<PAGE>

================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q
     (Mark One)
     [X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934

           For the quarterly period ended December 31, 2000

                                       or


     [_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
           THE SECURITIES EXCHANGE ACT OF 1934

           For the transition period from ____________ to ____________

                       Commission file number  000-31581

                          OPLINK COMMUNICATIONS, INC.
             (Exact name of registrant as specified in its charter)

               Delaware                        No. 77-0411346
     (State or other jurisdiction of         (I.R.S. Employer
     incorporation or organization)           Identification No.)

                  3469 North First Street, San Jose, CA  95134
             (Address of principal executive offices)  (Zip Code)

       Registrant's telephone number, including area code: (408) 433-0606


     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes   X    No___
                                               -----

  The number of shares of the Registrant's Common Stock outstanding as of
January 31, 2001 was 157,398,431.

                  =========================================
<PAGE>

                          OPLINK COMMUNICATIONS, INC.

                                   FORM 10-Q

                                     INDEX

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----

PART I.   FINANCIAL INFORMATION
-------------------------------
<S>                                                                                  <C>
Item 1.      Financial Statements (unaudited):

      Condensed Consolidated Balance Sheet -
             December 31, 2000 and June 30, 2000                                       3

      Condensed Consolidated Statement of Operations -
             Three and six months ended December 31, 2000 and 1999                     4

      Condensed Consolidated Statement of Cash Flows -
             Six months ended December 31, 2000 and 1999                               5

      Notes to Condensed Consolidated Financial Statements                             7

Item 2.      Management's Discussion and Analysis of Financial
             Condition and Results of Operations                                      11

Item 3.      Quantitative and Qualitative Disclosures About Market Risk               32

PART II.  OTHER INFORMATION
---------------------------

Item 1.      Legal Proceedings                                                        33

Item 2.      Changes in Securities and Use of Proceeds                                33

Item 3.      Defaults Upon Senior Securities                                          33

Item 4.      Submission of Matters to a Vote of Security Holders                      33

Item 5.      Other Information                                                        33

Item 6.      Exhibits and Reports on Form 8-K                                         34

SIGNATURES                                                                            35
</TABLE>

                                       2

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

                          OPLINK COMMUNICATIONS, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEET
                                (In thousands)

<TABLE>
<CAPTION>
                                                                            December 31,       June 30,
                                                                           -----------------------------
                                                                                2000             2000
                                                                           -------------     -----------
<S>                                                                        <C>               <C>
ASSETS                                                                      (Unaudited)          (1)
Current assets:
    Cash and cash equivalents                                                $ 294,702        $ 26,665
    Accounts receivable, net                                                    33,276          10,100
    Inventories                                                                 25,159          11,308
    Prepaid expenses                                                             7,185           3,974
    Deferred tax assets                                                          1,762           1,080
                                                                           -----------       ---------
       Total current assets                                                    362,084          53,127
Property and equipment, net                                                     53,009          21,270
Intangible assets                                                               17,854          20,600
Other assets                                                                     1,276             935
                                                                           -----------       ---------
       Total assets                                                          $ 434,223        $ 95,932
                                                                           ===========       =========

LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:

    Accounts payable                                                         $  23,131        $ 15,188
    Accrued liabilities                                                         18,327           6,767
    Current portion of capital lease obligations                                 2,057             419
    Borrowings under the line of credit                                          1,145             135
                                                                           -----------       ---------
       Total current liabilities                                                44,660          22,509

Capital lease obligations, non current                                           3,661           1,267
Deferred tax liability                                                           2,958           2,958
                                                                           -----------       ---------
       Total liabilities                                                        51,279          26,734
                                                                           ===========       =========

Convertible preferred stock                                                          -          58,373

Commitments and contingencies (Note 7)

Stockholders' equity:
    Common stock                                                                   157              24
    Additional paid-in capital                                                 470,449          61,253
    Deferred stock compensation                                                (29,406)        (17,986)
    Accumulated deficit                                                        (58,256)        (32,466)
                                                                           -----------       ---------
       Total stockholders' equity                                              382,944          10,825
                                                                           -----------       ---------
            Total liabilities, convertible preferred stock
                and stockholders' equity                                     $ 434,223        $ 95,932
                                                                           ===========       =========
</TABLE>


(1) The June 30, 2000 consolidated balance sheet has been derived from audited
    financial statements at that date.

The accompanying notes are an integral part of these condensed consolidated
financial statements

                                       3
<PAGE>

                          OPLINK COMMUNICATIONS, INC.
                CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                Three Months Ended                  Six Months Ended
                                                                   December 31,                       December 31,
                                                            ----------------------------      -----------------------------
                                                               2000             1999             2000             1999
                                                            -----------      -----------      -----------      ------------
                                                                    (Unaudited)                       (Unaudited)
<S>                                                         <C>              <C>              <C>              <C>
Revenues                                                      $ 43,241          $ 6,817         $ 75,518          $ 11,249
Cost of revenues:
     Cost of revenues                                           30,929            5,322           55,516             8,596
     Non-cash compensation expense                               1,536              347            2,889               503
                                                            ----------       ----------       ----------       -----------
       Total cost of revenues                                   32,465            5,669           58,405             9,099
                                                            ----------       ----------       ----------       -----------

Gross profit                                                    10,776            1,148           17,113             2,150
                                                            ----------       ----------       ----------       -----------
Operating expenses:
     Research and development:
       Research and development                                  5,016              289            8,635               507
       Non-cash compensation expense                             1,349              375            2,754               485
                                                            ----------       ----------       ----------       -----------
         Total research and development                          6,365              664           11,389               992
                                                            ----------       ----------       ----------       -----------

     Sales and marketing:
       Sales and marketing                                      11,989              481           14,357               792
       Non-cash compensation expense                               660              111            1,263               201
                                                            ----------       ----------       ----------       -----------
         Total sales and marketing                              12,649              592           15,620               993
                                                            ----------       ----------       ----------       -----------

     General and administrative:
       General and administrative                                3,682              612            6,375             1,331
       Non-cash compensation expense                             6,333              831           11,703             1,004
                                                            ----------       ----------       ----------       -----------
         Total general and administrative                       10,015            1,443           18,078             2,335
                                                            ----------       ----------       ----------       -----------

                                                            ----------       ----------       ----------       -----------
     Amortization of goodwill                                      983                -            1,966                 -
                                                            ----------       ----------       ----------       -----------

                                                            ----------       ----------       ----------       -----------
            Total operating expenses                            30,012            2,699           47,053             4,320
                                                            ----------       ----------       ----------       -----------

Loss from operations                                           (19,236)          (1,551)         (29,940)           (2,170)
Interest and other income, net                                   4,138               23            4,150                58
                                                            ----------       ----------       ----------       -----------

Net loss                                                     $ (15,098)        $ (1,528)       $ (25,790)         $ (2,112)
                                                            ==========       ==========       ==========       ===========

Basic and diluted net loss per share                           $ (0.10)         $ (0.55)         $ (0.28)          $ (0.83)
                                                            ==========       ==========       ==========       ===========

Basic and diluted weighted average shares outstanding          156,339            2,790           91,578             2,538
                                                            ==========       ==========       ==========       ===========

Pro forma basic net earnings per share                          $ 0.02              $ -           $ 0.02               $ -
                                                            ==========       ==========       ==========       ===========

Pro forma basic weighted average shares outstanding            156,339           90,893          147,222            90,520
                                                            ==========       ==========       ==========       ===========

Pro forma diluted net earnings per share                        $ 0.02              $ -           $ 0.01               $ -
                                                            ==========       ==========       ==========       ===========

Pro forma diluted weighted average shares outstanding          178,363          108,799          168,585           109,780
                                                            ==========       ==========       ==========       ===========
</TABLE>

The accompanying notes are an integral part of these condensed consolidated
financial statements.

                                       4
<PAGE>

                          OPLINK COMMUNICATIONS, INC.
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                           Six Months Ended
                                                                                             December 31,
                                                                                     ---------------------------
                                                                                         2000           1999
                                                                                     -----------    ------------
<S>                                                                                  <C>            <C>
Cash flows from operating activities:
    Net loss                                                                         $   (25,790)   $     (2,112)
    Adjustments to reconcile net loss to net cash
      used in operating activities:
         Depreciation and amortization of property and equipment                           3,225             443
         Amortization of goodwill and intangible assets                                    2,746               -
         Amortization of deferred compensation                                            18,609           2,193
         Deferred tax assets                                                                (682)              -
         Sales and marketing expense related to the convertible
            note payable to Cisco Systems                                                  8,824               -
         Interest expense related to the convertible note
            payable to Cisco Systems                                                         471               -
         Donation of shares of common stock                                                  100               -
         Change in assets and liabilities:
            Accounts receivable                                                          (23,176)         (2,259)
            Inventories                                                                  (13,851)         (5,366)
            Prepaid expenses                                                              (3,211)           (894)
            Other assets                                                                    (341)             18
            Accounts payable                                                               7,943             603
            Accrued liabilities                                                           11,560             739
                                                                                     -----------    ------------
               Net cash used in operating activities                                     (13,573)         (6,635)
                                                                                     -----------    ------------
Cash flows from investing activities:
    Purchase of property and equipment                                                   (30,234)         (1,384)
                                                                                     -----------    ------------
               Net cash used in investing activities                                     (30,234)         (1,384)
                                                                                     -----------    ------------
Cash flows from financing activities:
    Proceeds from issuance of convertible preferred stock                                      -           2,290
    Proceeds from issuance of common stock upon the
      initial public offering                                                            261,014               -
    Proceeds from issuance of common stock upon the
      exercise of options, net of repurchases                                                518              48
    Proceeds from issuance of convertible note payable                                    50,000               -
    Proceeds from borrowings under line of credit                                          1,010           1,231
    Repayment of capital lease obligations                                                  (698)              -
                                                                                     -----------    ------------
               Net cash provided by financing activities                                 311,844           3,569
                                                                                     -----------    ------------

Net increase (decrease) in cash and cash equivalents                                     268,037          (4,450)

Cash and cash equivalents, beginning of year                                              26,665           4,757
                                                                                     -----------    ------------

Cash and cash equivalents, end of year                                               $   294,702    $        307
                                                                                     ===========    ============

</TABLE>

                           (Continued on next page)

The accompanying notes are an integral part of these condensed consolidated
financial statements

                                       5
<PAGE>

                          OPLINK COMMUNICATIONS, INC.
                CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                (In thousands)
                                 (Unaudited)

