Accounts receivable, net
    
    
    11,421
    
    
    
    7,127Inventories, net
    
    
    8,794
    
    
    
    6,999Prepaid expenses and other current assets
    
    
    4,497
    
    
    
    2,430Total current assets
    
    
    154,184
    
    
    
    141,962Long-term investments
    
    
    55,000
    
    
    
    60,727Property, plant and equipment, net
    
    
    22,952
    
    
    
    25,297Goodwill and intangible assets, net
    
    
    1,545
    
    
    
    Other assets
    
    
    749
    
    
    
    260Total assets
    
    $
    234,430
    
    
    $
    228,246LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,708
    
    
    $
    3,658Accrued liabilities
    
    
    5,842
    
    
    
    6,044Total current liabilities
    
    
    11,550
    
    
    
    9,702Non-current liabilities
    
    
    97
    
    
    
    Total liabilities
    
    
    11,647
    
    
    
    9,702Contingencies (Note 16)Stockholders equity:Common stock, $0.001 par value, 400,000,000 shares authorized;
21,387,585 and 21,251,873 shares issued and outstanding as of
March 31, 2006 and June 30, 2005, respectively
    
    
    21
    
    
    
    21Additional paid-in capital
    
    
    448,670
    
    
    
    445,612Notes receivable from stockholders
    
    
    (29
    )
    
    
    (27
    )Deferred stock compensation
    
    
    
    
    
    
    (37
    )Accumulated other comprehensive income
    
    
    1,214
    
    
    
    62Accumulated deficit
    
    
    (227,093
    )
    
    
    (227,087
    )Total stockholders equity
    
    
    222,783
    
    
    
    218,544Total liabilities and stockholders equity
    
    $
    234,430
    
    
    $
    228,246
 
 (1)
    
    The condensed consolidated balance sheet at June 30, 2005 has been derived from the audited consolidated financial statements at that date. The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPLINK COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    14,597
    
    
    $
    8,421
    
    
    $
    37,931
    
    
    $
    25,473Cost of revenues:Cost of revenues
    
    
    10,223
    
    
    
    6,260
    
    
    
    27,445
    
    
    
    19,152Stock compensation expense
    
    
    55
    
    
    
    
    
    
    
    176
    
    
    
    27Total cost of revenues
    
    
    10,278
    
    
    
    6,260
    
    
    
    27,621
    
    
    
    19,179Gross profit
    
    
    4,319
    
    
    
    2,161
    
    
    
    10,310
    
    
    
    6,294Operating expenses:Research and development:Research and development
    
    
    1,547
    
    
    
    1,929
    
    
    
    4,373
    
    
    
    5,629Stock compensation expense
    
    
    141
    
    
    
    
    
    
    
    448
    
    
    
    2Total research and development
    
    
    1,688
    
    
    
    1,929
    
    
    
    4,821
    
    
    
    5,631Sales and marketing:Sales and marketing
    
    
    1,083
    
    
    
    935
    
    
    
    2,854
    
    
    
    2,810Stock compensation expense
    
    
    121
    
    
    
    
    
    
    
    404
    
    
    
    84Total sales and marketing
    
    
    1,204
    
    
    
    935
    
    
    
    3,258
    
    
    
    2,894General and administrative:General and administrative
    
    
    1,451
    
    
    
    1,517
    
    
    
    4,788
    
    
    
    4,824Stock compensation expense
    
    
    278
    
    
    
    22
    
    
    
    807
    
    
    
    93Total general and administrative
    
    
    1,729
    
    
    
    1,539
    
    
    
    5,595
    
    
    
    4,917Merger fees
    
    
    
    
    
    
    (904
    )
    
    
    
    
    
    
    (904
    )Amortization of intangible and other assets
    
    
    27
    
    
    
    46
    
    
    
    45
    
    
    
    138In-process research and development
    
    
    
    
    
    
    
    
    
    
    1,120
    
    
    
    Total operating expenses
    
    
    4,648
    
    
    
    3,545
    
    
    
    14,839
    
    
    
    12,676Loss from operations
    
    
    (329
    )
    
    
    (1,384
    )
    
    
    (4,529
    )
    
    
    (6,382
    )Interest and other income, net
    
    
    1,843
    
    
    
    1,193
    
    
    
    5,036
    
    
    
    3,044Loss on sale or disposal of assets
    
    
    (445
    )
    
    
    (168
    )
    
    
    (472
    )
    
    
    (177
    )Income (loss) before provision for income taxes
    
    
    1,069
    
    
    
    (359
    )
    
    
    35
    
    
    
    (3,515
    )Provision for income taxes
    
    
    41
    
    
    
    
    
    
    
    41
    
    
    
    Net income (loss)
    
    $
    1,028
    
    
    $
    (359
    )
    
    $
    (6
    )
    
    $
    (3,515
    )Net income (loss) per share:Basic
    
    $
    0.05
    
    
    $
    (0.02
    )
    
    $
    (0.00
    )
    
    $
    (0.17
    )Diluted
    
    $
    0.05
    
    
    $
    (0.02
    )
    
    $
    (0.00
    )
    
    $
    (0.17
    )Shares used in per share calculation:Basic
    
    
    21,355
    
    
    
    21,174
    
    
    
    21,316
    
    
    
    21,128Diluted
    
    
    22,234
    
    
    
    21,174
    
    
    
    21,316
    
    
    
    21,128
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPLINK COMMUNICATIONS, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Nine Months EndedMarch 31,2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (6
    )
    
    $
    (3,515
    )Adjustments to reconcile net loss to
net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    4,972
    
    
    
    5,808Amortization of intangible and other assets
    
    
    136
    
    
    
    138Stock compensation expense
    
    
    1,835
    
    
    
    206Amortization of premium on investments
    
    
    179
    
    
    
