##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended December 30, 2007
 or
 o
    
    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.
  Delaware(State or other jurisdiction of 
incorporation or organization)
    
    No. 77-0411346(I.R.S. Employer
Identification No.)
 (Address of principal executive offices) (Zip Code)
  þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



OPLINK COMMUNICATIONS, INC.
  
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited):Condensed Consolidated
Balance Sheets 
December 31, 2007 and June 30, 2007
    
    3Condensed Consolidated Statements of Operations 
Three and six months ended December 31, 2007 and 2006
    
    4Condensed Consolidated Statements of Cash Flows 
Six months ended December 31, 2007 and 2006
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    29Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    42Item 4.
    
    Controls and Procedures
    
    44PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    44Item 1A.
    
    Risk Factors
    
    46Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    73Item 3.
    
    Defaults Upon Senior Securities
    
    73Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    73Item 5.
    
    Other Information
    
    73Item 6.
    
    Exhibits
    
    74SIGNATURES
    
    75EXHIBIT 10.37EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  2




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PART I. FINANCIAL INFORMATION
 
 ITEM 1- FINANCIAL STATEMENTS
 
 OPLINK COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 December 31,
    
    
    June 30,2007
    
    
    2007ASSETS
    
    
    
    
    
    
    (1)Current assets:Cash and cash equivalents
    
    $
    62,513
    
    
    $
    111,600Short-term investments
    
    
    51,743
    
    
    
    73,300Accounts receivable, net
    
    
    34,531
    
    
    
    34,795Inventories, net
    
    
    32,524
    
    
    
    35,427Net assets held for sales
    
    
    25,203
    
    
    
    22,200Prepaid expenses and other current assets
    
    
    3,144
    
    
    
    6,412Total current assets
    
    
    209,658
    
    
    
    283,734Long-term investments
    
    
    3,061
    
    
    
    42,978Property, plant and equipment, net
    
    
    34,896
    
    
    
    28,907Goodwill and intangible assets, net
    
    
    24,576
    
    
    
    7,421Other assets
    
    
    755
    
    
    
    5,349Total assets
    
    $
    272,946
    
    
    $
    368,389LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    16,481
    
    
    $
    14,604Accrued liabilities
    
    
    17,073
    
    
    
    13,820Accrued transitional costs for contract manufacturing
    
    
    642
    
    
    
    1,234Accrued restructuring
    
    
    2,500
    
    
    
    Total current liabilities
    
    
    36,696
    
    
    
    29,658Non-current liabilities
    
    
    209
    
    
    
    207Total liabilities
    
    
    36,905
    
    
    
    29,865Contingencies (Note 17)Minority interest
    
    
    
    
    
    
    68,749Stockholders equity:Common stock, $0.001 par value, 34,000,000 shares
authorized; 20,649,228 and 23,167,521 shares issued and outstanding
as of December 31, 2007 and June 30, 2007, respectively
    
    
    21
    
    
    
    23Additional paid-in capital
    
    
    447,754
    
    
    
    478,615Treasury stock, 98,090 shares outstanding as of December 31, 2007
    
    
    (1,473
    )
    
    
    Accumulated other comprehensive income
    
    
    4,507
    
    
    
    3,112Accumulated deficit
    
    
    (214,768
    )
    
    
    (211,975
    )Total stockholders equity
    
    
    236,041
    
    
    
    269,775Total liabilities and stockholders equity
    
    $
    272,946
    
    
    $
    368,389
 
 (1)
    
    The condensed consolidated balance sheet at June 30, 2007 has been derived from the audited
consolidated financial statements at that date. The
accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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OPLINK COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues
    
    $
    48,943
    
    
    $
    22,953
    
    
    $
    98,094
    
    
    $
    42,667Cost of revenues:Cost of revenues
    
    
    37,841
    
    
    
    16,497
    
    
    
    75,035
    
    
    
    29,988Stock compensation expense
    
    
    114
    
    
    
    75
    
    
    
    243
    
    
    
    140Total cost of revenues
    
    
    37,955
    
    
    
    16,572
    
    
    
    75,278
    
    
    
    30,128Gross profit
    
    
    10,988
    
    
    
    6,381
    
    
    
    22,816
    
    
    
    12,539Operating expenses:Research and development:Research and development
    
    
    3,610
    
    
    
    1,429
    
    
    
    8,042
    
    
    
    3,000Stock compensation expense
    
    
    256
    
    
    
    144
    
    
    
    522
    
    
    
    273Total research and development
    
    
    3,866
    
    
    
    1,573
    
    
    
    8,564
    
    
    
    3,273Sales and marketing:Sales and marketing
    
    
    2,763
    
    
    
    1,280
    
    
    
    5,643
    
    
    
    2,662Stock compensation expense
    
    
    239
    
    
    
    170
    
    
    
    488
    
    
    
    328Total sales and marketing
    
    
    3,002
    
    
    
    1,450
    
    
    
    6,131
    
    
    
    2,990General and administrative:General and administrative
    
    
    3,614
    
    
    
    1,772
    
    
    
    8,018
    
    
    
    3,271Stock compensation expense
    
    
    2,919
    
    
    
    717
    
    
    
    4,021
    
    
    
    1,439Total general and administrative
    
    
    6,533
    
    
    
    2,489
    
    
    
    12,039
    
    
    
    4,710Transitional costs for contract manufacturing
    
    
    532
    
    
    
    
    
    
    
    1,287
    
    
    
    Merger fees
    
    
    4,568
    
    
    
    
    
    
    
    5,989
    
    
    
    Impairment charges and other costs
    
    
    626
    
    
    
    
    
    
    
    626
    
    
    
    Amortization of intangible and other assets
    
    
    401
    
    
    
    35
    
    
    
    667
    
    
    
    70Total operating
expenses
    
    
    19,528
    
    
    
    5,547
    
    
    