                        (CONTINUED FROM PREVIOUS PAGE)

<TABLE>
<CAPTION>
                                                                                                  Six Months Ended
                                                                                                    December 31,
                                                                                              -----------------------
                                                                                               2000             1999
                                                                                              -----------------------
<S>                                                                                           <C>             <C>
Supplemental disclosures of cash flow information:
    Cash paid during the period for interest expense                                           $   188        $    16
                                                                                              ========       ========
    Cash paid during the period for income taxes                                               $ 1,762        $     -
                                                                                              ========       ========
Supplemental non-cash investing and financing activities:
    Property and equipment acquired under capital lease                                        $ 4,730        $     -
                                                                                              ========       ========
    Deferred compensation related to common stock
      option grants to employees                                                               $30,340        $ 4,070
                                                                                              ========       ========

    Conversion of convertible preferred stock                                                  $58,373        $     -
                                                                                              ========       ========
    Conversion of convertible note payable and related interest to Cisco Systems               $50,471        $     -
                                                                                              ========       ========
</TABLE>

The  accompanying  notes are an integral  part of these  condensed  consolidated
                             financial statements

                                       6
<PAGE>

                          OPLINK COMMUNICATIONS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)

1.   Description of Business.   Oplink Communications, Inc. ("Oplink" or the
     ------------------------
"Company") designs, manufactures and markets fiber optic components and
integrated optical modules that increase the performance of optical networks.
The Company provides a broad line of products to communications equipment
suppliers to enable bandwidth creation and management within an optical network.
The Company was incorporated in September 1995 and began shipping its products
for sale in 1996. In April 1999, the Company established manufacturing
operations in China. In April 2000, the Company acquired Telelight Communication
Inc., a designer and manufacturer of passive fiber optic components in
Sunnyvale, California and China. We have manufacturing operations in San Jose,
California and Beijing, Chengdu, Fuzhou, Shanghai and Zhuhai, China. We have
expanded and plan to continue to expand our manufacturing capacity as our
business grows. We are currently expanding our facilities in San Jose, Chengdu,
Shanghai and Zhuhai. The Company conducts its business within one business
segment and has no organizational structure dictated by product, service lines,
geography or customer type.

2.   Basis of Presentation.  The condensed consolidated financial statements
     ---------------------
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to such rules and regulations.  The
financial statements presented herein have been prepared by management, without
audit by independent accountants who do not express an opinion thereon, and
should be read in conjunction with the consolidated financial statements and
notes thereto for the fiscal year ended June 30, 2000 included in the Company's
Registration Statement on Form S-1 declared effective by the SEC on October 3,
2000.

     The unaudited condensed consolidated statement of operations data reflects
a reclassification to allocate the non-cash compensation expense related to the
issuance of stock options from a single-line presentation within operating
expenses to the individual amounts related to cost of revenues, research and
development, sales and marketing, and general and administrative expenses.

     In the opinion of the management, these unaudited financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position of the Company at December
31, 2000, the results of its operations for the three and six-month periods
ended December 31, 2000 and 1999 and its cash flows for the six-month period
ended December 31, 2000 and 1999. The results of operations for the periods
presented are not necessarily indicative of those that may be expected for the
full year.

3.   Net Loss Per Share and Pro Forma Net Earnings Per Share.  The Company
     -------------------------------------------------------
computes net loss per share in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share," and SEC Staff Accounting
Bulletin ("SAB") No. 98. Under the provisions of SFAS No. 128 and SAB No. 98,
basic net loss per share is computed by dividing the net loss for the period by
the weighted average number of shares of common stock outstanding during the
period.  Diluted net loss per share is computed by dividing the net loss for the
period by the weighted average number of common and common equivalent shares
outstanding during the period, if dilutive.  Common equivalent shares are
composed of preference shares, warrants and the incremental common shares
issuable upon the exercise of stock options.  Pro forma net earnings per share
is computed using the weighted average number of common shares outstanding,

                                       7
<PAGE>

including the pro forma effects of the automatic conversion of: (a) the
Company's Series A, B, C, D, and E redeemable convertible preferred stock as if
such conversion had occurred as of the later of the beginning of each period
presented or the date of issuance; and (b) the convertible promissory note
payable to Cisco Systems, Inc. into shares of the Company's common stock, as if
such conversion had occurred at the date of original issuance, August 28, 2000.
The actual conversions were effective upon the closing of Oplink's initial
public offering which occurred on October 10, 2000. The following is a
reconciliation of the numerators and denominators of the Basic and Diluted net
loss per share computations for the periods presented (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                                                       Three Months Ended                Six Months Ended
                                                                           December 31,                     December 31,
                                                                       2000             1999            2000            1999
                                                                    -----------      ----------      ----------      ----------
<S>                                                                 <C>              <C>             <C>             <C>
Numerator:
     Net loss attributable to holders of Common Stock               $   (15,098)     $   (1,528)     $  (25,790)     $   (2,112)
                                                                    ===========      ==========      ==========      ==========
Denominator:
     Weighted average shares outstanding                                156,339           2,790          91,578           2,538
                                                                    -----------      ----------      ----------      ----------
Denominator for basic and diluted calculations                          156,339           2,790          91,578           2,538
                                                                    ===========      ==========      ==========      ==========

Net loss per share:
     Basic and diluted                                              $     (0.10)     $    (0.55)     $    (0.28)     $    (0.83)
                                                                    ===========      ==========      ==========      ==========

Antidilutive securities including options, warrants,
     preferred shares and shares per convertible note payable
     not included in net loss per share calculation                      22,024         106,009          21,364         107,242
                                                                    ===========      ==========      ==========      ==========

Pro forma:
     Shares used in computing basic calculations                        156,339           2,790          91,578           2,538
     Weighted average number of shares assumed upon
        conversion of shares per convertible note payable and
        conversion of redeemable convertible preferred stock                  -          88,103          55,644          87,982
                                                                    -----------      ----------      ----------      ----------
     Shares used in computing pro forma basic net earnings
        per share                                                       156,339          90,893         147,222          90,520
                                                                    ===========      ==========      ==========      ==========

     Pro forma basic net earnings per share                         $      0.02      $        -      $     0.02      $        -
                                                                    ===========      ==========      ==========      ==========

Antidilutive securities including options and warrants
     not included in net earnings per share calculation                  22,024         106,009          77,007         107,242
                                                                    ===========      ==========      ==========      ==========

     Shares used in computing diluted calculations                      156,339           2,790          91,578           2,538
     Weighted average number of shares assumed upon
        conversion of shares per convertible note payable,
        conversion of redeemable convertible preferred stock
        and common equivalent shares from dilutive stock options
        using the treasury method                                        22,024         106,009          77,007         107,242
                                                                    -----------      ----------      ----------      ----------
     Shares used in computing pro forma diluted earnings
        per share                                                       178,363         108,799         168,585         109,780
                                                                    ===========      ==========      ==========      ==========

     Pro forma diluted net earnings per share                       $      0.02      $        -      $     0.01      $        -
                                                                    ===========      ==========      ==========      ==========
</TABLE>

                                       8
<PAGE>

     Pro forma net income for the three and six months ended December 31, 2000
excludes the non-cash compensation expense of $9.9 million and $18.6 million,
respectively, amortization of goodwill of $1.0 million and $2.0 million,
respectively, sales and marketing one-time charge of $8.8 million representing
the fair value of the discount feature of the convertible note payable to Cisco
Systems and interest expense on the convertible note payable to Cisco Systems of
$.1 million and $.5 million, respectively.  Pro forma net income for the three
months and six months ended December 31, 2000 includes a pro forma income tax
provision using an effective tax rate of 35% and 40%, respectively.  Pro forma
net income for the three months and six months ended December 31, 1999 excludes
the non-cash compensation expense.

4    Inventories. Inventories are stated at the lower of cost (first-in, first-
     -----------
  out) or market. Inventories consist of (in thousands):

                                         December 31,        June 30,
                                            2000               2000
                                          --------           --------
     Inventories:
         Raw materials                      $12,991            $ 6,995
         Work-in-process                      9,903              3,038
         Finished goods                       2,265              1,275
                                           --------            -------
                                            $25,159            $11,308
                                           ========            =======

 5.  Recent Accounting Pronouncements.  In June 1998, the Financial Accounting
     --------------------------------
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes new standards of accounting and reporting
for derivative instruments and hedging activities. SFAS No. 133 requires that
all derivatives be recognized at fair value in the statement of financial
position, and that the corresponding gains or losses be reported either in the
statement of operations or as a component of comprehensive income (loss),
depending on the type of hedging relationship that exists.

     In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133
did not have a material impact on the Company's operations or financial
position.

     In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. Management believes that the Company has complied with the
guidance of SAB 101.

     In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of Opinion No. 25" for (a) the definition of employee for
purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 became effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15, 1998, or
January 12, 2000. The adoption of certain provisions of FIN 44 did not have a
material impact on the Company's financial position or results of operations.

                                       9
<PAGE>

     In August 2000, the Emerging Issues Task Force ("EITF") released issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10
addresses the income statement classification of amounts billed to a customer
for shipping and handling costs as well as the classification of amounts
incurred for shipping and handling costs. The EITF concluded that amounts billed
to customers in sales transactions related to shipping and handling should be
classified as revenue, and any costs incurred should be classified as cost of
goods sold or, in general, as operating expense. If shipping and handling costs
incurred are not included in cost of goods sold, the amount of such costs and
the line item on the statement of operations which includes these costs should
be disclosed. The adoption of EITF 00-10 will not have a material impact on our
financial position or results of operations.

6.   Initial Public Offering.  On October 10, 2000, the Company sold 15,755,000
     -----------------------
shares of common stock in an underwritten initial public offering, including
2,055,000 shares of common stock issued pursuant to the exercise of the
underwriter's over-allotment option, resulting in net proceeds to the Company of
approximately $263.7 million, before offering expenses of approximately $2.7
million.  Simultaneously with the closing of the public offering, 110,103,344
shares of convertible preferred stock were converted to shares of common stock
on a one-for-one-basis. In addition, the note payable to Cisco Systems, Inc. was
converted into 3,298,773 shares of common stock at a conversion price of $15.30
per share, or 85% of the public offering price of $18.00 per share. The discount
feature of this convertible note payable resulted in a charge of $8.8 million,
recorded as sales and marketing expense in the quarter ended December 31, 2000.