    827Loss on sale or disposal of assets
    
    
    472
    
    
    
    177In-process research and development
    
    
    1,120
    
    
    
    Other
    
    
    (23
    )
    
    
    (11
    )Change in assets and liabilities:Accounts receivable
    
    
    (4,071
    )
    
    
    410Inventories
    
    
    (1,362
    )
    
    
    (1,270
    )Prepaid expenses and other current assets
    
    
    (2,475
    )
    
    
    (273
    )Other assets
    
    
    151
    
    
    
    171Accounts payable
    
    
    1,689
    
    
    
    (89
    )Accrued liabilities
    
    
    (1,078
    )
    
    
    (1,274
    )Net cash provided by operating activities
    
    
    1,539
    
    
    
    1,305Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (23,106
    )
    
    
    (92,460
    )Sales and maturities of available-for-sale investments
    
    
    52,871
    
    
    
    96,700Purchases of held-to-maturity investments
    
    
    (45,000
    )
    
    
    (33,000
    )Maturities of held-to-maturity investments
    
    
    27,000
    
    
    
    5,000Proceeds from sales of property and equipment
    
    
    90
    
    
    
    452Purchases of property and equipment
    
    
    (1,302
    )
    
    
    (6,402
    )Acquisition of businesses, net of cash acquired
    
    
    (4,365
    )
    
    
    (67
    )Net cash provided by (used in) investing activities
    
    
    6,188
    
    
    
    (29,777
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    1,253
    
    
    
    710Repurchase of common stock
    
    
    (11
    )
    
    
    Repayment of notes receivable from stockholders
    
    
    
    
    
    
    12Repayment of capital lease obligations
    
    
    
    
    
    
    (81
    )Net cash provided by financing activities
    
    
    1,242
    
    
    
    641Effect of exchange rate changes on cash
    
    
    58
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    9,027
    
    
    
    (27,831
    )Cash and cash equivalents, beginning of period
    
    
    29,710
    
    
    
    56,690Cash and cash equivalents, end of period
    
    $
    38,737
    
    
    $
    28,859Supplemental non-cash investing and financing activities:Accrued liabilities recorded for the receipt of fixed assets
and inventories from Fibercom
    
    $
    321
    
    
    $
    
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPLINK COMMUNICATIONS, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Description of Business.
  Basis of Presentation
 6




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Acquisitions.
 7




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##### Table of Contents



Cash
    
    $
    4,615Transaction costs
    
    
    40Purchase price
    
    
    4,655Liabilities assumed
    
    
    800Total purchase price and liabilities assumed
    
    $
    5,455Assets acquired:Cash and cash equivalents
    
    $
    279Short-term investments
    
    
    1,198Other current assets
    
    
    246Fixed assets
    
    
    338Other non-current assets
    
    
    593In-process research and development
    
    
    1,120Customer relationships
    
    
    163Trade name
    
    
    163Technology
    
    
    871Goodwill
    
    
    484Total
    
    $
    5,455
     8




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Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenues
    
    $
    14,597
    
    
    $
    8,648
    
    
    $
    38,364
    
    
    $
    26,348Net income (loss)
    
    $
    1,028
    
    
    $
    (854
    )
    
    $
    (502
    )
    
    $
    (4,172
    )Net income (loss) per share:Basic
    
    $
    0.05
    
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.20
    )Diluted
    
    $
    0.05
    
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.20
    )Shares used in per share calculation:Basic
    
    
    21,355
    
    
    
    21,174
    
    
    
    21,316
    
    
    
    21,128Diluted
    
    
    22,234
    
    
    
    21,174
    
    
    
    21,316
    
    
    
    21,128
   9




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Net Income (Loss) Per Share
 Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net income (loss)
    
    $
    1,028
    
    
    $
    (359
    )
    
    $
    (6
    )
    
    $
    (3,515
    )Denominator:Weighted average shares outstanding  basic
    
    
    21,355
    
    
    
    21,174
    
    
    
    21,316
    
    
    
    21,128Effect of dilutive potential common shares
    
    
    879
    
    
    
    
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    22,234
    
    
    
    21,174
    
    
    
    21,316
    
    
    
    21,128Net income (loss) per share  basic
    
    $
    0.05
    
    
    $
    (0.02
    )
    
    $
    (0.00
    )
    
    $
    (0.17
    )Net income (loss) per share  diluted
    
    $
    0.05
    
    
    $
    (0.02
    )
    
    $
    (0.00
    )
    
    $
    (0.17
    )Antidilutive stock options not included in net
income (loss) per share calculation
    
    
    1,069
    
    
    
    2,792
    
    
    
    2,952
    
    
    
    2,792
 Comprehensive Income (Loss).
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income (loss )
    
    $
    1,028
    
    
    $
    (359
    )
    
    $
    (6
    )
    
    $
    (3,515
    )Unrealized gain (loss) on investments
    
    
    5
    
    
    
    16
    
    
    
    (31
    )
    
    
    31Change in cumulative translation adjustments
    
    
    290
    
    
    
    2
    
    
    
    1,183
    
    
    
    (11
    )Total comprehensive income (loss)
    
    $
    1,323
    
    
    $
    (341
    )
    
    $
    1,146
    
    
    $
    (3,495
    )
 Short-Term and Long-Term Investments.
  10




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March 31, 2006Gross
    
    
    GrossCarrying
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedValue
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Certificates of deposit
    
    $
    692
    
    
    $
    692
    
    
    $
    
    
    
    $
    
    
    
    $
    692Obligations of states and political subdivisions
    
    
    18,400
    
    
    
    18,400
    
    
    
    
    
    
    
    
    
    
    
    18,400Corporate securities
    
    
    21,642
    
    
    
    21,652
    
    
    
    
    
    
    
    (104
    )
    
    
    21,548United States government agencies
    
    
    50,001
    
    
    