    35,303
    
    
    
    11,043(Loss) income from operations
    
    
    (8,540
    )
    
    
    834
    
    
    
    (12,487
    )
    
    
    1,496Interest and other income, net
    
    
    2,090
    
    
    
    2,321
    
    
    
    5,112
    
    
    
    4,484(Loss) income before minority interest and
provision for income taxes
    
    
    (6,450
    )
    
    
    3,155
    
    
    
    (7,375
    )
    
    
    5,980Minority interest in loss of consolidated subsidiaries
    
    
    3,407
    
    
    
    9
    
    
    
    5,891
    
    
    
    21Provision for income taxes
    
    
    309
    
    
    
    33
    
    
    
    543
    
    
    
    115Net (loss) income
    
    $
    (3,352
    )
    
    $
    3,131
    
    
    $
    (2,027)
    
    
    $
    5,886Net (loss) income per share:Basic
    
    $
    (0.16
    )
    
    $
    0.14
    
    
    $
    (0.09
    )
    
    $
    0.27Diluted
    
    $
    (0.16
    )
    
    $
    0.14
    
    
    $
    (0.09
    )
    
    $
    0.26Shares used in per share calculation:Basic
    
    
    21,617
    
    
    
    22,000
    
    
    
    22,399
    
    
    
    21,778Diluted
    
    
    21,617
    
    
    
    23,022
    
    
    
    22,399
    
    
    
    22,810
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 4




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OPLINK COMMUNICATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Six Months EndedDecember 31,2007
    
    
    2006Cash flows from operating activities:Net (loss) income
    
    $
    (2,027
    )
    
    $
    5,886Adjustments to reconcile net (loss) income to
net cash provided by operating activities:Depreciation and amortization of property and equipment
    
    
    3,676
    
    
    
    2,365Amortization of intangible and other assets
    
    
    1,405
    
    
    
    185Impairment charges and other costs
    
    
    626
    
    
    
    Stock compensation expense
    
    
    5,274
    
    
    
    2,180Amortization of (discount) premium on investments
    
    
    (319
    )
    
    
    134Loss on sale or disposal of assets
    
    
    40
    
    
    
    Transitional costs of contract manufacturing
    
    
    1,287
    
    
    
    Minority interest in loss of consolidated subsidiaries
    
    
    (5,891
    )
    
    
    (21
    )Other
    
    
    257
    
    
    
    (21
    )Change in assets and liabilities:Accounts receivable
    
    
    523
    
    
    
    (5,929
    )Inventories
    
    
    (1,277
    )
    
    
    (3,252
    )Prepaid expenses and other current assets
    
    
    3,502
    
    
    
    (1,210
    )Other assets
    
    
    (3
    )
    
    
    592Accounts payable
    
    
    1,745
    
    
    
    2,299Accrued liabilities
    
    
    752
    
    
    
    (165
    )Net cash provided by operating activities
    
    
    9,570
    
    
    
    3,043Cash flows from investing activities:Purchases of available-for-sale investments
    
    
    (110,435
    )
    
    
    (32,696
    )Sales and maturities of available-for-sale investments
    
    
    85,724
    
    
    
    19,729Purchases of held-to-maturity investments
    
    
    
    
    
    
    (31,990
    )Sales and maturities of held-to-maturity investments
    
    
    86,400
    
    
    
    45,540Proceeds from sales of property and equipment
    
    
    16
    
    
    
    9Purchases of property and equipment
    
    
    (6,341
    )
    
    
    (1,234
    )Sale of equity investments
    
    
    5,000
    
    
    
    Purchase of equity investments
    
    
    (400
    )
    
    
    Acquisition of OCP, net of cash acquired
    
    
    (81,280
    )
    
    
    Net cash used in investing activities
    
    
    (21,316
    )
    
    
    (642
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    2,311
    
    
    
    7,257Repurchase of common stock
    
    
    (39,577
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (37,266
    )
    
    
    7,257Effect of exchange rate changes on cash and cash equivalents
    
    
    (75
    )
    
    
    15Net (decrease) increase in cash and cash equivalents
    
    
    (49,087
    )
    
    
    9,673Cash and cash equivalents, beginning of period
    
    
    111,600
    
    
    
    7,856Cash and cash equivalents, end of period
    
    $
    62,513
    
    
    $
    17,529
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
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OPLINK COMMUNICATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Description of Business.
    6




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Basis of Presentation
   7




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Net (Loss) Income Per Share
 Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Numerator:Net (loss) income
    
    $
    (3,352
    )
    
    $
    3,131
    
    
    $
    (2,027
    )
    
    $
    5,886Denominator:Weighted average shares outstanding  basic
    
    
    21,617
    
    
    
    22,000
    
    
    
    22,399
    
    
    
    21,778Effect of dilutive potential common shares
    
    
    
    
    
    
    1,022
    
    
    
    
    
    
    
    1,032Weighted average shares outstanding  diluted
    
    
    21,617
    
    
    
    23,022
    
    
    
    22,399
    
    
    
    22,810Net (loss) income per share  basic
    
    $
    (0.16
    )
    
    $
    0.14
    
    
    $
    (0.09
    )
    
    $
    0.27Net (loss) income per share  diluted
    
    $
    (0.16
    )
    
    $
    0.14
    
    
    $
    (0.09
    )
    
    $
    0.26Antidilutive stock options not included in net
(loss) income per share calculation
    
    
    2,666
    
    
    
    1,536
    
    
    
    2,717
    
    
    
    1,546
 Comprehensive (Loss) Income.
 8




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Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net (loss) income
    
    $
    (3,352
    )
    
    $
    3,131
    
    
    $
    (2,027
    )
    
    $
    5,886Unrealized (loss) gain on investments
    
    
    (251
    )
    
    
    (7
    )
    
    
    (176
    )
    