7.   Contingencies.  In November 1999, a lawsuit was filed against the Company
     -------------
alleging patent infringement related to the manufacture and sale of fiber optic
products which generated a majority of the  Company's revenues for each of the
quarters ended June 30, September 30 and December 31, 2000, and the year ended
June 30, 2000.

     In June 2000, a lawsuit was filed against the Company and Telelight
Communication Inc., a wholly owned subsidiary, alleging patent infringement
relating to the manufacture of and offer to sell various fiber optic products.

     In both lawsuits, the plaintiffs are seeking damages and injunctive relief.
An unfavorable ruling in these matters would have a material adverse effect on
the Company's financial condition and results of operations. The Company, with
the assistance of its legal counsel, intends to vigorously defend its position
in both matters. However, because of the considerable uncertainties that exist,
the impact, if any, on the Company cannot now be reasonably estimated based on
facts currently available to management. Accordingly, the Company has determined
that it would be inappropriate to book an accrual with respect to these
litigation matters in the consolidated financial statements.

8.   Fiscal Period. On January 1, 2001, the Company adopted a fiscal year which
     -------------
ends on the Sunday closest to June 30.  Interim fiscal quarters will end on the
Sunday closest to each calendar quarter end. For presentation purposes, the
Company will present each fiscal year as if it ended on June 30. The Company
will present each of the fiscal quarters as if it ended on September 30,
December 31, or March 31. Fiscal year 2001 consists of 52 weeks.

                                       10
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

     This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are signified by the
words "expect", "anticipate", "intend", "believe", or similar language. All
forward-looking statements included in this document are based on information
available to us on the date hereof, and we assume no obligation to update any
such forward-looking statements. Actual results could differ materially from
those projected in the forward-looking statements. In evaluating our business,
you should carefully consider the information set forth below under the caption
"Risk Factors." We caution you that our businesses and financial performance are
subject to substantial risks and uncertainties.

Overview

     We design, manufacture and market fiber optic components and integrated
optical modules that increase the performance of optical networks. We provide a
broad line of products to communications equipment suppliers to enable bandwidth
creation and management within an optical network. We were incorporated in
September 1995 and began shipping product for sale in the second half of 1996.
In April 1999, we established manufacturing operations in China. In April 2000,
we acquired Telelight Communication Inc. ("Telelight"), a designer and
manufacturer of fiber optic components with operations in Sunnyvale, California
and China. We have manufacturing operations in San Jose, California and Beijing,
Chengdu, Fuzhou, Shanghai and Zhuhai, China. We have expanded and plan to
continue to expand our manufacturing capacity as our business grows. We are
currently expanding our facilities in San Jose, Chengdu, Shanghai and Zhuhai.

     We generate revenues from the sale of fiber optic components and integrated
optical modules. To date, we have developed over 20 types of primary components.
In addition, we have integrated these components through various combinations
and are able to provide over 100 customized solutions to our customers. Our
products are generally categorized into the following four major groups:
wavelength expansion; optical amplification; wavelength performance monitoring
and protection; and optical switching. A substantial majority of our revenues
are derived from our wavelength expansion products, in particular, dense
wavelength division multiplexers, or DWDMs, and multiplexers used primarily in
optical amplification. However, revenues derived from our optical amplification
and optical switching products have increased as a percentage of total revenues
sequentially over the past two quarters, and we currently anticipate that such
revenues will continue to increase as a percentage of total revenues.

     We depend upon a small number of customers for a substantial portion of our
revenues.  Our top seven customers together accounted for 81.9% and 82.8% in the
three months and six months ended December 31, 2000, respectively. Nortel
Networks Corporation, Agere Systems Inc. (a subsidiary of Lucent), Cisco
Systems, Lucent Technologies (exclusive of Agere), Corning Incorporated,
Sycamore Networks and JDS Uniphase Corporation accounted for 28.6%, 19.1%,
10.0%, 7.5%, 6.0%, 6.0% and 4.7% of our revenues for the three months ended
December 31, 2000, respectively. Nortel Networks Corporation, Agere Systems Inc.
(a subsidiary of Lucent), Cisco Systems, Lucent Technologies (exclusive of
Agere), Corning Incorporated, Sycamore Networks and JDS Uniphase Corporation
accounted for 17.5%, 15.3%, 8.9%, 13.9%, 5.1%, 15.2% and 6.9% of our revenues
for the six months ended December 31, 2000, respectively. We expect that we will
continue to depend upon a small number of customers, although potentially not
the same customers, for a substantial portion of our revenues.

                                       11
<PAGE>

     Our condensed consolidated statement of operations data reflects a
reclassification to allocate the non-cash compensation expense related to the
issuance of stock options from a single-line presentation within operating
expenses to the individual amounts related to cost of revenues, research and
development, sales and marketing, and general and administrative expenses.

     On October 10, 2000, we sold 15,755,000 shares of common stock in an
underwritten initial public offering, including 2,055,000 shares of common stock
issued pursuant to the exercise of the underwriter's over-allotment option,
resulting in net proceeds of approximately $263.7 million, before offering
expenses of approximately $2.7 million.  Simultaneously with the closing of the
public offering, 110,103,344 shares of convertible preferred stock were
converted to shares of common stock on a one-for-one-basis. In addition, the
note payable to Cisco Systems, Inc. was converted into 3,298,773 shares of
common stock at a conversion price of $15.30 per share, or 85% of the public
offering price of $18.00 per share. The discount feature of this convertible
note payable resulted in a charge of $8.8 million, recorded as sales and
marketing expense in the quarter ended December 31, 2000.

Results of Operations

     Revenues.  Revenues increased $36.4 million, or 534%, from $6.8 million for
the three months ended December 31, 1999 to $43.2 million for the three months
ended December 31, 2000.  Revenues increased $64.3 million, or 571%, from $11.2
million for the six months ended December 31, 1999 to $75.5 million for the six
months ended December 31, 2000.  These increases were primarily due to increased
shipments of our existing wavelength expansion products, optical amplification
products and optical switching products to existing and new customers, and to a
lesser extent shipments of new products. These increases were partially offset
by a decrease in the average selling price of some of our products.

     Gross Profit.  Gross profit, excluding non-cash compensation expense,
increased $10.8 million, or 724%, from $1.5 million for the three months ended
December 31, 1999 to $12.3 million for the three months ended December 31, 2000.
This resulted in an increase in gross margin from 21.9% to 28.5%.  Gross profit,
excluding non-cash compensation expense, increased $17.3 million, or 654%, from
$2.7 million for the six months ended December 31, 1999 to $20.0 million for the
six months ended December 31, 2000.  This resulted in an increase in gross
margin from 23.6% to 26.5%.  The increases in our gross margin were primarily
due to yield improvements in our domestic manufacturing operations, the cost
benefits of manufacturing in China and economies of scale resulting from higher
production volumes. These increases were partially offset by decreases in the
average selling price of some of our products, additional excess and obsolete
inventory reserves, manufacturing inefficiencies associated with the rapid
expansion of our manufacturing capacity and low yields in China due to our rapid
expansion. Manufacturing overhead costs, excluding non-cash compensation
expense, associated with the expansion of our manufacturing operations both
domestically and internationally increased $5.9 million and $9.6 million for the
three months and six months ended December 31, 2000, respectively, compared to
the same periods in the prior fiscal year. We are implementing programs both
domestically and internationally to further improve yields for our products. We
cannot assure you that these programs will continue to be successful in
increasing our gross margin. Additionally, we are planning continued rapid
expansion to support the anticipated growth in our worldwide markets. Additional
spending related to this expansion may offset any gross margin improvement due
to yield improvements and volume manufacturing efficiencies. Gross profit,
including non-cash compensation expense, increased $9.6 million, or 839%, from
$1.1 million for the three months ended December 31, 1999 to $10.8 million for
the three months ended December 31, 2000. This resulted in an increase in gross
margin from 16.8% to 24.9%. Gross profit, including non-cash compensation
expense, increased $15.0 million, or 696%, from $2.2 million for the six months
ended December 31, 1999 to $17.1

                                       12
<PAGE>

million for the six months ended December 31, 2000. This resulted in an increase
in gross margin from 19.1% to 22.7%.

     Research and Development. Research and development expenses, excluding non-
cash compensation expense, increased $4.7 million, or 1636%, from $289,000 for
the three months ended December 31, 1999 to $5.0 million for the three months
ended December 31, 2000. Research and development expenses, excluding non-cash
compensation expense, increased $8.1 million, or 1603%, from $507,000 for the
six months ended December 31, 1999 to $8.6 million for the six months ended
December 31, 2000. The increase in research and development expenses was
primarily due to costs associated with the substantial increase in personnel and
personnel-related costs, an increase in prototype expenses for the design and
development of new products as well as significant improvements to existing
products and an increase in occupancy costs due to expansion of facilities.
Research and development expenses, including non-cash compensation expense,
increased $5.7 million, or 859%, from $664,000 for the three months ended
December 31, 1999 to $6.4 million for the three months ended December 31, 2000.
Research and development expenses, including non-cash compensation expense,
increased $10.4 million, or 1048%, from $992,000 for the six months ended
December 31, 1999 to $11.4 million for the six months ended December 31, 2000.
We expect our research and development expenses to increase in dollar amounts
and remain relatively flat as a percentage of revenues as we continue to develop
new products and improve existing products.

     Sales and Marketing.  Sales and marketing expenses, excluding a one-time
charge of $8.8 million related to the discount feature of the convertible note
payable to Cisco Systems and non-cash compensation expense, increased $2.7
million, or 558%, from $481,000 for the three months ended December 31, 1999 to
$3.2 million for the three months ended December 31, 2000.  Sales and marketing
expenses, excluding the Cisco Systems conversion charge and non-cash
compensation expense, increased $4.7 million, or 599%, from $792,000 for the six
months ended December 31, 1999 to $5.5 million for the six months ended December
31, 2000. The increases in sales and marketing expenses were primarily due to
costs associated with the substantial increase in sales and marketing personnel
and personnel-related costs, commissions to our internal and external sales
representatives, and tradeshow, advertising and other customer-related costs.
Sales and marketing expenses, including the Cisco Systems conversion charge and
non-cash compensation expense, increased $12.1 million, or 2037%, from $592,000
for the three months ended December 31, 1999 to $12.6 million for the three
months ended December 31, 2000. Sales and marketing expenses, including the
Cisco Systems conversion charge and non-cash compensation expense, increased
$14.6 million, or 1473%, from $993,000 for the six months ended December 31,
1999 to $15.6 million for the six months ended December 31, 2000. We expect our
sales and marketing expenses to increase in dollar amounts and remain relatively
flat as a percentage of revenues as we add additional sales personnel and
related costs to support our sales and marketing efforts.