    50,001
    
    
    
    
    
    
    
    (446
    )
    
    
    49,555Total short-term investments
    
    
    90,735
    
    
    
    90,745
    
    
    
    
    
    
    
    (550
    )
    
    
    90,195Long-term investments:United States government agencies
    
    
    55,000
    
    
    
    55,000
    
    
    
    
    
    
    
    (442
    )
    
    
    54,558Total investments
    
    $
    145,735
    
    
    $
    145,745
    
    
    $
    
    
    
    $
    (992
    )
    
    $
    144,753
 June 30, 2005Gross
    
    
    GrossCarrying
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedValue
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Obligations of states and political subdivisions
    
    $
    46,400
    
    
    $
    46,400
    
    
    $
    
    
    
    $
    
    
    
    $
    46,400U.S. corporate securities
    
    
    27,296
    
    
    
    27,317
    
    
    
    
    
    
    
    (29
    )
    
    
    27,288United States government agencies
    
    
    22,000
    
    
    
    22,000
    
    
    
    
    
    
    
    (192
    )
    
    
    21,808Total short-term investments
    
    
    95,696
    
    
    
    95,717
    
    
    
    
    
    
    
    (221
    )
    
    
    95,496Long-term investments:U.S. corporate securities
    
    
    5,719
    
    
    
    5,719
    
    
    
    
    
    
    
    (126
    )
    
    
    5,593United States government agencies
    
    
    55,008
    
    
    
    55,008
    
    
    
    2
    
    
    
    (339
    )
    
    
    54,671Total long-term investments
    
    
    60,727
    
    
    
    60,727
    
    
    
    2
    
    
    
    (465
    )
    
    
    60,264Total investments
    
    $
    156,423
    
    
    $
    156,444
    
    
    $
    2
    
    
    $
    (686
    )
    
    $
    155,760
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March 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale investments:Certificates of deposit
    
    $
    692
    
    
    $
    
    
    
    $
    
    
    
    $
    692Obligations of states and political subdivisions
    
    
    18,400
    
    
    
    
    
    
    
    
    
    
    
    18,400Corporate securities
    
    
    16,034
    
    
    
    
    
    
    
    (10
    )
    
    
    16,024Total available-for-sale investments
    
    
    35,126
    
    
    
    
    
    
    
    (10
    )
    
    
    35,116Held-to-maturity investments:Corporate securities
    
    
    5,618
    
    
    
    
    
    
    
    (94
    )
    
    
    5,524United States government agencies
    
    
    105,001
    
    
    
    
    
    
    
    (888
    )
    
    
    104,113Total held-to-maturity investments
    
    
    110,619
    
    
    
    
    
    
    
    (982
    )
    
    
    109,637Total investments
    
    $
    145,745
    
    
    $
    
    
    
    $
    (992
    )
    
    $
    144,753
 June 30, 2005Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale investments:Obligations of states and political subdivisions
    
    $
    46,400
    
    
    $
    
    
    
    $
    
    
    
    $
    46,400U.S. corporate securities
    
    
    17,296
    
    
    
    
    
    
    
    (21
    )
    
    
    17,275Total available-for-sale investments
    
    
    63,696
    
    
    
    
    
    
    
    (21
    )
    
    
    63,675Held-to-maturity investments:U.S. corporate securities
    
    
    15,740
    
    
    
    
    
    
    
    (134
    )
    
    
    15,606United States government agencies
    
    
    77,008
    
    
    
    2
    
    
    
    (531
    )
    
    
    76,479Total held-to-maturity investments
    
    
    92,748
    
    
    
    2
    
    
    
    (665
    )
    
    
    92,085Total investments
    
    $
    156,444
    
    
    $
    2
    
    
    $
    (686
    )
    
    $
    155,760
 12




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March 31, 2006In Loss Position
    
    
    In Loss Position< 12 months
    
    
    12 months and longer
    
    
    Total In Loss PositionGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesAvailable-for-sale investments:Corporate securities
    
    $
    5,005
    
    
    $
    (10
    )
    
    $
    
    
    
    $
    
    
    
    $
    5,005
    
    
    $
    (10
    )Held-to-maturity investments:Corporate securities
    
    
    
    
    
    
    
    
    
    
    5,524
    
    
    
    (94
    )
    
    
    5,524
    
    
    
    (94
    )United States government agencies
    
    
    54,557
    
    
    
    (442
    )
    
    
    49,556
    
    
    
    (446
    )
    
    
    104,113
    
    
    
    (888
    )Total held-to-maturity investments
    
    
    54,557
    
    
    
    (442
    )
    
    
    55,080
    
    
    
    (540
    )
    
    
    109,637
    
    
    
    (982
    )Total investments in loss position
    
    $
    59,562
    
    
    $
    (452
    )
    
    $
    55,080
    
    
    $
    (540
    )
    
    $
    114,642
    
    
    $
    (992
    )
  March 31, 2006
    
    
    June 30, 2005Amortized
    
    
    Estimated
    
    
    Amortized
    
    
    EstimatedCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueAvailable-for-sale investments:Due in one year or less
    
    $
    13,626
    
    
    $
    13,616
    
    
    $
    12,596
    
    
    $
    12,575Due after ten years
    
    
    21,500
    
    
    
    21,500
    
    
    
    51,100
    
    
    
    51,100Total available-for-sale investments
    
    
    35,126
    
    
    
    35,116
    
    
    
    63,696
    
    
    
    63,675Held-to-maturity investments:Due in one year or less
    
    
    55,619
    
    
    
    55,079
    
    
    
    32,021
    
    
    
    31,821Due in one year to five years
    
    
    55,000
    
    
    
    54,558
    
    
    
    60,727
    
    
    
    60,264Total held-to-maturity investments
    
    
    110,619
    
    
    