    
    30Change in cumulative translation adjustments
    
    
    1,038
    
    
    
    606
    
    
    
    1,571
    
    
    
    782Total comprehensive(loss) income
    
    $
    (2,565
    )
    
    $
    3,730
    
    
    $
    (632
    )
    
    $
    6,698
 Short-Term and Long-Term Investments.
  December 31, 2007Gross
    
    
    GrossCarrying
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedValue
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Corporate securities
    
    $
    49,742
    
    
    $
    49,867
    
    
    $
    8
    
    
    $
    (140
    )
    
    $
    49,735United States government agencies
    
    
    2,001
    
    
    
    2,000
    
    
    
    1
    
    
    
    
    
    
    
    2,001Total short-term investments
    
    
    51,743
    
    
    
    51,867
    
    
    
    9
    
    
    
    (140
    )
    
    
    51,736Long-term investments:Corporate securities
    
    
    3,061
    
    
    
    3,061
    
    
    
    14
    
    
    
    
    
    
    
    3,075Total long-term investments
    
    
    3,061
    
    
    
    3,061
    
    
    
    14
    
    
    
    
    
    
    
    3,075Total investments
    
    $
    54,804
    
    
    $
    54,928
    
    
    $
    23
    
    
    $
    (140
    )
    
    $
    54,811
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June 30, 2007Gross
    
    
    GrossCarrying
    
    
    Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedValue
    
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueShort-term investments:Certificates of deposit
    
    $
    75
    
    
    $
    75
    
    
    $
    
    
    
    $
    
    
    
    $
    75Obligations of states and political subdivisions
    
    
    79
    
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    79Corporate securities
    
    
    16,152
    
    
    
    16,165
    
    
    
    
    
    
    
    (24
    )
    
    
    16,141United States government agencies
    
    
    56,994
    
    
    
    56,996
    
    
    
    
    
    
    
    (94
    )
    
    
    56,902Total short-term investments
    
    
    73,300
    
    
    
    73,315
    
    
    
    
    
    
    
    (118
    )
    
    
    73,197Long-term investments:Corporate securities
    
    
    7,438
    
    
    
    7,438
    
    
    
    
    
    
    
    (30
    )
    
    
    7,408United States government agencies
    
    
    35,540
    
    
    
    35,536
    
    
    
    6
    
    
    
    (32
    )
    
    
    35,510Total long-term investments
    
    
    42,978
    
    
    
    42,974
    
    
    
    6
    
    
    
    (62
    )
    
    
    42,918Total investments
    
    $
    116,278
    
    
    $
    116,289
    
    
    $
    6
    
    
    $
    (180
    )
    
    $
    116,115
  December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale investments:Corporate securities
    
    $
    46,595
    
    
    $
    8
    
    
    $
    (133
    )
    
    $
    46,470United States government agencies
    
    
    2,000
    
    
    
    1
    
    
    
    
    
    
    
    2,001Total available-for-sale investments
    
    
    48,595
    
    
    
    9
    
    
    
    (133
    )
    
    
    48,471Held-to-maturity investments:Corporate securities
    
    
    6,333
    
    
    
    14
    
    
    
    (7
    )
    
    
    6,340Total held-to-maturity investments
    
    
    6,333
    
    
    
    14
    
    
    
    (7
    )
    
    
    6,340Total investments
    
    $
    54,928
    
    
    $
    23
    
    
    $
    (140
    )
    
    $
    54,811
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June 30, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueAvailable-for-sale investments:Certificates of deposit
    
    $
    75
    
    
    $
    
    
    
    $
    
    
    
    $
    75Obligations of states and political subdivisions
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    79Corporate securities
    
    
    10,932
    
    
    
    
    
    
    
    (13
    )
    
    
    10,919United States government agencies
    
    
    12,536
    
    
    
    6
    
    
    
    (4
    )
    
    
    12,538Total available-for-sale investments
    
    
    23,622
    
    
    
    6
    
    
    
    (17
    )
    
    
    23,611Held-to-maturity investments:Corporate securities
    
    
    12,671
    
    
    
    
    
    
    
    (41
    )
    
    
    12,630United States government agencies
    
    
    79,996
    
    
    
    
    
    
    
    (122
    )
    
    
    79,874Total held-to-maturity investments
    
    
    92,667
    
    
    
    
    
    
    
    (163
    )
    
    
    92,504Total investments
    
    $
    116,289
    
    
    $
    6
    
    
    $
    (180
    )
    
    $
    116,115
  December 31, 2007In Loss Position
    
    
    In Loss Position< 12 months
    
    
    12 months and longer
    
    
    Total In Loss PositionGross
    
    
    
    
    
    
    Gross
    
    
    
    
    
    
    GrossFair
    
    
    Unrealized
    
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedValue
    
    
    Losses
    
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesAvailable-for-sale investments:Corporate securities
    
    $
    27,981
    
    
    $
    (133
    )
    
    $
    
    
    
    $
    
    
    
    $
    27,981
    
    
    $
    (133
    )Total available-for-sale investments
    
    
    27,981
    
    
    
    (133
    )
    
    
    
    
    
    
    
    
    
    
    27,981
    
    
    
    (133
    )Held-to-maturity investments:Corporate securities
    
    
    3,266
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    3,266
    
    
    
    (7
    )Total held-to-maturity investments
    
    
    3,266
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    3,266
    
    
    
    (7
    )Total investments
in loss position
    
    $
    31,247
    
    
    $
    (140
    )
    
    $
    
    
    
    $
    
    
    
    $
    31,247
    
    
    $
    (140
    )
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December 31, 2007
    
    
    June 30, 2007Amortized
    
    
    Estimated
    
    
    Amortized
    
    
    EstimatedCost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueAvailable-for-sale investments:Due in one year or less
    
    $
    36,595
    
    
    $
    36,471
    
    
    $
    13,087
    
    
    $
    13,072Due in one year to five years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Due in five years to ten years
    