     General and Administrative.  General and administrative expenses, excluding
non-cash compensation expense, increased $3.1 million, or 502%, from $612,000
for the three months ended December 31, 1999 to $3.7 million for the three
months ended December 31, 2000. General and administrative expenses, excluding
non-cash compensation expense, increased $5.0 million, or 379%, from $1.3
million for the six months ended December 31, 1999 to $6.4 million for the six
months ended December 31, 2000. The increases in general and administrative
expenses were primarily due to costs associated with the substantial increase in
personnel and personnel-related costs, start up costs in China and occupancy
costs. General and administrative expenses, including non-cash compensation
expense, increased $8.6 million, or 594%, from $1.4 million for the three months
ended December 31, 1999 to $10.0 million for the three months ended December 31,
2000. General and administrative expenses, including non-cash compensation
expense, increased $15.7 million, or 674%, from $2.3 million for the six months
ended December 31, 1999 to $18.1

                                       13
<PAGE>

million for the six months ended December 31, 2000. We expect our general and
administrative expenses to increase in dollar amounts but decrease as a
percentage of revenues as we establish the infrastructure to support our growing
operations and due to the reporting requirements imposed on a public company.

     Non-cash Compensation Expense. Through December 31, 2000, we had recorded
an aggregate of $63.8 million in deferred non-cash compensation. Non-cash
compensation expense increased $8.2 million, or 494%, from $1.7 million for the
three months ended December 31, 1999 to $9.9 million for the three months ended
December 31, 2000. Non-cash compensation expense increased $16.4 million, or
749%, from $2.2 million for the six months ended December 31, 1999 to $18.6
million for the six months ended December 31, 2000.

     Amortization of Goodwill. Amortization of goodwill of $1.0 million and $2.0
million for the three months and six months ended December 31, 2000,
respectively, represents charges incurred as a result of our acquisition of
Telelight in April 2000.

     Interest and Other Income, Net. Interest and other income, net increased
$4.1 million from $23,000 for the three months ended December 31, 1999 to $4.1
million for the three months ended December 31, 2000. Interest and other income,
net increased $4.1 million from $58,000 for the six months ended December 31,
1999 to $4.2 million for the six months ended December 31, 2000. The increases
in interest income are due to larger cash balances from the proceeds of our
initial public offering in October 2000, preferred stock financing in February
2000 and convertible note payable to Cisco Systems in August 2000 offset by
interest expense on the convertible note payable to Cisco Systems.

     Provision for Income Taxes.  We have a net asset of $1.8 million as of
 December 31, 2000, which is net of valuation allowance that reduces the gross
deferred tax asset of $4.5 million to an amount that management believes will
more likely than not be realized based on currently available objective
evidence.  In assessing the realizability of deferred tax assets, management
recorded a valuation allowance to the extent we do not have a carryback right.
Based on our history of losses and certainty of generating future taxable
income, the realizable portion of the deferred tax assets is equal only to the
amount of income tax expected to be paid during fiscal 2001, which is related to
a tax liability incurred during fiscal 2000 and fiscal 2001.

Liquidity and Capital Resources

     Since our inception, we have financed our operations primarily through
issuances of equity, which totaled approximately $319.4 million in aggregate net
proceeds through December 31, 2000. In August 2000, we received $50.0 million in
connection with the issuance to Cisco Systems of a convertible promissory note
which automatically converted into 3,298,773 shares of common stock upon the
closing of our initial public offering in October 2000. Our initial public
offering resulted in net proceeds of approximately $263.7 million, before
offering expenses of approximately $2.7 million. As of December 31, 2000, we had
cash and cash equivalents of $294.7 million and working capital of $317.4
million.

     Our operating activities used cash of $13.6 million in the six months ended
December 31, 2000.  Cash used in operating activities was primarily attributable
to a net loss incurred during the first half of fiscal 2001 of $25.8 million,
increases in accounts receivable of $23.2 million, inventories of $13.8 million,
prepaid expenses of $3.2 million, deferred tax assets of $682,000 and other
assets of $341,000. These amounts were partially offset by increases in accounts
payable of $7.9 million, accrued liabilities of $11.6 million, and depreciation
and amortization expense of $6.0 million, non-cash compensation expense of $18.6
million, selling and marketing expenses related to the discount feature of the
convertible note payable

                                       14
<PAGE>

to Cisco Systems of $8.8 million and interest expense related to the convertible
note payable to Cisco Systems of $471,000.

     Our investing activities used cash of $30.2 million in the six months ended
December 31, 2000 due to the purchase of property and equipment. During the next
12 months, we expect to use approximately $60.0 million for the expansion of our
manufacturing facilities worldwide. We expect to use cash generated from our
initial public offering for these expenditures.

     Our financing activities provided cash of $311.8 million in the six months
ended December 31, 2000 primarily from net proceeds from our initial public
offering of $263.7 million, proceeds from the convertible promissory note
payable to Cisco Systems of $50.0 million, proceeds from the issuance of common
stock of $518,000 and borrowings under our line of credit of $1.0 million
partially offset by expenses from our initial public offering of $2.7 million
and our repayment of lease obligations of $698,000.

     Our principal source of liquidity at December 31, 2000 consisted of $294.7
million in cash and cash equivalents. We believe that our current cash and cash
equivalent balances and any cash generated from operations, will be sufficient
to meet our operating and capital requirements for at least the next 12 months.
However, it is possible that we may require additional financing within this
period. The factors described above and elsewhere in this report will affect our
future capital requirements and the adequacy of our available funds. In
addition, even if we raise sufficient funds to meet our anticipated cash needs
during the next 12 months, we may need to raise additional funds beyond this
time. We may use cash and cash equivalents from time to time to fund our
acquisition of businesses and technologies. We may be required to raise funds
through public or private financings, strategic relationships or other
arrangements. We cannot assure you that such funding, if needed, will be
available on terms attractive to us, or at all. Furthermore, any additional
equity financing may be dilutive to stockholders, and debt financing, if
available, may involve restrictive covenants. Our failure to raise capital when
needed could harm our ability to pursue our business strategy and achieve and
maintain profitability.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS No. 133 requires that all derivatives be recognized at fair
value in the statement of financial position, and that the corresponding gains
or losses be reported either in the statement of operations or as a component of
comprehensive income (loss), depending on the type of hedging relationship that
exists.

     In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000. The adoption of SFAS No. 133
did not have a material impact on the Company's operations or financial position
or results of operations.

     In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. Management believes that the Company has complied with the
guidance of SAB 101.

     In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of Opinion No. 25" for (a) the definition of employee for

                                       15
<PAGE>

purposes of applying Opinion No. 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option or award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain conclusions
cover specific events that occur after either December 15, 1998, or January 12,
2000. The adoption of certain provisions of FIN 44 did not have a material
impact on the Company's financial position.

     In August 2000, the Emerging Issues Task Force ("EITF") released issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10
addresses the income statement classification of amounts billed to a customer
for shipping and handling costs as well as the classification of amounts
incurred for shipping and handling costs. The EITF concluded that amounts billed
to customers in sales transactions related to shipping and handling should be
classified as revenue, and any costs incurred should be classified as cost of
goods sold or, in general, as operating expense. If shipping and handling costs
incurred are not included in cost of goods sold, the amount of such costs and
the line item on the statement of operations which includes these costs should
be disclosed. The adoption of EITF 00-10 will not have a material impact on our
financial position or results of operations.

Risk Factors

WE HAVE INCURRED SIGNIFICANT LOSSES, AND OUR FAILURE TO INCREASE OUR REVENUES
COULD PREVENT US FROM ACHIEVING PROFITABILITY.

     We have incurred significant losses since our inception in 1995 and expect
to incur losses in the future. We incurred net losses of $24.9 million for the
year ended June 30, 2000 and $25.8 million for the six months ended December 31,
2000. We have not achieved profitability on a quarterly basis. As of December
31, 2000, we had an accumulated deficit of $58.3 million. We will need to
generate significantly greater revenues while containing costs and operating
expenses to achieve profitability. Our revenues may not continue to grow, and we
may never generate sufficient revenues to achieve profitability.

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.

     We depend upon a small number of customers for a substantial portion of our
revenues.  Our top seven customers together accounted for 81.9% and 82.8% in the
three months and six months ended December 31, 2000, respectively. Nortel
Networks Corporation, Agere Systems Inc. (a subsidiary of Lucent), Cisco
Systems, Lucent Technologies (exclusive of Agere), Corning Incorporated,
Sycamore Networks and JDS Uniphase Corporation accounted for 28.6%, 19.1%,
10.0%, 7.5%, 6.0%, 6.0% and 4.7% of our revenues for the three months ended
December 31, 2000, respectively. Nortel Networks Corporation, Agere Systems Inc.
(a subsidiary of Lucent), Cisco Systems, Lucent Technologies (exclusive of
Agere), Corning Incorporated, Sycamore Networks and JDS Uniphase Corporation
accounted for 17.5%, 15.3%, 8.9%, 13.9%, 5.1%, 15.2% and 6.9% of our revenues
for the six months ended December 31, 2000, respectively. We expect that we will
continue to depend upon a small number of customers, although potentially not
the same customers, for a substantial portion of our revenues.

     Our revenues generated from these customers, individually or in the
aggregate, may not reach or exceed historic levels in any future period. For
example, we may not be the sole source of supply to our customers, and they may
choose to purchase products from other vendors. Furthermore, the businesses of
our existing

                                       16
<PAGE>

customers could experience a downturn, which could result in significantly
decreased sales to these customers and harm our results of operations. Loss or
cancellations of orders from, or any downturn in the business of, any of our
customers could harm our business. Our dependence on a small number of customers
may increase if the optical components industry and our target markets continue
to consolidate.

BECAUSE WE DID NOT COMMENCE SALES OF OUR PRODUCTS UNTIL LATE 1996 AND ONLY
RECENTLY BEGAN SELLING OUR PRODUCTS IN LARGE VOLUME, WE MAY BE UNABLE TO
ACCURATELY FORECAST OUR REVENUES, AND OUR QUARTERLY REVENUES AND OPERATING
RESULTS MAY CONTINUE TO FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER.