    109,637
    
    
    
    92,748
    
    
    
    92,085Total investments
    
    $
    145,745
    
    
    $
    144,753
    
    
    $
    156,444
    
    
    $
    155,760
  13




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##### Table of Contents



Inventories
 March 31,
    
    
    June 30,2006
    
    
    2005Inventories, net:Raw materials
    
    $
    12,420
    
    
    $
    11,895Work-in-process
    
    
    5,385
    
    
    
    4,389Finished goods
    
    
    1,014
    
    
    
    1,156Sub-total
    
    
    18,819
    
    
    
    17,440Less: Reserves for excess and obsolete inventory
    
    
    (10,025
    )
    
    
    (10,441
    )Total
    
    $
    8,794
    
    
    $
    6,999
 Property, Plant and Equipment.
 March 31,
    
    
    June 30,2006
    
    
    2005Property, plant and equipment:Production and engineering equipment
    
    $
    31,281
    
    
    $
    31,153Computer equipment and software
    
    
    6,509
    
    
    
    6,207Building and building improvements
    
    
    15,120
    
    
    
    14,708Land
    
    
    1,949
    
    
    
    1,949Sub-total
    
    
    54,859
    
    
    
    54,017Less: Accumulated depreciation and
amortization
    
    
    (31,907
    )
    
    
    (28,720
    )Total
    
    $
    22,952
    
    
    $
    25,297
 Goodwill and Intangible Assets, Net.
 EstimatedUseful Life
    
    
    Gross
    
    
    AccumulatedMarch 31, 2006
    
    (in Years)
    
    
    Amount
    
    
    Amortization
    
    
    NetTechnology
    
    
    4
    
    
    $
    871
    
    
    $
    90
    
    
    $
    781Trade name
    
    
    3
    
    
    
    163
    
    
    
    23
    
    
    
    140Customer relationships
    
    
    3
    
    
    
    163
    
    
    
    23
    
    
    
    140Total
    
    
    
    
    
    $
    1,197
    
    
    $
    136
    
    
    $
    1,061
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,Reported as:
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Cost of revenues
    
    $
    55
    
    
    $
    
    
    
    $
    91
    
    
    $
    Operating expenses
    
    
    27
    
    
    
    46
    
    
    
    45
    
    
    
    138Total
    
    $
    82
    
    
    $
    46
    
    
    $
    136
    
    
    $
    138
 14




---



##### Table of Contents



Fiscal years ending June 30,
    
    Amount2006
    
    $
    812007
    
    
    3262008
    
    
    3262009
    
    
    2542010
    
    
    74$
    1,061
  Accrued Liabilities.
 March 31,
    
    
    June 30,2006
    
    
    2005Accrued liabilities:Payroll and related expenses
    
    $
    1,282
    
    
    $
    1,175Accrued sales commission
    
    
    388
    
    
    
    325Accrued warranty
    
    
    426
    
    
    
    560Accrued professional fees
    
    
    838
    
    
    
    1,062Other
    
    
    2,908
    
    
    
    2,922Total
    
    $
    5,842
    
    
    $
    6,044
 Product Warranties.
 15




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Balance at the beginning of the period
    
    $
    581
    
    
    $
    960
    
    
    $
    560
    
    
    $
    700Accruals for warranties issued during the period
    
    
    44
    
    
    
    169
    
    
    
    200
    
    
    
    762Accruals related to pre-existing warranties
including expirations and changes in estimates
    
    
    (80
    )
    
    
    (128
    )
    
    
    (130
    )
    
    
    (315
    )Cost of warranty repair
    
    
    (119
    )
    
    
    (41
    )
    
    
    (204
    )
    
    
    (187
    )Balance at the end of the period
    
    $
    426
    
    
    $
    960
    
    
    $
    426
    
    
    $
    960
 Restructuring Costs and Other Charges
 Consolidation ofWorkforce
    
    
    Excess FacilitiesReduction
    
    
    and Other Charges
    
    
    TotalBalance at June 30, 2003
    
    $
    176
    
    
    $
    4,314
    
    
    $
    4,490Less: accrued restructuring costs, current
    
    
    
    
    
    
    
    
    
    
    3,018Accrued restructuring costs, non current
    
    
    
    
    
    
    
    
    
    $
    1,472Additional restructuring charge in
the fourth quarter of fiscal 2004
    
    
    
    
    
    
    452
    
    
    
    452Adjustment
    
    
    99
    
    
    
    (99
    )
    
    
    Cash payments
    
    
    (275
    )
    
    
    (2,768
    )
    
    
    (3,043
    )Balance at June 30, 2004
    
    
    
    
    
    
    1,899
    
    
    $
    1,899Less: accrued restructuring costs, current
    
    
    
    
    
    
    
    
    
    
    1,795Accrued restructuring costs, non current
    
    
    
    
    
    
    
    
    
    $
    104Cash payments
    
    
    
    
    
    
    (1,836
    )
    
    
    (1,836
    )Balance at June 30, 2005
    
    
    
    
    
    
    63
    
    
    
    63Cash payments
    
    
    
    
    
    
    (63
    )
    
    
    (63
    )Balance at March 31, 2006
    
    $
    
    
    
    $
    
    
    
    $
    
 Stock Compensation.
 16




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##### Table of Contents



Prior to the Adoption of SFAS No. 123 (R)
   Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2005
    
    
    2005Net loss as reported
    
    $
    (359
    )
    
    $
    (3,515
    )Stock-based employee compensation expense
included in reported net loss
    
    
    22
    
    
    
    127Pro forma stock compensation expense computed
under the fair value method for all awards
    
    
    (660
    )
    
    
    (2,631
    )Pro forma net loss
    
    $
    (997
    )
    
    $
    (6,019
    )Basic and diluted net loss per share, as reported
    
    $
    (0.02
    )
    