    
    
    
    
    
    
    
    
    
    1,133
    
    
    
    1,133Due after ten years
    
    
    12,000
    
    
    
    12,000
    
    
    
    9,402
    
    
    
    9,406Total available-for-sale investments
    
    
    48,595
    
    
    
    48,471
    
    
    
    23,622
    
    
    
    23,611Held-to-maturity investments:Due in one year or less
    
    
    3,272
    
    
    
    3,265
    
    
    
    60,229
    
    
    
    60,126Due in one year to five years
    
    
    3,061
    
    
    
    3,075
    
    
    
    32,438
    
    
    
    32,378Total held-to-maturity investments
    
    
    6,333
    
    
    
    6,340
    
    
    
    92,667
    
    
    
    92,504Total investments
    
    $
    54,928
    
    
    $
    54,811
    
    
    $
    116,289
    
    
    $
    116,115
 Acquisition of OCP
   Net working capital
    
    $
    87,235Net fixed assets
    
    
    3,696Other net assets
    
    
    2,951Identifiable intangible assets
    
    
    9,012Total purchase price
    
    $
    102,894
  12




---



##### Table of Contents



Cash
    
    $
    79,379Fair value of assumed vested stock options
    
    
    910Transaction costs
    
    
    1,406Total purchase price
    
    $
    81,695
    Net working capital
    
    $
    48,351Net fixed assets
    
    
    5,946Other net assets
    
    
    11,299Identifiable intangible assets
    
    
    6,692Goodwill
    
    
    9,407Total purchase price
    
    $
    81,695
 13




---



##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net revenues
    
    $
    48,943
    
    
    $
    39,977
    
    
    $
    98,094
    
    
    $
    78,825Net loss
    
    $
    (6,248
    )
    
    $
    (1,785
    )
    
    $
    (7,373
    )
    
    $
    (1,221
    )Net loss per shareBasic
    
    $
    (0.29
    )
    
    $
    (0.08
    )
    
    $
    (0.33
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.29
    )
    
    $
    (0.08
    )
    
    $
    (0.33
    )
    
    $
    (0.05
    )Shares used in per share calculationsBasic
    
    
    21,617
    
    
    
    22,857
    
    
    
    22,399
    
    
    
    22,635Diluted
    
    
    21,617
    
    
    
    22,857
    
    
    
    22,399
    
    
    
    22,635
  14




---



##### Table of Contents



Accrued Transitional Costs for Contract Manufacturing.
 Consolidation ofWorkforce
    
    
    Excess FacilitiesReduction
    
    
    and Other Charges
    
    
    TotalLiability assumed from OCP acquisition in June 2007
    
    $
    1,232
    
    
    $
    
    
    
    $
    1,232Additional charge in June 2007
    
    
    216
    
    
    
    
    
    
    
    216June payments
    
    
    (214
    )
    
    
    
    
    
    
    (214
    )Balance at June 30, 2007
    
    
    1,234
    
    
    
    
    
    
    
    1,234Additional charge in September 2007
    
    
    248
    
    
    
    507
    
    
    
    755September payments
    
    
    (304
    )
    
    
    (507
    )
    
    
    (811
    )Balance at September 30, 2007
    
    
    1,178
    
    
    
    
    
    
    
    1,178Additional charge in December 2007
    
    
    305
    
    
    
    227
    
    
    
    532December payments
    
    
    (841
    )
    
    
    (227
    )
    
    
    (1,068
    )Balance at December 31, 2007
    
    $
    642
    
    
    $
    
    
    
    $
    642
   .
 8. Accrued Restructuring.
   15




---



##### Table of Contents



December 31,2007Accrued RestructuringSeverance benefits
    
    $
    2,184Other acquisition related costs
    
    
    316Total restructuring accruals
    
    
    2,500Less current portion
    
    
    2,500Non-current portion
    
    $
    
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2007Accrued restructuring
beginning balance
    
    $
    
    
    
    $
    Additions
    
    
    3,183
    
    
    
    3,183Cash payments
    
    
    (683
    )
    
    
    (683
    )Accrued restructuring
ending balance
    
    $
    2,500
    
    
    $
    2,500
 16




---



##### Table of Contents



Inventories
 December 30,
    
    
    June 30,2007
    
    
    2007Inventories:Raw materials
    
    $
    20,876
    
    
    $
    21,156Work-in-process
    
    
    8,799
    
    
    
    10,159Finished goods
    
    
    2,849
    
    
    
    4,112Total
    
    $
    32,524
    
    
    $
    35,427
 Net Assets Held for Sale.
   Goodwill and Intangible Assets, Net.
 EstimatedUseful Life
    
    
    Gross
    
    
    AccumulatedDecember 31, 2007
    
    (in Years)
    
    
    Amount
    
    
    Amortization
    
    
    NetTechnology
    
    
    4
    
    
    $
    8,673
    
    
    $
    650
    
    
    $
    8,023Trade name
    
    
    6
    
    
    
    1,595
    
    
    
    75
    
    
    
    1,520Customer relationships
    
    
    3-4
    
    
    
    5,481
    
    
    
    459
    
    
    
    5,022Backlog
    
    
    1
    
    
    
    97
    
    
    
    67
    
    
    
    30Total
    
    
    
    
    
    $
    15,846
    
    
    $
    1,251
    
    
    $
    14,595
 17




---



##### Table of Contents



EstimatedUseful Life
    
    
    Gross
    
    
    AccumulatedJune 30, 2007
    
    (in Years)
    
    
    Amount
    
    
    Amortization
    
    
    NetPatents
    
    
    5
    
    
    $
    400
    
    
    $
    373
    
    
    $
    27Technology
    
    
    3-6.5
    
    
    
    5,216
    
    
    
    1,040
    
    
    