     We did not commence sales of our products until late 1996 and only recently
began selling our products in large volume. As a result, it is difficult to
forecast our revenues accurately. Moreover, our revenues, expenses and operating
results have varied significantly from quarter to quarter in the past and may
continue to fluctuate significantly in the future. The factors, many of which
are more fully discussed in other risk factors, that are likely to cause these
variations include, among others:

     - fluctuations in demand for, and sales of, our products;

     - cancellations of orders and shipment rescheduling;

     - our ability to significantly expand our manufacturing capacity at our
       facilities in San Jose, California and China;

     - the availability of raw materials used in our products and increases in
       the price of these raw materials;

     - the ability of our manufacturing operations in China to timely produce
       and deliver products and components in the quantity and of the quality we
       require;

     - our ability to achieve acceptable production yields;

     - the practice of communication equipment suppliers to sporadically place
       large orders with short lead times;

     - the mix of products and the average selling prices of the products we
       sell;

     - competitive factors, including introductions of new products and product
       enhancements by competitors, entry of new competitors into the optical
       networking components market and pricing pressures;

     - our ability to develop, introduce, manufacture and ship new and enhanced
       optical networking products in a timely manner without defects;

     - costs associated with and the outcomes of any intellectual property or
       other litigation to which we are, or may become, a party; and

     - economic conditions specific to the communications and related industries
       and the development and size of the markets for our products.

                                       17
<PAGE>

  Due to the factors noted above and other risks discussed in this section, we
believe that quarter-to-quarter comparisons of our operating results will not be
meaningful. You should not rely on our results for one quarter as any indication
of our future performance. Quarterly variations in our operations could result
in significant volatility in our stock price and the market price for our common
stock might fall. It is likely that, in future quarters, our operating results
may be below the expectations of securities analysts or investors. If this
occurs, the price of our common stock is likely to decrease.

BECAUSE A HIGH PERCENTAGE OF OUR EXPENSES IS FIXED IN THE SHORT TERM, OUR
OPERATING RESULTS ARE LIKELY TO BE HARMED IF WE EXPERIENCE DELAYS IN GENERATING
AND RECOGNIZING REVENUES.

  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. As a result, if we
experience delays in generating and recognizing revenues, our quarterly
operating results are likely to be harmed. As we expand our manufacturing
capacity, we will incur expenses in one quarter relating to the expansion that
may not result in off-setting revenues until a subsequent quarter. New product
introductions can also result in a mismatching of research and development
expenses and sales and marketing expenses that are incurred in one quarter with
revenues that are not recognized until a subsequent quarter when the new product
is introduced. If growth in our revenues does not exceed the increase in our
expenses, our results of operations will be harmed.

IF WE FAIL TO RAPIDLY EXPAND OUR MANUFACTURING CAPACITY, WE MAY NOT BE ABLE TO
DELIVER SUFFICIENT QUANTITIES OF PRODUCTS TO OUR CUSTOMERS IN A TIMELY MANNER,
WHICH WOULD HARM OUR OPERATING RESULTS.

  We manufacture all of our products in our facilities in San Jose, California
and Beijing, Chengdu, Fuzhou, Shanghai and Zhuhai, China and currently are
expanding our manufacturing capacity at our San Jose and Chengdu, Shanghai and
Zhuhai facilities. We must devote significant resources to expand our
manufacturing capacity, and our planned expansion will be expensive, will
require management's time and may disrupt our operations. Additional risks
associated with rapidly increasing manufacturing capacity include:

  - a lack of availability of qualified management and manufacturing personnel;

  - difficulties in achieving adequate yields from new manufacturing lines;

  - inability to quickly implement an adequate set of financial controls to
    track levels of inventory;

  - our failure to acquire additional facilities in desirable locations on
    commercially reasonable terms; and

  - our inability to procure the necessary raw materials and equipment.

  We recently began to receive orders for significant quantities of products
while simultaneously increasing our manufacturing capacity.  Communications
equipment suppliers typically require that their vendors commit to provide
specified quantities of products over a given period of time. We could be unable
to pursue many large orders if we do not have sufficient manufacturing capacity
to enable us to commit to provide customers with specified quantities of
products. If we are unable to commit to deliver sufficient quantities of our
products to satisfy a customer's anticipated needs, we will lose the order and
the opportunity for significant sales to that customer for a lengthy period of
time. Furthermore, if we fail to

                                       18
<PAGE>

fulfill orders to which we have committed, we will lose revenue opportunities
and our customer relationships may be harmed.

IF WE FAIL TO EFFECTIVELY MANAGE THE RAPID EXPANSION OF OUR OPERATIONS,
INCLUDING THE ANTICIPATED SIGNIFICANT INCREASE IN THE NUMBER OF OUR EMPLOYEES,
OUR OPERATING RESULTS COULD BE HARMED.

  We currently operate facilities in San Jose, California and in China. We are
continuing to expand the scope of our operations domestically and
internationally and to increase the number of our employees significantly. As of
December 31, 2000, we had a total of 1,017 full-time employees in San Jose, an
increase of 78% as compared to June 30, 2000 and 2,249 full-time employees in
China, an increase of 214% as compared to June 30, 2000. We plan to hire a
significant number of employees over the next several quarters in connection
with the expansion of our manufacturing operations. The growth in employees and
our operations, combined with the challenges of expanding and managing
geographically-dispersed operations, has placed, and will continue to place, a
significant strain on our management systems and resources. We expect that we
will need to continue to improve our financial and managerial controls,
reporting systems and procedures, and will need to continue to expand, train and
manage our workforce worldwide.  Any failure to effectively manage this
expansion could harm our operating results.

IF WE FAIL TO EFFECTIVELY MANAGE OUR INVENTORY LEVELS, OUR OPERATING RESULTS
COULD BE HARMED.

  Because we experience long lead times for raw materials and are often required
to purchase significant amounts of raw materials far in advance of product
shipments, we may not effectively manage our inventory levels, which could harm
our operating results. If we underestimate our requirements, we may have
inadequate inventory, which could result in delays in shipments and loss of
customers. If we purchase raw materials in anticipation of orders that do not
materialize, we will have to carry or write off excess inventory and our gross
margins will decline. Even if we receive these orders, the additional
manufacturing capacity that we add to meet customer requirements may be
underutilized in a subsequent quarter. We are in the early stages of
implementing a new automated manufacturing management system to replace our
current system that tracks most of our data, including some inventory levels,
manually. The conversion from the current system used in San Jose is anticipated
to take place in the fourth quarter of fiscal 2001.  Failure to effectively
transition to this new system could harm our results. The current limitations of
our manufacturing management systems increase the risk that we may fail to
effectively manage our inventory. In this regard, we experienced significant
increases in provisions for excess and obsolete inventory, which harmed our
gross margins, through calendar 2000.  As we grow, we will need to implement new
systems, which we may fail to do on a timely basis.  The risks associated with
managing our inventory are increased by the fact that we ship products to two of
our largest customers, Lucent and Agere, on a consignment basis, such that we
carry the shipped products as inventory until Lucent or Agere accepts the
products for use.

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, WHICH COULD LIMIT OUR ABILITY TO FILL CUSTOMER ORDERS AND HARM
OUR OPERATING RESULTS.

  We depend on third parties to supply the raw materials and equipment we use to
manufacture our products. To be competitive, we must obtain from our suppliers,
on a timely basis, sufficient quantities of raw materials at acceptable prices.
We obtain most of our critical raw materials from a single or limited number of
suppliers and generally do not have long-term supply contracts with them. As a
result, our

                                       19
<PAGE>

suppliers could terminate the supply of a particular material at any time
without penalty. Difficulties in obtaining raw materials in the future may limit
our product shipments.

  Some of our raw material suppliers are single sources, and finding alternative
sources may involve significant expense and delay, if these sources can be found
at all. For example, all of our GRIN lenses, which are incorporated into
substantially all of our products, are obtained from Nippon Sheet Glass, the
sole supplier worldwide of GRIN lenses. Our failure to obtain these materials or
other single or limited-source raw materials could delay or reduce our product
shipments, which could result in lost orders, increase our costs, reduce our
control over quality and delivery schedules and require us to redesign our
products. In this regard, we experienced difficulties in obtaining GRIN lenses
through calendar 2000, and we continue to experience such difficulties. If a
significant supplier became unable or unwilling to continue to manufacture or
ship materials in required volumes, we would have to identify and qualify an
acceptable replacement. A material delay or reduction in shipments, any need to
identify and qualify replacement suppliers or any significant increase in our
need for raw materials that cannot be met on acceptable terms could harm our
business.

  We also depend on a limited number of manufacturers and vendors that make and
sell the complex equipment we use in our manufacturing process. In periods of
high market demand, the lead times from order to delivery of this equipment
could be as long as six months. Delays in the delivery of this equipment or
increases in the cost of this equipment could harm our operating results.

OUR MARKETS ARE HIGHLY COMPETITIVE, AND IF WE ARE UNABLE TO COMPETE SUCCESSFULLY
OUR REVENUES COULD DECLINE, WHICH WOULD HARM OUR OPERATING RESULTS.

  The market for fiber optic components is intensely competitive. We believe
that our principal competitors are the major manufacturers of optical components
and modules, including vendors selling to third parties and business divisions
within communications equipment suppliers.  Our principal competitors in the
components market include Avanex Corporation, Corning, DiCon Fiberoptics,
Furukawa Electrical, Agere, (a subsidiary of Lucent), New Focus, Nortel,
Sumitomo, Tyco Electronics and JDS Uniphase, which recently acquired E-TEK
Dynamics and is close to completing its acquisition of SDL. We believe that we
primarily compete with diversified suppliers, such as Corning, JDS Uniphase,
Agere and Nortel, for the majority of our product line and to a lesser extent
with niche players that offer more limited product lines. Competitors in any
portion of our business may also rapidly become competitors in other portions of
our business. In addition, our industry has recently experienced significant
consolidation, and we anticipate that further consolidation will occur. This
consolidation has further increased competition.

  Many of our current and potential competitors have significantly greater
financial, technical, marketing, purchasing, manufacturing and other resources
than we do. As a result, these competitors may be able to respond more quickly
to new or emerging technologies and to changes in customer requirements, to
devote greater resources to the development, promotion and sale of products, or
to deliver competitive products at lower prices.