    $
    (0.17
    )Pro forma basic and diluted net loss per share
    
    $
    (0.05
    )
    
    $
    (0.28
    )
 Impact of the Adoption of SFAS No. 123 (R)
  Three Months Ended
    
    
    Nine Months EndedMarch 31,
    
    
    March 31,2006
    
    
    2006Stock-based compensation expense by type of award:Employee stock options
    
    $
    508
    
    
    $
    1,519Employee stock purchase plan
    
    
    84
    
    
    
    324Net change of amounts capitalized as inventory
    
    
    3
    
    
    
    (8
    )Total stock-based compensation
    
    
    595
    
    
    
    1,835Tax effect on stock-based compensation
    
    
    
    
    
    
    Net effect on net loss
    
    $
    595
    
    
    $
    1,835Effect on net income (loss) per share:Basic
    
    $
    (0.03
    )
    
    $
    (0.09
    )Diluted
    
    $
    (0.03
    )
    
    $
    (0.09
    )
  17




---



##### Table of Contents



Valuation Assumptions
  Three Months Ended
    
    Nine Months EndedMarch 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005Risk-free interest rate
    
    
    4.59
    %
    
    NA
    
    
    4.30
    %
    
    
    3.31
    %Expected life of option
    
    4.9 years
    
    NA
    
    4.8 years
    
    4 yearsExpected dividends
    
    
    0
    %
    
    NA
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    45
    %
    
    NA
    
    
    46
    %
    
    
    55
    %
   18




---



##### Table of Contents



Equity Incentive Program
   WeightedNumber of
    
    
    AverageShares Available
    
    
    Options
    
    
    Exercisefor Grant
    
    
    Outstanding
    
    
    PriceBalance, June 30, 2003
    
    
    5,509,959
    
    
    
    2,922,945
    
    
    $
    15.1193Options granted
    
    
    (678,100
    )
    
    
    678,100
    
    
    
    14.7826Options exercised
    
    
    
    
    
    
    (539,871
    )
    
    
    5.9745Options canceled
    
    
    233,413
    
    
    
    (233,413
    )
    
    
    24.1297Balance, June 30, 2004
    
    
    5,065,272
    
    
    
    2,827,761
    
    
    
    15.8655Options granted
    
    
    (674,929
    )
    
    
    674,929
    
    
    
    11.1804Options exercised
    
    
    
    
    
    
    (39,267
    )
    
    
    6.6619Options canceled
    
    
    399,934
    
    
    
    (399,934
    )
    
    
    18.7215Balance, June 30, 2005
    
    
    4,790,277
    
    
    
    3,063,489
    
    
    
    14.5481Options granted
    
    
    (311,141
    )
    
    
    311,141
    
    
    
    11.8107Options exercised
    
    
    
    
    
    
    (99,254
    )
    
    
    9.3051Options canceled
    
    
    322,881
    
    
    
    (322,881
    )
    
    
    19.7457Plan shares expired (1)
    
    
    (5,837
    )
    
    
    
    
    
    
    Balance, March 31, 2006
    
    
    4,796,180
    
    
    
    2,952,495
    
    
    $
    13.9200
 
 (1)
    
    The Companys 1995 Stock Option Plan terminated ten years after its adoption by the
Companys board of directors and the shares not granted at the time of termination have expired. 19




---



##### Table of Contents



Options Outstanding
    
    
    Options Vested and Exercisableat March 31, 2006
    
    
    at March 31, 2006Weighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    Aggregate
    
    
    
    
    
    
    Average
    
    
    Weighted
    
    
    AggregateRemaining
    
    
    Average
    
    
    Intrinsic
    
    
    
    
    
    
    Remaining
    
    
    Average
    
    
    IntrinsicRange of Exercise
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Value
    
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    ValuePrice
    
    Outstanding
    
    
    Life (in Years)
    
    
    Price
    
    
    (in thousand)
    
    
    Outstanding
    
    
    Life (in Years)
    
    
    Price
    
    
    (in thousand)$0.0875 - $7.0000
    
    
    1,002,000
    
    
    
    6.0
    
    
    $
    4.2974
    
    
    $
    13,069
    
    
    
    897,699
    
    
    
    5.9
    
    
    $
    4.2572
    
    
    $
    11,744$7.0001 - $14.0000
    
    
    1,083,819
    
    
    
    8.4
    
    
    
    11.4551
    
    
    
    6,378
    
    
    
    315,649
    
    
    
    6.8
    
    
    
    11.8618
    
    
    
    1,729$14.0001 - $21.0000
    
    
    484,972
    
    
    
    5.9
    
    
    
    17.1639
    
    
    
    263
    
    
    
    404,209
    
    
    
    5.4
    
    
    
    17.2281
    
    
    
    208$21.0001 - $28.0000
    
    
    31,427
    
    
    
    4.2
    
    
    
    28.0000
    
    
    
    
    
    
    
    31,427
    
    
    
    4.2
    
    
    
    28.0000
    
    
    
    $28.0001 - $35.0000
    
    
    39,652
    
    
    
    4.4
    
    
    
    34.4440
    
    
    
    
    
    
    
    39,652
    
    
    
    4.4
    
    
    
    34.4440
    
    
    
    $35.0001 - $42.0000
    
    
    270,566
    
    
    
    4.4
    
    
    
    37.5649
    
    
    
    
    
    
    
    270,566
    
    
    
    4.4
    
    
    
    37.5649
    
    
    
    $42.0001 - $49.0000
    
    
    4,570
    
    
    
    4.4
    
    
    
    45.5000
    
    
    
    
    
    
    
    4,570
    
    
    
    4.4
    
    
    
    45.5000
    
    
    
    $49.0001 - $56.0000
    
    
    142
    
    
    
    4.7
    
    
    