    4,176Trade name
    
    
    3-6
    
    
    
    570
    
    
    
    97
    
    
    
    473Customer relationships
    
    
    3-4
    
    
    
    2,380
    
    
    
    252
    
    
    
    2,128Backlog
    
    
    1
    
    
    
    52
    
    
    
    9
    
    
    
    43Total
    
    
    
    
    
    $
    8,618
    
    
    $
    1,771
    
    
    $
    6,847
  Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,Reported as:
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of revenues
    
    $
    464
    
    
    $
    57
    
    
    $
    738
    
    
    $
    115Operating expenses
    
    
    401
    
    
    
    35
    
    
    
    667
    
    
    
    70Total
    
    $
    865
    
    
    $
    92
    
    
    $
    1,405
    
    
    $
    185
  Fiscal years ending June 30,
    
    Amount2008
    
    $
    1,9362009
    
    
    3,8122010
    
    
    3,7822011
    
    
    3,6772012
    
    
    1,066After 2012
    
    
    322$
    14,595
   18




---



##### Table of Contents



Accrued Liabilities.
 December 31,
    
    
    June 30,2007
    
    
    2007Accrued liabilities:Payroll and related expenses
    
    $
    3,284
    
    
    $
    5,876Accrued merger fees
    
    
    2,995
    
    
    
    329Accrued sales commission
    
    
    667
    
    
    
    778Accrued warranty
    
    
    412
    
    
    
    445Accrued professional fees
    
    
    947
    
    
    
    1,195Acquisition costs
    
    
    293
    
    
    
    620Accrued sales return
    
    
    613
    
    
    
    562Income tax payable
    
    
    1,741
    
    
    
    311Advance deposits from customers
    
    
    185
    
    
    
    433Other
    
    
    5,936
    
    
    
    3,271$
    17,073
    
    
    $
    13,820
 Product Warranties.
 19




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##### Table of Contents



Three Months Ended
    
    
    Six Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Balance at the beginning of the period
    
    $
    457
    
    
    $
    422
    
    
    $
    445
    
    
    $
    405Accruals for warranties issued during the period
    
    
    38
    
    
    
    55
    
    
    
    100
    
    
    
    89Accruals related to pre-existing warranties
including expirations and changes in estimates
    
    
    (51
    )
    
    
    7
    
    
    
    (67
    )
    
    
    43Cost of warranty repair
    
    
    (32
    )
    
    
    (84
    )
    
    
    (66
    )
    
    
    (137
    )Balance at the end of the period
    
    $
    412
    
    
    $
    400
    
    
    $
    412
    
    
    $
    400
 Stock Compensation. .
  Three Months Ended December 31,
    
    
    Six Months Ended December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Stock-based compensation expense by type of award:Employee stock options
    
    $
    3,355
    
    
    $
    1,022
    
    
    $
    4,746
    
    
    $
    2,024Restricted stock awards
    
    
    13
    
    
    
    
    
    
    
    266
    
    
    
    Employee stock purchase plan
    
    
    160
    
    
    
    84
    
    
    
    262
    
    
    
    156Total stock-based compensation
    
    
    3,528
    
    
    
    1,106
    
    
    
    5,274
    
    
    
    2,180Tax effect on stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net effect on net income
    
    $
    3,528
    
    
    $
    1,106
    
    
    $
    5,274
    
    
    $
    2,180Effect on net income (loss) per share:Basic
    
    $
    (0.16
    )
    
    $
    (0.05
    )
    
    $
    (0.24
    )
    
    $
    (0.10
    )Diluted
    
    $
    (0.16
    )
    
    $
    (0.05
    )
    
    $
    (0.24
    )
    
    $
    (0.10
    )
 Stock Compensation Expense
  20




---



##### Table of Contents



Valuation Assumptions
  Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Risk-free interest
rate
    
    
    3.73
    %
    
    
    4.62
    %
    
    
    4.24
    %
    
    
    4.77
    %Expected term
    
    4.6 years
    
    4.6 years
    
    4.5 years
    
    4.7 yearsExpected dividends
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    46
    %
    
    
    48
    %
    
    
    43
    %
    
    
    48
    %
  Three Months Ended
    
    Six Months EndedDecember 31,
    
    December 31,2007
    
    2006
    
    2007
    
    2006Risk-free interest
rate
    
    
    3.86
    %
    
    
    4.95
    %
    
    
    3.86
    %
    
    
    4.95
    %Expected term
    
    1.1 years
    
    1.3 years
    
    1.1 years
    
    1.3 yearsExpected dividends
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Volatility
    
    
    46
    %
    
    
    48
    %
    
    
    46
    %
    
    
    48
    %
  21




---



##### Table of Contents



Equity Incentive Program
   Number of
    
    
    AverageShares Available
    
    
    Options
    
    
    Exercisefor Grant
    
    
    Outstanding
    
    
    PriceBalance, June 30, 2007
    
    
    4,211,451
    
    
    
    3,449,236
    
    
    $
    16.3067Additional options and awards authorized
    
    
    598,413
    
    
    
    Options and awards granted
    
    
    (581,554)
    *
    
    
    561,820
    
    
    
    13.2465Converted from OCP options
    
    
    (594,679)
    **
    
    
    594,679
    
    
    
    28.3498Options exercised
    
    
    
    
    
    
    (149,823
    )
    
    
    12.1123Options canceled
    
    
    504,688
    
    
    
    (504,688
    )
    
    
    24.5704Options expired
    
    
    (5,253
    )***
    
    
    
    
    
    
    Balance, December 31, 2007
    
    
    4,133,066
    
    
    
    3,951,224
    
    
    
    16.8553
 
 *
    
    The number of options and awards granted in the six months ended December 31, 2007 include
19,734 stock awards.**
    