  Several of our existing and potential customers are also current and potential
competitors of ours. JDS Uniphase, for example, generated 10.6%, 4.7% and 6.9%
of our revenues for the year ended June 30, 2000 and the three months and six
months ended December 31, 2000, respectively. These companies may develop or
acquire additional competitive products or technologies in the future and
thereby reduce or cease their purchases from us. In light of the consolidation
in the optical networking industry, we also believe that the size of the optical
component and module suppliers will become increasingly important to our current
and

                                       20
<PAGE>

potential customers in the future. We may not be able to compete successfully
with existing or new competitors, and the competitive pressures we face may
result in lower prices for our products, loss of market share, or reduced gross
margins, any of which could harm our business.

  New technologies are emerging due to increased competition and customer
demand. The introduction of new products incorporating new technologies or the
emergence of new industry standards could make our existing products
noncompetitive. For example, new technologies are being developed in the design
of wavelength division multiplexers that compete with the thin film filters that
we incorporate in our products. These technologies include arrayed waveguide
grating, or AWG, and fiber bragg grating, or FBG. If our competitors adopt new
technologies before we do, we could lose market share and our business would
suffer.

A SUBSTANTIAL PORTION OF OUR MANUFACTURING OPERATIONS ARE LOCATED IN CHINA,
WHICH EXPOSES US TO THE RISK THAT OUR FAILURE TO COMPLY WITH THE LAWS AND
REGULATIONS OF CHINA, OR EVENTS IN THAT COUNTRY, WILL DISRUPT OUR OPERATIONS.

  A substantial portion of our manufacturing operations are located in China and
are subject to the laws and regulations of China. We anticipate that a greater
portion of our manufacturing operations will be located in China in the future.
Our operations in China may be adversely affected by changes in the laws and
regulations of China, such as those relating to taxation, import and export
tariffs, environmental regulations, land use rights, property and other matters.
China's central or local government may impose new, stricter regulations or
interpretations of existing regulations which would require additional
expenditures. China's economy differs from the economies of many countries in
terms of structure, government involvement, level of development, growth rate,
capital reinvestment, allocation of resources, self-sufficiency and rate of
inflation, among others. Our results of operations and financial condition may
be harmed by changes in the political, economic or social conditions in China.

  In addition, events out of our control in China, such as political unrest,
war, labor strikes and work stoppages, could disrupt our operations. There
currently is political tension between the United States and China, which could
lead to a breakdown in trade relations. There is also significant tension
between China and Taiwan, which could result in hostilities. If any of these
events occurs, it would be difficult for us to establish manufacturing
operations at an alternative location on comparable terms.

  Our operations in China also expose us to the following general risks
associated with international operations:

  - 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;

  - disruptions in the transportation of our products and other risks related to
    the infrastructure of foreign countries;

  - fluctuations in the value of currencies; and

  - economic instability.

                                       21
<PAGE>

OUR WAVELENGTH EXPANSION PRODUCTS HAVE ACCOUNTED FOR A SUBSTANTIAL MAJORITY OF
OUR REVENUES, AND OUR REVENUES COULD BE HARMED IF THE PRICE OF OR DEMAND FOR
THESE PRODUCTS DECLINES OR IF THESE PRODUCTS FAIL TO ACHIEVE BROADER MARKET
ACCEPTANCE.

  Although we currently offer a broad spectrum of products, sales of our
wavelength expansion products accounted for a substantial majority of our
revenues in the three months and six months ended December 31, 2000. These
products include, among others, dense wavelength division multiplexers, or
DWDMs and multiplexers, used primarily in optical amplification. These products
accounted for 66.0% of our revenue in the six months ended December 31, 2000. We
believe that our future growth and a significant portion of our future revenues
will depend on the commercial success of our wavelength expansion products.
Customers that have purchased wavelength expansion products may not continue to
purchase these products from us. Any decline in the price of, or demand for, our
wavelength expansion products, or their failure to achieve broader market
acceptance, could harm our revenues.

THE OPTICAL NETWORKING COMPONENT INDUSTRY IS EXPERIENCING DECLINING AVERAGE
SELLING PRICES, WHICH COULD CAUSE OUR GROSS MARGINS TO DECLINE AND HARM OUR
OPERATING RESULTS.

  The optical networking component industry is experiencing declining average
selling prices, or ASPs, as a result of increasing competition and greater unit
volumes as communications service providers continue to deploy fiber optic
networks. We anticipate that ASPs will continue to decrease in the future in
response to product introductions by competitors, price pressures from
significant customers and greater manufacturing efficiencies achieved through
increased automation in the manufacturing process. These ASP declines have
contributed and may continue to contribute to a decline in our gross margins,
which could harm our results of operations.

OUR FAILURE TO ACHIEVE ACCEPTABLE MANUFACTURING YIELDS IN A COST-EFFECTIVE
MANNER COULD DELAY PRODUCT SHIPMENTS TO OUR CUSTOMERS AND HARM OUR OPERATING
RESULTS.

  Because manufacturing our products involves complex and precise processes and
the majority of our manufacturing costs are relatively fixed, manufacturing
yields are critical to our results of operations. Lower than expected
manufacturing yields could delay product shipments and harm our operating
results. Factors that affect our manufacturing yields include the quality of raw
materials used to make our products, quality of workmanship and our
manufacturing processes. Our or our suppliers' inadvertent use of defective
materials could significantly reduce our manufacturing yields. Furthermore,
because of the large labor component in and complexity of the manufacturing
process, quality of workmanship is critical to achieving acceptable yields. We
cannot assure you that we will be able to hire and train a sufficient number of
qualified personnel to cost-effectively produce our products with the quality
and in the quantities required by our customers. Changes in our manufacturing
processes or those of our suppliers could also impact our yields. In some cases,
existing manufacturing techniques, which involve substantial manual labor, may
not allow us to cost-effectively meet our manufacturing yield goals so that we
maintain acceptable gross margins while meeting the cost targets of our
customers. We will need to develop new manufacturing processes and techniques
that will involve higher levels of automation in order to increase our gross
margins and help achieve the targeted cost levels of our customers. We may not
achieve manufacturing cost levels that will allow us to achieve acceptable gross
margins or fully satisfy customer demands.

                                       22
<PAGE>

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.

  Our products are deployed in large and complex optical networks and must be
compatible with other system components. Our products can only be fully tested
for reliability when deployed in networks for long periods of time. Our
customers may discover errors, defects or incompatibilities in our products
after they have been fully deployed and operated under peak stress conditions.
Our products may also have errors, defects or incompatibilities that are not
found until after a system upgrade is installed. Errors, defects,
incompatibilities or other problems with our products could result in:

  - 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.

  If any of these occur, our operating results could be harmed.

IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, OUR ABILITY TO SUCCEED
WILL BE HARMED.

  Our ability to compete successfully and achieve future growth will depend, in
part, on our ability to protect our proprietary technology. We rely on a
combination of patent, copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. However,
the steps we have taken may not prevent the misappropriation of our intellectual
property, particularly in foreign countries, such as China, where the laws may
not protect our proprietary rights as fully as in the United States. We
currently hold 14 patents and have 26 pending patent applications in the United
States. We cannot assure you that patents will be issued from pending or future
applications or that, if patents are issued, they will not be challenged,
invalidated or circumvented. Rights granted under these patents may not provide
us with meaningful protection or any commercial advantage. If we are unable to
protect our proprietary technology, our ability to succeed will be harmed. We
may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights. These claims could result in costly
litigation and the diversion of our technical and management personnel.

                                       23
<PAGE>

WE ARE CURRENTLY DEFENDANTS IN TWO PATENT DISPUTES AND MAY BE INVOLVED IN OTHER
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.

  Participants in the communications and optical components markets in which we
sell our products have experienced frequent litigation regarding patent and
other intellectual property rights. Numerous patents in these industries are
held by others, including our competitors and academic institutions. We have no
means of knowing that a patent application has been filed in the United States
until the patent is issued. Optical component suppliers may seek to gain a
competitive advantage or other third parties may seek an economic return on
their intellectual property portfolios by making infringement claims against us.

  In November 1999, E-TEK Dynamics filed a lawsuit against us in the United
States District Court for the Northern District of California alleging
infringement of E-TEK's patent relating to fiber optic couplers based on our
manufacture and sale of our DWDM products. E-TEK seeks an award for damages and
injunctive relief. These products generated a majority of our revenues for the
year ended June 30, 2000 and the three months and six months ended December 31,
2000. An adverse ruling in this matter would materially adversely affect our
financial condition. JDS Uniphase, which accounted for 10.6%, 4.7% and 6.9% of
our revenues for the year ended June 30, 2000 and the three months and six
months ended December 31, 2000, respectively, recently acquired E-TEK. On
February 9, 2001, the Court granted our motion to amend our answer to include,
among other matters, a counter-claim against E-TEK Dynamics. The counter-claim
alleges that E-TEK Dynamics infringes one of our patents relating to fiber optic
couplers based on E-Tek's manufacture and sale of DWDM products. We seek an
award for damages and injunctive relief. While we do not currently believe that
the E-TEK lawsuit will materially harm our supplier relationship with JDS
Uniphase, primarily because the products we sell to JDS Uniphase are not
subjects of the lawsuit, the ultimate impact of the lawsuit on our business
cannot be determined at this time. In addition, in June 2000, Chorum
Technologies, Inc. filed a lawsuit against us and our wholly-owned subsidiary,
Telelight Communication Inc., in the United States District Court for the
Northern District of Texas alleging, among other things, infringement of two
U.S. patents allegedly owned by Chorum relating to fiber optical interleaving,
based on our manufacture of and offer to sell various fiber optic interleaver
products. Chorum seeks an award for damages and injunctive relief.

  Defending these lawsuits, and any additional litigation to which we may become
a party in the future as a result of alleged infringement of others'
intellectual property, will likely be costly and time consuming and will divert
the efforts and attention of our management and technical personnel. Patent
litigation is highly complex and can extend for a protracted period of time,
which can substantially increase the cost of litigation. Accordingly, the
expenses and diversion of resources associated with either of these matters, or
any other intellectual property litigation to which we may become a party, could
seriously harm our business and financial condition. Any intellectual property
litigation also could invalidate our proprietary rights and force us to do one
or more of the following:

  - 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;

                                       24
<PAGE>

  - 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.

  Any of these actions could result in a substantial reduction in our revenue
and could result in losses over an extended period of time.

IF WE ARE UNABLE TO DEVELOP NEW PRODUCTS AND PRODUCT ENHANCEMENTS THAT ACHIEVE
MARKET ACCEPTANCE, SALES OF OUR PRODUCTS COULD DECLINE, WHICH WOULD HARM OUR
OPERATING RESULTS.