    55.1250
    
    
    
    
    
    
    
    142
    
    
    
    4.7
    
    
    
    55.1250
    
    
    
    $56.0001 - $63.0000
    
    
    11,425
    
    
    
    4.5
    
    
    
    63.0000
    
    
    
    
    
    
    
    11,425
    
    
    
    4.5
    
    
    
    63.0000
    
    
    
    $63.0001 - $139.5625
    
    
    23,922
    
    
    
    4.6
    
    
    
    113.2196
    
    
    
    
    
    
    
    23,922
    
    
    
    4.6
    
    
    
    113.2196
    
    
    
    2,952,495
    
    
    
    6.6
    
    
    $
    13.9200
    
    
    $
    19,710
    
    
    
    1,999,261
    
    
    
    5.7
    
    
    $
    15.2972
    
    
    
    13,681
    Employee Stock Purchase Plan
   20




---



##### Table of Contents



Repurchase of Common Stock
 Recent Accounting Pronouncements
    21




---



##### Table of Contents



Contingencies In re Oplink Communications,
Inc. Initial Public Offering Securities Litigation
   22




---



##### Table of Contents



ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-looking statements
   23




---



##### Table of Contents



Overview
     24




---



##### Table of Contents



Use of Estimates and Critical Accounting Policies
   
    
    revenue recognition and product returns;
    
    warranty obligations;
    
    risk evaluation;
    
    allowance for doubtful accounts;
    
    excess and obsolete inventory;
    
    long-lived asset valuation;
    
    business combination; and
    
    deferred taxes.
 25




---



##### Table of Contents



Stock Compensation
  Results of Operations
 Revenues
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Revenues
    
    $
    14,597
    
    
    $
    8,421
    
    
    $
    6,176
    
    
    
    73.3
    %
    
    $
    37,931
    
    
    $
    25,473
    
    
    $
    12,458
    
    
    
    48.9
    %
   26




---



##### Table of Contents



Gross Profit
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Gross profit
    
    $
    4,319
    
    
    $
    2,161
    
    
    $
    2,158
    
    
    
    99.9
    %
    
    $
    10,310
    
    
    $
    6,294
    
    
    $
    4,016
    
    
    
    63.8
    %Gross profit margin
    
    
    29.6
    %
    
    
    25.7
    %
    
    
    
    
    
    
    
    
    
    
    27.2
    %
    
    
    24.7
    %
    Research and Development
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Research and development
    
    $
    1,688
    
    
    $
    1,929
    
    
    $
    (241
    )
    
    
    (12.5
    )%
    
    $
    4,821
    
    
    $
    5,631
    
    
    $
    (810
    )
    
    
    (14.4
    )%
   27




---



##### Table of Contents



Sales and Marketing
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Sales and marketing
    
    $
    1,204
    
    
    $
    935
    
    
    $
    269
    
    
    
    28.8
    %
    
    $
    3,258
    
    
    $
    2,894
    
    
    $
    364
    
    
    
    12.6
    %
    General and Administrative
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005General and
administrative
    
    $
    1,729
    
    
    $
    1,539
    
    
    $
    190
    
    
    
    12.3
    %
    
    $
    5,595
    
    
    $
    4,917
    
    
    $
    678
    
    
    
    13.8
    %
    28




---



##### Table of Contents



Stock Compensation Expense
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Stock compensation
expense
    
    $
    595
    
    
    $
    22
    
    
    $
    573
    
    
    
    2604.5
    %
    
    $
    1,835
    
    
    $
    206
    
    
    $
    1,629
    
    
    
    790.8
    %
    Interest and Other Income, Net
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Interest and other
income, net
    
    $
    1,843
    
    
    $
    1,193
    
    
    $
    650
    
    
    
    54.5
    %
    
    $
    5,036
    
    
    $
    3,044
    
    
    $
    1,992
    
    
    
    65.4
    %
  29




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Loss on Sale or Disposal of Assets:
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    Percentage
    
    
    Nine Months Ended
    
    
    
    
    
    
    PercentageMarch 31,
    
    
    Change
    
    
    Change
    
    
    March 31,
    
    
    Change
    
    
    Change2006
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    2006
    
    
    2005Loss on sale of assets
    
    $
    (445
    )
    
    $
    (168
    )
    
    $
    277
    
    
    
    164.9
    %
    
    $
    (472
    )
    
    $
    (177
    )
    
    $
    295
    
    
    
    166.7
    %
  Provision for Income Taxes
  30




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Liquidity and Capital Resources
  Nine Months Ended March 31, 2006
      31




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Nine Months Ended March 31, 2005
    32




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Contractual Obligations
  Contractual Obligations Due by PeriodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsContractual ObligationsPurchase obligations
    
    $
    4,772
    
    
    $
    4,772
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    610
    
    
    
    253
    
    
    
    357
    
    
    
    
    
    
    
    -Total
    
    $
    5,382
    
    
    $
    5,025
    
    
    $
    357
    
    
    $
    
    
    
    $
    
 Recent Accounting Pronouncements
   33




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ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Interest Rate Exposure
    Carrying
    
    
    Average Rate
    
    
    Carrying
    
    
    Average RateValue at
    
    
    of Return at
    
    
    Value at
    
    
    of Return atMarch 31,
    
    
    March 31,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2006
    
    
    2005
    
    
    2005(Annualized)
    
    
    
    
    
    
    (Annualized)Investment Securities:Cash equivalents  variable rate
    
    $
    34,723
    
    
    
    4.7
    %
    
    $
    26,464
    
    
    
    3.1
    %Short-term investments  variable rate
    
    
    35,116
    
    
    
    3.3
    %
    
    
    68,676
    
    
    
    3.3
    %Short-term investments  fixed rate
    
    
    55,619
    
    
    
    3.0
    %
    
    
    27,020
    
    
    