    In connection with the acquisition of OCP, Oplink assumed 5,420,687 outstanding stock
options issued pursuant to OCPs stock option plans and converted them into 594,679 options to
purchase shares of Oplink common stock pursuant to conversion terms stated in the merger agreement.***
    
    In accordance with previous OCP stock option plans that have
now terminated, OCP stock options that were granted and subsequently
cancelled, are not available for future grant.
 22




---



##### Table of Contents



Options Outstanding
    
    
    Options Vested and Exercisableat December 31, 2007
    
    
    at December 31, 2007Weighted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AverageRemaining
    
    
    Weighted
    
    
    Aggregate
    
    
    
    
    
    
    Remaining
    
    
    Weighted
    
    
    AggregateContractual
    
    
    Average
    
    
    Intrinsic
    
    
    
    
    
    
    Contractual
    
    
    Average
    
    
    IntrinsicRange of Exercise
    
    Number
    
    
    Life
    
    
    Exercise
    
    
    Value
    
    
    Number
    
    
    Life
    
    
    Exercise
    
    
    ValuePrice
    
    Outstanding
    
    
    (in Years)
    
    
    Price
    
    
    (in thousands)
    
    
    Outstanding
    
    
    (in Years)
    
    
    Price
    
    
    (in thousands)$0.0001  $2.0000
    
    
    18,564
    
    
    
    1.0
    
    
    $
    1.0103
    
    
    $
    261
    
    
    
    18,564
    
    
    
    1.0
    
    
    $
    1.0103
    
    
    $
    261$3.0001  $5.0000
    
    
    488,034
    
    
    
    4.6
    
    
    
    4.5997
    
    
    
    5,105
    
    
    
    488,034
    
    
    
    4.6
    
    
    
    4.5997
    
    
    
    5,105$5.0001  $10.0000
    
    
    423,312
    
    
    
    4.7
    
    
    
    6.1154
    
    
    
    3,786
    
    
    
    423,211
    
    
    
    4.7
    
    
    
    6.1145
    
    
    
    3,786$10.0001  $11.0000
    
    
    179,779
    
    
    
    7.3
    
    
    
    10.1317
    
    
    
    886
    
    
    
    104,998
    
    
    
    7.3
    
    
    
    10.1224
    
    
    
    518$11.0000  $13.0000
    
    
    160,272
    
    
    
    7.3
    
    
    
    12.3158
    
    
    
    440
    
    
    
    69,214
    
    
    
    7.0
    
    
    
    12.4802
    
    
    
    179$13.0001  $15.0000
    
    
    740,191
    
    
    
    8.8
    
    
    
    13.5221
    
    
    
    1,138
    
    
    
    160,777
    
    
    
    6.5
    
    
    
    13.7966
    
    
    
    203$15.0001  $17.0000
    
    
    102,053
    
    
    
    8.8
    
    
    
    16.9229
    
    
    
    
    
    
    
    13,889
    
    
    
    7.5
    
    
    
    16.6717
    
    
    
    $17.0001  $19.0000
    
    
    695,349
    
    
    
    6.8
    
    
    
    17.8162
    
    
    
    
    
    
    
    466,761
    
    
    
    6.1
    
    
    
    17.7161
    
    
    
    $19.0001  $20.0000
    
    
    106,722
    
    
    
    8.1
    
    
    
    19.6108
    
    
    
    
    
    
    
    43,843
    
    
    
    7.1
    
    
    
    19.4903
    
    
    
    $20.0001  $21.0000
    
    
    768,028
    
    
    
    8.5
    
    
    
    20.2360
    
    
    
    
    
    
    
    283,497
    
    
    
    8.5
    
    
    
    20.2384
    
    
    
    $21.0001  $37.0000
    
    
    119,948
    
    
    
    4.6
    
    
    
    28.9909
    
    
    
    
    
    
    
    114,073
    
    
    
    4.5
    
    
    
    29.0491
    
    
    
    $40.0001  $158.0000
    
    
    148,972
    
    
    
    2.8
    
    
    
    85.3512
    
    
    
    
    
    
    
    148,972
    
    
    
    2.8
    
    
    
    85.3512
    
    
    
    3,951,224
    
    
    
    6.9
    
    
    $
    16.8553
    
    
    $
    11,616
    
    
    
    2,335,833
    
    
    
    5.6
    
    
    $
    17.1748
    
    
    $
    10,052Vested and expected
to vest
    
    
    3,686,598
    
    
    
    6.0
    
    
    $
    16.8791
    
    
    $
    11,357
    23




---



##### Table of Contents



Employee Stock Purchase Plan
    Repurchase of Common Stock
   24




---



##### Table of Contents



Recent Accounting Pronouncements step acquisition
  
  25




---



##### Table of Contents



Contingencies In re Oplink Communications,
Inc. Initial Public Offering Securities Litigation
     26




---



##### Table of Contents



Merlin Partners, LP vs. Optical Communication Products, Inc.,
Oplink Communications, Inc., et al.
 27




---



##### Table of Contents



Segment Reporting.
  Three Months
    
    
    Six MonthsEnded December 31,
    
    
    Ended December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Revenues:United States
    
    $
    21,652
    
    
    $
    10,429
    
    
    $
    42,891
    
    
    $
    16,990Europe
    
    
    6,590
    
    
    
    5,101
    
    
    
    13,559
    
    
    
    10,895Asia
    
    
    15,783
    
    
    
    6,202
    
    
    
    32,257
    
    
    
    12,304Canada
    
    
    4,918
    
    
    
    1,221
    
    
    
    9,387
    
    
    
    2,478Totals
    
    $
    48,943
    
    
    $
    22,953
    
    
    $
    98,094
    
    
    $
    42,667
  December 30,
    
    
    June 30,2007
    
    
    2007United States
    
    $
    12,192
    
    
    $
    7,223Asia
    
    
    22,704
    
    
    
    21,385Europe
    
    
    
    
    
    
    299Totals
    
    $
    34,896
    
    
    $
    28,907
 Accounting for Uncertainty in Income Taxes. Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109. Recognition Measurement
 28




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##### Table of Contents



Subsequent Events.
   
 ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-looking statements
  29




---



##### Table of Contents



Overview
     30




---



##### Table of Contents



Use of Estimates and Critical Accounting Policies
   31




---



##### Table of Contents




    
    revenue recognition and product returns;
    
    warranty obligations;
    
    allowance for doubtful accounts;
    
    excess and obsolete inventory;
    
    long-lived asset valuation;
    
    business combination;
    
    deferred taxes;
    
    stock compensation;
    
    restructuring accruals;
    
    accrued transitional costs for contract manufacturing; and
    
    loss contingencies
   Results of Operations
 Revenues
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    
    
    
    Percentage
    
    December 31,
    
    
    
    
    
    Percentage2007
    
    2006
    
    Change
    
    Change
    
    2007
    
    2006
    
    Change
    
    ChangeRevenues
    
    $
    48,943
    
    
    $
    22,953
    
    
    $
    25,990
    
    
    
    113.2
    %
    
    $
    98,094
    
    
    $
    42,667
    
    
    $
    55,427
    
    
    
    129.9
    %
 32




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Gross Profit
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    
    
    
    Percentage
    
    December 31,
    
    
    
    
    
    Percentage2007
    
    2006
    
    Change
    
    Change
    
    2007
    
    2006
    
    Change
    
    ChangeGross profit
    
    $
    10,988
    
    
    $
    6,381
    
    
    $
    4,607
    
    
    
    72.2
    %
    
    $
    22,816
    
    
    $
    12,539
    
    
    $
    10,277
    
    
    
    82.0
    %Gross profit margin
    
    
    22.5
    %
    
    
    27.8
    %
    
    
    
    
    
    
    
    
    
    
    23.3
    %
    
    
    29.4
    %
  33




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Research and Development
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    
    
    
    Percentage
    
    December 31,
    
    
    
    
    
    Percentage2007
    
    2006
    
    Change
    
    Change
    
    2007
    
    2006
    
    Change
    
    ChangeResearch and
development
    
    $
    3,866
    
    
    $
    1,573
    
    
    $
    2,293
    
    
    
    145.8
    %
    
    $
    8,564
    
    
    $
    3,273
    
    
    $
    5,291
    
    
    
    161.7
    %
  34




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##### Table of Contents



Sales and Marketing
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    
    
    
    Percentage
    
    December 31,
    
    
    
    
    
    Percentage2007
    
    2006
    
    Change
    
    Change
    
    2007
    
    2006
    
    Change
    
    ChangeSales and
marketing
    
    $
    3,002
    
    
    $
    1,450
    
    
    $
    1,552
    
    
    
    107.0
    %
    
    $
    6,131
    
    
    $
    2,990
    
    
    $
    3,141
    
    
    
    105.1
    %
   General and Administrative
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    
    
    
    Percentage
    
    December 31,
    
    
    
    
    
    Percentage2007
    
    2006
    
    Change
    
    Change
    
    2007
    
    2006
    
    Change
    
    ChangeGeneral and
administrative
    
    $
    6,533
    
    
    $
    2,489
    
    
    $
    4,044
    
    
    
    162.5
    %
    
    $
    12,039
    
    
    $
    4,710
    
    
    $
    7,329
    
    
    
    155.6
    %
  35




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Stock Compensation Expense
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    
    
    
    Percentage
    
    December 31,
    
    
    
    
    
    Percentage2007
    
    2006
    
    Change
    
    Change
    
    2007
    
    2006
    
    Change
    
    ChangeStock compensation
expense
    
    $
    3,528
    
    
    $
    1,106
    
    
    $
    2,422
    
    
    
    219.0
    %
    
    $
    5,274
    
    
    $
    2,180
    
    
    $
    3,094
    
    
    
    141.9
    %
    36




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##### Table of Contents



Transitional Costs for Contract Manufacturing
  Consolidation ofWorkforce
    
    
    Excess FacilitiesReduction
    
    
    and Other Charges
    
    
    TotalLiability assumed from OCP
acquisition in June 2007
    
    $
    1,232
    
    
    $
    
    
    
    $
    1,232Additional charge in June 2007
    
    
    216
    
    
    
    
    
    
    
    216June payments
    
    
    (214
    )
    
    
    
    
    
    
    (214
    )Balance at June 30, 2007
    
    
    1,234
    
    
    
    
    
    
    
    1,234Additional charge in September 2007
    
    
    248
    
    
    
    507
    
    
    
    755September payments
    
    
    (304
    )
    
    
    (507
    )
    
    
    (811
    )Balance at September 30, 2007
    
    
    1,178
    
    
    
    
    
    
    
    1,178Additional charge in December 2007
    
    
    305
    
    
    
    227
    
    
    
    532December payments
    
    
    (841
    )
    
    
    (227
    )
    
    
    (1,068
    )Balance at December 31, 2007
    
    $
    642
    
    
    $
    
    
    
    $
    642
  .
 Impairment Charges and Other Costs
   37




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Merger Fees
  Amortization of Intangible and Other Assets
  Interest and Other Income, Net
 (In thousands, except percentages)
 Three Months Ended
    
    
    
    
    
    
    
    
    
    Six Months EndedDecember 31,
    
    
    
    
    
    Percentage
    
    December 31,
    
    
    
    
    
    Percentage2007
    
    2006
    
    Change
    
    Change
    
    2007
    
    2006
    
    Change
    
    ChangeInterest and other
income, net
    
    $
    2,090
    
    
    $
    2,321
    
    
    $
    (231
    )
    
    
    -10.0
    %
    
    $
    5,112
    
    
    $
    4,484
    
    
    $
    628
    
    
    