  The communications industry is characterized by rapid technological changes,
frequent new product introductions, changes in customer requirements and
evolving industry standards. As a result, our products could quickly become
obsolete as new technologies are introduced and incorporated into new and
improved products. Our future success depends on our ability to anticipate
market needs and to develop products that address those needs. Our failure to
predict market needs accurately or to develop new products or product
enhancements in a timely manner will harm market acceptance and sales of our
products. In this regard, we are currently developing bandwidth creation
products as well as bandwidth management products. If the development of these
products or any other future products takes longer than we anticipate, or if we
are unable to develop and introduce these products to market, our revenues could
suffer and we may not gain market share. Even if we are able to develop and
commercially introduce these new products, the new products may not achieve
widespread market acceptance.

WE DEPEND ON THE CONTINUED GROWTH AND SUCCESS OF THE COMMUNICATIONS INDUSTRY,
WHICH IS EXPERIENCING RAPID CONSOLIDATION AND REALIGNMENT AND MAY NOT CONTINUE
TO DEMAND FIBER OPTIC PRODUCTS AT HISTORICAL RATES, THEREBY REDUCING DEMAND FOR
OUR PRODUCTS AND HARMING OUR OPERATING RESULTS.

  We depend on the continued growth and success of the communications industry,
including the continued growth of the Internet as a widely-used medium for
commerce and communication and the continuing demand for increased bandwidth
over communications networks. Recent trends that have driven growth in the
communications industry may not continue in a manner favorable to us and
technological or other developments in the communications industry may not favor
growth in the markets served by our products. Furthermore, the rate at which
communications service providers and other fiber optic network users have built
new fiber optic networks or installed new systems in their existing fiber optic
networks has fluctuated in the past and these fluctuations may continue in the
future. These fluctuations may result in reduced demand from historical rates
for new or upgraded fiber optic systems that utilize our products and,
therefore, may result in reduced demand for our products.

  The communications industry is also experiencing rapid consolidation and
realignment, as industry participants seek to capitalize on the rapidly changing
competitive landscape developing around the Internet and new communications
technologies such as fiber optic and wireless communications networks. As the
communications industry consolidates and realigns to accommodate technological
and other developments, our customers may consolidate or align with other
entities in a manner that harms our business.

                                       25
<PAGE>

BECAUSE NONE OF OUR CUSTOMERS ARE OBLIGATED TO PURCHASE OUR PRODUCTS, THEY MAY
AND DO CANCEL OR DEFER THEIR PURCHASES ON SHORT NOTICE AND AT ANY TIME, WHICH
COULD HARM OUR OPERATING RESULTS.

  We do not have contracts with our customers that provide any assurance of
future sales, and sales are typically made pursuant to individual purchase
orders, often with extremely short lead times. Accordingly, our customers:

  - may stop purchasing our products at any time without penalty;

  - are free to purchase products from our competitors;

  - are not required to make minimum purchases; and

  - may and do cancel orders that they place with us.

  Sales to any single customer may vary significantly from quarter to quarter.
Our customers generally do not place purchase orders far in advance. In
addition, our customer purchase orders have varied significantly from quarter to
quarter. This means that customers who account for a significant portion of our
revenues in one quarter may not place any orders in the succeeding quarter,
which makes it difficult to forecast revenue in future periods. Moreover, our
expense levels are based in part on our expectations of future revenue, and we
may be unable to adjust costs in a timely manner in response to revenue
shortfalls. This can result in significant quarterly fluctuations in our
operating results.

OUR REVENUES AND RESULTS OF OPERATIONS MAY BE HARMED IF WE FAIL TO INCREASE THE
VOLUME OF ORDERS WHICH WE RECEIVE AND FILL ON A SHORT TERM BASIS.

  Historically, a substantial portion of our net revenues in any fiscal period
has been derived from orders in backlog.  Our customers can generally cancel,
reschedule or delay these orders without obligation to us.   As a result, we
cannot rely on orders in backlog as a reliable and consistent source of future
revenue.  If any of our customers did in fact cancel or delay these orders, and
we were not able to replace them with new orders for product to be supplied on a
short-term basis, our results of operations could be harmed.

OUR LENGTHY AND VARIABLE QUALIFICATION AND SALES CYCLE MAKES IT DIFFICULT TO
PREDICT THE TIMING OF A SALE OR WHETHER A SALE WILL BE MADE, WHICH MAY HARM OUR
OPERATING RESULTS.

  Our customers typically expend significant efforts in evaluating and
qualifying our products and manufacturing process prior to placing an order.
This evaluation and qualification process frequently results in a lengthy sales
cycle, typically ranging from nine to twelve months and sometimes longer. While
our customers are evaluating our products and before they place an order with
us, we may incur substantial sales, marketing, research and development
expenses, expend significant management efforts, increase manufacturing capacity
and order long lead-time supplies. Even after this evaluation process, it is
possible a potential customer will not purchase our products. In addition,
product purchases are frequently subject to unplanned processing and other
delays, particularly with respect to larger customers for which our products
represent a very small percentage of their overall purchase activity. Long sales
cycles may cause our revenues and operating results to vary significantly and
unexpectedly from quarter to quarter, which could cause volatility in our stock
price.

                                       26
<PAGE>

WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO HIRE ADDITIONAL PERSONNEL, OUR ABILITY
TO SELL OUR PRODUCTS COULD BE HARMED.

  Our future success depends upon the continued services of our executive
officers, particularly Joseph Y. Liu, our Chief Executive Officer, Frederick R.
Fromm, our President, Haiguang Lu, our Senior Vice President, Worldwide
Manufacturing Operations, and other key engineering, finance, sales, marketing,
manufacturing and support personnel. In addition, we depend substantially upon
the continued services of key management personnel at our Chinese subsidiaries.
None of our officers or key employees is bound by an employment agreement for
any specific term, and these personnel may terminate their employment at any
time. In addition, we do not have "key person" life insurance policies covering
any of our employees.

  As a result of the expansion of our operations, we must hire a significant
number of additional employees in the near future, particularly engineering,
sales and manufacturing personnel. Our ability to continue to attract and retain
highly-skilled personnel will be a critical factor in determining whether we
will be successful in the future. Competition for highly-skilled personnel is
intense, especially in the San Francisco Bay area. We may not be successful in
attracting, assimilating or retaining qualified personnel to fulfill our current
or future needs. In addition, many of the members of our management team have
just recently joined our company. Mr. Bruce Horn, our Chief Financial Officer,
joined us in April 2000, Mr. Frederick R. Fromm, our President, joined us in
July 2000, Messrs. Jeff Friedman, our General Counsel, and Daryl Eigen, our Vice
President of Sales and Marketing, joined us in August 2000, and Messrs. Robert
T. Ku, our Senior Vice President of Technology, and Kenneth Brizel, our
Senior Vice President of Strategy and Business Development, joined us in October
2000. If our new management team does not work effectively together, it could
seriously harm our business.

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.

  A majority of our revenues are derived from sales through our domestic and
international sales representatives and distributors. Our sales representatives
and distributors are independent organizations that generally have exclusive
geographic territories and generally are compensated on a commission basis. We
are currently migrating some of our larger customers to direct sales and are
increasing our direct sales and marketing staff. We expect that we will continue
to rely on our independent sales representatives and distributors to market,
sell and support many of our products for a substantial portion of our revenues.
Some of our third-party sales representatives and distributors carry products of
one or more of our competitors. As a result, these sales representatives and
distributors may not recommend our products over competitors' products.

IF WE DO NOT EXPAND OUR SALES ORGANIZATION, WE MAY FACE DIFFICULTIES IN
INCREASING MARKET AWARENESS AND SALES OF OUR PRODUCTS, WHICH COULD PREVENT US
FROM ACHIEVING AND MAINTAINING PROFITABILITY.

  We currently have a small sales force. We will need to hire additional
qualified sales personnel domestically and internationally to increase market
awareness and sales of our products. Competition for qualified sales personnel
in our industry is intense and we might not be able to hire and train the kind
and number of sales personnel we need to be successful. If we are unable to
expand our sales organization, we may not be able to increase market awareness
or sales of our products, which could prevent us from achieving and maintaining
profitability.

                                       27
<PAGE>


BECAUSE SOME OF OUR MANUFACTURING OPERATIONS ARE LOCATED IN AN AREA EXPERIENCING
POWER SHORTAGES, WE FACE THE RISK OF POWER LOSS, WHICH COULD HARM OUR
OPERATIONS.

A substantial portion of our manufacturing operations are located in San Jose,
California. California is in the midst of a power crisis and has recently
experienced significant power shortages.  Sustained or frequent power failures
could disrupt our manufacturing operations, which would limit our ability to
supply our products to our customers in sufficient quantities on a timely basis,
harming our customer relationships.

BECAUSE SOME OF OUR MANUFACTURING OPERATIONS ARE LOCATED IN ACTIVE EARTHQUAKE
FAULT ZONES, WE FACE THE RISK THAT A LARGE EARTHQUAKE COULD HARM OUR OPERATIONS.

  A substantial portion of our manufacturing operations are located in San Jose,
California, an active earthquake fault zone. This region has experienced large
earthquakes in the past and may likely experience them in the future. A large
earthquake in the San Jose area could disrupt our manufacturing operations for
an extended period of time, which would limit our ability to supply our products
to our customers in sufficient quantities on a timely basis, harming our
customer relationships.

OUR FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS COULD SUBJECT US TO
LIABILITY.

  Our failure to comply with a variety of federal, state and local laws and
regulations in the United States and China could subject us to criminal, civil
and administrative penalties.  Our products are subject to U.S. export control
laws and regulations that regulate the export of products and disclosure of
technical information to foreign countries and citizens.  In some instances,
these laws and regulations may require licenses for the export of products to,
and disclosure of technology in, some countries, including China, and disclosure
of technology to foreign citizens.   In July 2000, we filed two applications to
obtain commodity classifications confirming that we may export our products and
disclose our technologies to foreign countries, including China, and citizens,
including Chinese nationals, without export licenses. We recently received
commodity classifications from the United States Department of Commerce that
allow us to export our current products and disclose our current technologies
without export licenses. Additionally, as a result of these commodity
classifications, we have been notified that we will not be required to obtain a
license to disclose our technology to a specified employee with respect to whom
the Department of Commerce had initiated an inquiry.  As we develop and
commercialize new products and technologies, and as the list of products and
technologies subject to U.S. export controls changes, we may be required to
obtain export licenses or other approvals with respect to those products and
technologies.  We cannot predict whether these licenses and approvals will be
required and, if so, whether they will be granted.  The failure to obtain any
required license or approval could harm our business.