    2.1
    %Long-term investments  fixed rate
    
    
    55,000
    
    
    
    4.6
    %
    
    
    60,727
    
    
    
    3.4
    %Total
    
    $
    180,458
    
    
    
    
    
    
    $
    182,887
 Expected Fiscal Year Maturity Date2006
    
    
    2007
    
    
    2008
    
    
    Total
    
    
    Fair ValueLong-term
investments  fixed
rate
    
    $
    
    
    
    $
    10,000
    
    
    $
    45,000
    
    
    $
    55,000
    
    
    $
    54,558Average interest rate
    
    
    
    
    
    
    4.1
    %
    
    
    4.7
    %
    
    
    4.6
    %
 35




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Foreign Currency Exchange Rate Exposure
    
 ITEM 4  CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
 36




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PART II. OTHER INFORMATION
 
 ITEM 1- LEGAL PROCEEDINGS
 In re Oplink Communications, Inc. Initial Public Offering
Securities Litigation
   37




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ITEM 1A  RISK FACTORS
  RISKS RELATED TO OUR BUSINESS
 We have incurred significant losses, and our failure to increase our revenues while controlling
costs and operating expenses could prevent us from sustaining profitability.
  38




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We depend upon a small number of customers for a substantial portion of our revenues, and any
decrease in revenues from, or loss of, these customers without a corresponding increase in revenues
from other customers would harm our operating results.
   Because none of our customers are obligated to purchase our products, they may cancel or defer
their purchases at any time and on short notice, which could harm our operating results.
  
    
    may stop purchasing our products or defer their purchases at any time without penalty;
    
    are free to purchase products from our competitors;
    
    are not required to make minimum purchases; and
    
    may cancel orders that they place with us.
 39




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Our quarterly revenues and operating results are difficult to predict and may continue to fluctuate
significantly from quarter to quarter and, therefore, may vary from public market analysts or
investors expectations, which could cause our stock price to drop.
  
    
    fluctuations in demand for, and sales of, our products;
    
    changes in customer, geographic or product mix and the average selling prices of our products;
    
    impact on our sales and margins as a result of our customers continued migration to
contract manufacturers;
    
    the availability of raw materials used in our products or increases in the price of
these raw materials;
    
    economic conditions specific to the communications and related industries and the
development and size of the markets for our products;
    
    our inability to cut costs quickly in the event of market or demand downturns, due to
the fact that a high percentage of our expenses, including those related to manufacturing,
engineering, research and development, sales and marketing and general and administrative
functions, is fixed in the short term;
    
    cancellations or delays of orders or shipment rescheduling by our customers;
    
    the lingering effects of the recent economic downturn and resulting uncertainty of the
fiber optic industry;
    
    the ability of our manufacturing operations in China to timely produce and deliver
products in the quantity and of the quality our customers require;
    
    our ability to successfully improve our manufacturing capabilities and achieve
acceptable production yields in our facilities in China;
 40




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
    
    the tendency of communications equipment suppliers to sporadically place large orders
with short lead times;
    
    competitive factors, including introductions of new products, new technologies and
product enhancements by competitors, consolidation of competitors in the fiber optic
components and subsystems market and pricing pressures;
    
    our ability to develop, introduce, manufacture and ship new and enhanced optical
networking products in a timely manner and in production quantities without defects or
other quality issues;
    
    with respect to new products, a mismatching of research and development expenses and
sales and marketing expenses that are incurred in one quarter with revenues that are not
recognized, if at all, until a subsequent quarter when the new products are introduced and
commercially accepted; and
    
    costs associated with, and the outcomes of, any intellectual property or other
litigation to which we are, or may become, a party.
  If we fail to effectively manage our manufacturing capability, produce products that meet our
customers quality requirements and achieve acceptable production yields in China, we may not be
able to deliver sufficient quantities of products that meet all of our customers order
requirements in a timely manner, which would harm our operating results.
    41




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
    
    our ability to procure the necessary raw materials and equipment on a timely basis;
    
    a potential lack of availability of qualified management and manufacturing personnel;
    
    our ability to maintain quality;
    
    our ability to effectively manage headcount, particularly if we undertake to expand our
manufacturing operations; and
    
    our ability to quickly and efficiently implement an adequate set of financial controls
to effectively track and control inventory levels and inventory mix and to accurately
predict inventory requirements.
  42




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Our products may have defects that are not detected until full deployment of a customers
equipment, which could result in a loss of customers, damage to our reputation and substantial
costs.
  
    
    loss of customers;
    
    loss of or delay in revenues;
    
    loss of market share;
    
    damage to our brand and reputation;
    
    inability to attract new customers or achieve market acceptance;
    
    diversion of development resources;
    
    increased service and warranty costs;
    
    legal actions by our customers; and
    
    increased insurance costs.
  We depend on the growth and success of the communications industry, which is subject to severe
fluctuations in economic activity and is also experiencing consolidation and realignment, as well
as a trend towards outsourced manufacturing.
    43




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Because we depend on third parties to supply some of our raw materials and equipment, we may not be
able to obtain sufficient quantities of these materials and equipment, or these materials may
become unavailable due to technological changes, which could limit our ability to fill customer
orders and harm our operating results.
  Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 could impair the reliability of our financial statements, cause us to
delay filing our periodic reports with the SEC, harm our reputation and adversely affect our stock
price.
  44




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Changes in existing financial accounting standards or practices may adversely affect our results of
operations.
  We compete in a highly competitive industry, and if we are unable to compete successfully or
develop new products and product enhancements that achieve market acceptance, our revenues could
decline, which would harm our operating results.
   45




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If our liability for U.S. and foreign taxes is greater than we have anticipated and reserved for,
our operating results may suffer.
   46




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If we are unable to successfully integrate acquired businesses or technologies, our operating
results may be harmed.
  
    
    additional operating expenses without additional revenues;
    
    potential dilutive issuances of equity securities;
    
    the incurrence of debt and contingent liabilities;
    
    amortization of other intangibles;
    
    research and development write-offs; and
    
    other acquisition-related expenses.
  Disruption to commercial activities in the United States or in other countries, particularly in
China, may adversely impact our results of operations, our ability to raise capital or our future
growth.
  
    
    disruptions to commercial activities or damage to our facilities as a result of natural
disasters, political unrest, war, terrorism, labor strikes, and work stoppages;
    
    difficulties and costs of staffing and managing foreign operations with personnel who
have expertise in optical network technology;
    
    unexpected changes in regulatory or certification requirements for optical systems or
networks;
 47




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
    
    disruptions in the transportation of our products and other risks related to the
infrastructure of foreign countries;
    
    economic instability.
    
    any future outbreak of severe acute respiratory syndrome, avian influenza and other
epidemics or illnesses; and
    
    power shortages at our manufacturing facilities in China, which may lead to production
delays.
    48




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We are exposed to currency rate fluctuations and exchange controls that could adversely impact our
operating results.
      49




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If tax benefits available to our subsidiaries located in China are reduced or repealed or our China
subsidiaries fail to meet the requirements for utilizing such tax benefits, our financial condition
and operating results could suffer.
  Our wavelength expansion products have accounted for a majority of our revenues, and our revenues
could be harmed if the price of, or demand for, these products further declines or if these
products fail to achieve broader market acceptance.
  The optical networking component industry is experiencing declining average selling prices, which
could cause our gross margins to decline and harm our operating results.
  50




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If we are unable to protect our proprietary technology, our ability to succeed will be harmed.
  We may be involved in intellectual property disputes in the future, which will divert managements
attention and could cause us to incur significant costs and prevent us from selling or using the
challenged technology.
    51




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
    
    obtain from the owner of the infringed intellectual property right a license to sell
or use the relevant technology, which license may not be available on reasonable terms, or
at all;
    
    stop selling, incorporating or using our products that use the challenged intellectual
property;
    
    pay substantial money damages; or
    
    redesign the products that use the technology.
  We are the target of a securities class action complaint and are at risk of securities class action
litigation, which will likely result in substantial costs and divert management attention and
resources.
  Our lengthy and variable qualification and sales cycle requires us to incur substantial costs to
make a sale, and if the sale does not occur then we will have incurred these expenses without
obtaining increased sales.
  52




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We depend on key personnel to manage our business effectively in a rapidly changing market, and if
we are unable to retain our key employees and hire additional personnel, our ability to sell our
products could be harmed.
   Because some of our third-party sales representatives and distributors carry products of one or
more of our competitors, they may not recommend our products over competitors products.
  Our failure to comply with governmental regulations could subject us to liability.
  53




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Recently enacted and proposed changes in securities laws and regulations have increased and are
likely to continue to increase our costs.
  RISKS RELATED TO OUR COMMON STOCK
 Because of the rapid changes taking place in the fiber optics industry, we expect to experience
significant volatility in our stock price, which could cause you to lose all or part of your
investment.
  
    
    economic downturn in the fiber optics industry;
    
    preannouncement of financial results;
    
    quarterly variations in our operating results;
    
    changes in financial estimates by securities analysts and our failure to meet estimates;
    
    changes in market values of comparable companies;
    
    announcements by our competitors or us of new products or of significant acquisitions,
strategic partnerships or joint ventures;
    
    any loss by us of a major customer;
    
    the outcome of, and costs associated with, any litigation to which we are or may become a
party;
    
    additions or departures of key management or engineering personnel; and
    
    future sales of our common stock.
  55




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Provisions of our charter documents and Delaware law and other arrangements may have anti-takeover
effects that could prevent any change in control, which could negatively affect your investment.
  
    
    issue preferred stock with rights senior to those of the common stock without any
further vote or action by the stockholders;
    
    provide for a classified board of directors;
    
    eliminate the right of the stockholders to call a special meeting of stockholders;
    
    eliminate the right of stockholders to act by written consent; and
    
    impose various procedural and other requirements, which could make it difficult for
stockholders to effect certain corporate actions.
   We have recently effected a 1-for-7 reverse split of our common stock, the short- or long-term
effects of which on our stock price or market capitalization cannot be predicted.
   56




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ITEM 2  CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES
  
 ITEM 3  DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 ITEM 5  OTHER INFORMATION
  
 ITEM 6  EXHIBITS
 Exhibit No.
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(1)
    
    Bylaws of the Registrant.3.3(2)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock.3.4(3)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant.31.1
    
    Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section 1350).32.2*
    
    Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
 
 (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-1/A, No. 333-41506, as filed
on October 3, 2000.(2)
    
    Previously filed as an Exhibit to the Registrants Report on Form 8-K filed on March 22, 2002 and
incorporated herein by reference.(3)
    
    Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on November 14, 2005.*
    
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly
Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall
not be deemed filed by the Company for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended. 57




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SIGNATURES
  OPLINK COMMUNICATIONS, INC.
(Registrant)DATE: May 11, 2006
    By:
    /s/ Bruce D. HornBruce D. HornChief Financial Officer
(Principal Financial and Accounting Officer) 58




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Exhibit Index
 Exhibit No.
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(1)
    
    Bylaws of the Registrant.3.3(2)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock.3.4(3)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant.31.1
    
    Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section 1350).32.2*
    
    Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
 
 (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-1/A, No. 333-41506, as filed
on October 3, 2000.(2)
    
    Previously filed as an Exhibit to the Registrants Report on Form 8-K filed on March 22, 2002 and
incorporated herein by reference.(3)
    
    Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on November 14, 2005.*
    
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly Report on Form
10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by
the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.