  In addition, we are subject to laws relating to the storage, use, discharge
and disposal of toxic or otherwise hazardous or regulated chemicals or materials
used in our manufacturing processes. While we believe that we are currently in
compliance in all material respects with these laws and regulations, if we fail
to store, use, discharge or dispose of hazardous materials appropriately, we
could be subject to substantial liability or could be required to suspend or
adversely modify our manufacturing operations. In addition, we could be required
to pay for the cleanup of our properties if they are found to be contaminated,
even if we are not responsible for the contamination.

                                       28
<PAGE>

  We employ a number of foreign nationals in our U.S. operations and as a result
we are subject to various laws related to the status of those employees with the
Immigration and Naturalization Service. Our failure to comply with the forgoing
laws or any other laws and regulations could subject us to liability.

BECAUSE THE OPTICAL COMPONENTS INDUSTRY IS CAPITAL INTENSIVE, OUR BUSINESS MAY
BE HARMED IF WE ARE UNABLE TO RAISE ANY NEEDED ADDITIONAL CAPITAL.

  The optical components industry is capital intensive, and expansion of our
manufacturing facilities, the development and marketing of new products and the
hiring and retention of personnel will require a significant commitment of
resources. Furthermore, we may continue to incur significant operating losses if
the market for optical networking components develops at a slower pace than we
anticipate, or if we fail to establish significant market share and achieve a
significantly increased level of revenue. If cash from available sources is
insufficient for these purposes, or if additional cash is used for acquisitions
or other unanticipated uses, we may need to raise additional capital. Additional
capital may not be available on terms favorable to us, or at all. If we are
unable to raise additional capital when we require it, our business could be
harmed. In addition, any additional issuance of equity or equity-related
securities to raise capital will be dilutive to our stockholders.

BECAUSE THE OPTICAL COMPONENTS INDUSTRY IS EVOLVING RAPIDLY AND HIGHLY
COMPETITIVE, OUR STRATEGY INVOLVES ACQUIRING OTHER BUSINESSES AND TECHNOLOGIES
TO GROW OUR BUSINESS. IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ACQUIRED
BUSINESSES OR TECHNOLOGIES, OUR OPERATING RESULTS MAY BE HARMED.

  The optical components industry is evolving rapidly and is highly competitive.
Accordingly, we have pursued and expect to continue to pursue acquisitions of
businesses and technologies, or the establishment of joint venture arrangements,
that could expand our business. The negotiation of potential acquisitions or
joint ventures, as well as the integration of an acquired or jointly developed
business or technology, could cause diversion of management's time and other
resources or disrupt our operations. Future acquisitions could result in:

  - additional operating expenses without additional revenues;

  - potential dilutive issuances of equity securities;

  - the incurrence of debt and contingent liabilities;

  - amortization of goodwill and other intangibles;

  - research and development write-offs; and

  - other acquisition-related expenses.

  Furthermore, we may not be able to successfully integrate acquired businesses
or joint ventures with our operations, and we may not receive the intended
benefits of any future acquisition or joint venture.

                                       29
<PAGE>

RISKS RELATED TO OUR COMMON STOCK

THERE MAY BE SALES OF A SUBSTANTIAL AMOUNT OF OUR COMMON STOCK AFTER OUR INITIAL
PUBLIC OFFERING IN OCTOBER 2000 BY OUR STOCKHOLDERS AND THESE SALES COULD CAUSE
OUR STOCK PRICE TO DECLINE.

  At December 31, 2000, our current stockholders held 184,622,226 shares of our
common stock and common stock equivalents. Common stock equivalents are options
to purchase an aggregate of 26,874,891 shares and warrants to purchase an
aggregate of 348,904 shares. Our executive officers, directors and stockholders
holding an aggregate of 141,643,431 shares of our common stock, or 90.0% of our
total outstanding shares as of December 31, 2000, have executed lock-up
agreements that prevent them from selling or otherwise disposing of our common
stock for a period of 180 days from October 3, 2000, the date of our initial
public offering. These lock-up agreements will expire on April 2, 2001. Of these
shares, an aggregate of 141,643,431 shares will be "restricted securities" as
defined in Rule 144. These restricted securities may be sold in the future
without registration under the Securities Act to the extent permitted under Rule
144, Rule 701 or another exemption under the Securities Act. In addition, Cisco
Systems and the former holders of preferred stock are entitled to registration
of their shares of common stock and the shares of common stock issued upon
conversion of their preferred stock under certain circumstances.

  Sales of a substantial number of shares of our common stock could cause our
stock price to fall. In addition, the sale of these shares could impair our
ability to raise capital through the sale of additional stock or debt in the
future at a price that we deem appropriate.

INSIDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER OUR OFFERING
AND COULD DELAY A CHANGE IN OUR CORPORATE CONTROL, WHICH MAY NEGATIVELY AFFECT
YOUR INVESTMENT.

  Our current executive officers, directors and their affiliates own, in the
aggregate, as of December 31, 2000, approximately 26.6% of our outstanding
shares. As a result, these persons and/or entities acting together will be able
to substantially influence the outcome of all matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This ability may have the effect of delaying a change in
control, which may be favored by our other stockholders.

BECAUSE OF THE EARLY STAGE OF OUR BUSINESS AND 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.

  Because of the early stage of our business and the rapid changes taking place
in the fiber optics industry, we expect the market price of our common stock to
fluctuate significantly. These fluctuations may occur in response to a number of
factors, some of which are beyond our control, including:

  - quarterly variations in our operating results;

  - changes in financial estimates by securities analysts and our failure to
    meet any estimates;

  - changes in market values of comparable companies;

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<PAGE>

  - announcements by us or our competitors 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.

  The price of our securities may also be affected by general economic and
market conditions, and the cost of operations in our product markets. While we
cannot predict the individual effect that these factors may have on the price or
our securities, these factors, either individually or in the aggregate, could
result in significant variations in price during any given period of time. There
can be no assurance that these factors will not have an adverse effect on the
trading prices of our common stock.

PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY HAVE ANTI-TAKEOVER
EFFECTS THAT COULD PREVENT ANY CHANGE IN CONTROL, WHICH COULD NEGATIVELY AFFECT
YOUR INVESTMENT.

  Provisions of Delaware law and of our certificate of incorporation and bylaws
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. These provisions permit us to:

  - 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.

  Any of the foregoing provisions could limit the price that certain investors
might be willing to pay in the future for shares of our common stock.

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Item 3.  Quantitative and Qualitative Disclosure about Market Risk

  We are exposed to market risk related to fluctuations in interest rates and in
foreign currency exchange rates:

  Interest Rate Exposure.  The primary objective of our investment activities is
  -----------------------
to preserve principal while maximizing the income we receive from our
investments without significantly increasing risk. Some of the securities that
we may invest in may be subject to market risk. To minimize this risk, we
maintain our portfolio of cash equivalents and short-term investments in a
variety of securities, including commercial paper, money market funds,
government and non-government debt securities and certificates of deposit. As of
December 31, 2000, all of our investments were in money market funds,
certificates of deposits or high quality commercial paper.

  Foreign Currency Exchange Rate Exposure.  We operate primarily in the United
  ---------------------------------------
States, and all sales to date have been made in U.S. dollars. Accordingly, we
currently have no material exposure to foreign currency rate fluctuations.

  While we expect our international revenues and expenses to be denominated
predominately in U.S. dollars, a portion of our international revenues and
expenses may be denominated in foreign currencies in the future. We expect that
certain expenses incurred by our China operations will be denominated in the
Chinese Renminbi. Our China operations will expand in the future and account for
a larger portion of our worldwide manufacturing. We anticipate that we will
experience the risks of fluctuating currencies due to this expansion and may
choose to engage in currency hedging activities to reduce these risks.

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PART II.  OTHER INFORMATION
Item 1.  Legal Proceedings

  The information required by this Item is disclosed in Note 7 of Notes to
Consolidated Financial Statements set forth in Item 1 of Part I, above. The text
of such Note is hereby incorporated herein by reference. See also "Risk
Factors - We are currently defendants in two patent disputes and may be
involved in other 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."

Item 2.  Changes in Securities and Use of Proceeds

(a)  Not applicable.

(b)  Not applicable.

(c)  Not applicable.

(d)  On October 3, 2000, the SEC declared effective the Company's Registration
     Statement on Form S-1. Pursuant to this Registration Statement, the Company
     completed an initial public offering of 15,755,000 shares of common stock,
     including the over-allotment shares, at an initial public offering price of
     $18.00 per share (the "Offering"). The Company incurred expenses of
     approximately $22.6 million, of which $19.9 million represented
     underwriting discounts and commissions and $2.7 million represented other
     related expenses. The net offering proceeds to the Company after total
     expenses were $261.0 million.

  Proceeds are invested in cash, cash equivalents, or short-term investments
consisting of highly liquid money market funds, commercial paper,
government/federal notes and bonds and certificates of deposit.  The use of
these proceeds does not represent a material change in the use of proceeds
described in the prospectus.

  Upon the closing of the Company's initial public offering on October 10, 2000,
all outstanding preferred stock converted into common stock.

Item 3.  Defaults Upon Senior Securities

  None

Item 4.  Submission of Matters to a Vote of Security Holders

  None

Item 5.  Other Information

  None

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Item 6.  Exhibits and Reports on Form 8-K

  (a)  Reports on Form 8-K

       A current report on Form 8-K dated December 5, 2000 was filed to disclose
       that on November 23, 2000 the Company received commodity classifications
       from the United States Department of Commerce which allow us to export
       our current products and disclose our current technologies without export
       licenses. Additionally, as a result of these commodity classifications,
       we have been notified that we will not be required to obtain a license
       for disclosing our technology to a specified employee with respect to
       which the Department of Commerce had initiated an inquiry.

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                                  SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                          OPLINK COMMUNICATIONS, INC.
                                          (Registrant)


DATE: February 14, 2001                   By: /s/ Bruce Horn
      ---------------------                   --------------
                                              Bruce Horn
                                              Chief Financial Officer
                                              (for Registrant and as Principal
                                              Financial and Accounting Officer)

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