    14.0
    %
  Minority Interest
  38




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Provision for Income Taxes
  Liquidity and Capital Resources
  Six Months Ended December 31, 2007
   39




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.
  .
 Six Months Ended December 31, 2006
   40




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.
 Contractual Obligations
  Contractual Obligations Due by PeriodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    4-5 years
    
    
    After 5 yearsContractual
ObligationsPurchase obligations
    
    $
    21,910
    
    
    $
    21,910
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    1,202
    
    
    
    1,166
    
    
    
    36
    
    
    
    
    
    
    
    Total
    
    $
    23,112
    
    
    $
    23,076
    
    
    $
    36
    
    
    $
    
    
    
    $
    
 Recent Accounting Pronouncements
  41




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step acquisition
    
 ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  Interest Rate Exposure
  42




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Carrying
    
    
    Average Rate
    
    
    Carrying
    
    
    Average RateValue at
    
    
    of Return at
    
    
    Value at
    
    
    of Return atDecember 31,
    
    
    December 31,
    
    
    June 30,
    
    
    June 30,2007
    
    
    2007
    
    
    2007
    
    
    2007(Annualized)
    
    
    
    
    
    
    (Annualized)Investment Securities:Cash equivalents  variable rate
    
    $
    23,368
    
    
    
    3.3
    %
    
    $
    12,289
    
    
    
    5.2
    %Cash equivalents  fixed rate
    
    
    27,094
    
    
    
    4.8
    %
    
    
    4,137
    
    
    
    5.3
    %Short-term investments  variable rate
    
    
    26,417
    
    
    
    4.7
    %
    
    
    154
    
    
    
    2.2
    %Short-term investments  fixed rate
    
    
    25,326
    
    
    
    5.5
    %
    
    
    73,146
    
    
    
    5.0
    %Long-term investments  fixed rate
    
    
    3,061
    
    
    
    5.2
    %
    
    
    42,978
    
    
    
    8.1
    %Total
    
    $
    105,266
    
    
    
    
    
    
    $
    132,704
 Expected Fiscal Year Maturity Date2009
    
    2010
    
    2011 and after
    
    Total
    
    Fair ValueLong-term
investments  fixed
rate
    
    $
    3,061
    
    
    $
    
    
    
    $
    
    
    
    $
    3,061
    
    
    $
    3,075Average interest rate
    
    
    5.2
    %
    
    
    
    
    
    
    
    
    
    
    5.2
    %
    
    
    
 Foreign Currency Exchange Rate Exposure
   43




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ITEM 4  CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures.
 Changes in Internal Control over Financial Reporting.
 
 PART II. OTHER INFORMATION
 
 ITEM 1- LEGAL PROCEEDINGS
 In re Oplink Communications, Inc. Initial Public
Offering Securities Litigation
  44




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45




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Merlin Partners, LP vs. Optical Communication Products, Inc.,
Oplink Communications, Inc., et al.
  
 Item 1A Risk Factors
  46




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We have incurred significant losses in the past, and if we are unable to continue to increase our
revenues while controlling our costs and operating expenses, we may be unable to sustain our 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.
  ,
   47




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Our ROADM Optical Switching and Routing product has accounted for a significant proportion of our
revenues. There has been a decline in the price of our ROADM products and increased competition
with our ROADM products. As a result, we expect our unit shipments for ROADM products to decrease in the
third fiscal quarter of 2008 compared to the second fiscal quarter of 2008, which could result in
lower overall revenues. The continued increase in competitive pressures in the ROADM market space,
or our inability to develop new and updated products could harm our revenues and operating
results.
   48




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If we are unable to successfully integrate acquired businesses or technologies, our operating
results may be harmed. The recent acquisition of OCP is our largest ever acquisition and may substantially
challenge Oplinks management infrastructure.
  
    
    additional operating expenses without additional revenues;
    
    potential dilutive issuances of equity securities;
    
    the incurrence of debt and contingent liabilities;
    
    amortization of other intangibles;
    
    research and development write-offs;
    
    other acquisition-related expenses; and
    
    Cannibalization of product lines leading to revenue attrition.
    49




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
    
    problems assimilating the purchased operations, technologies or products;
    
    unanticipated costs associated with the acquisition;
    
    diversion of managements attention from our core business;
    
    adverse effects on existing business relationships with suppliers and customers;
    
    risks associated with entering markets in which we have no or limited prior
experience; and
    
    potential loss of key employees of purchased organizations.
  Our wavelength expansion products have accounted for a significant proportion of our revenues, and
our revenues could be harmed if the price of, or demand for these products further declines or if
these products fail to achieve broader market acceptance.
  50




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The optical networking component industry is experiencing declining average selling prices, which
could cause our gross margins to decline and harm our operating results.
  Because none of our customers are obligated to purchase our products, they may cancel or defer
their purchases at any time and on short notice, which could harm our operating results.
  
    
    may stop purchasing our products or defer their purchases at any time without
penalty;
    
    are free to purchase products from our competitors;
    
    are not required to make minimum purchases; and
    
    may cancel orders that they place with us.
  Our markets are highly competitive, some of our customers are also our competitors, and our other
customers may choose to purchase our competitors products rather than our products or develop
internal capabilities to produce their own fiber optic modules.
  51




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If we are unable to generate adequate additional revenue as a result of the expansion of our sales
operations, our competitive position may be harmed and our revenue or margins may decline.
  52




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If our customers do not approve our manufacturing processes and qualify our products, we will lose
significant customer sales and opportunities.
   Our quarterly revenues and operating results are difficult to predict and may continue to fluctuate
significantly from quarter to quarter and, therefore, may vary from public market analysts or
investors
expectations, which could cause our stock price to drop.
  
    
    the availability of raw materials used in our products, increases in the price of these
raw materials or to the extent a greater degree of the raw material content of our product
is from third parties, which most likely would cause our gross profit margin to decline;
 53




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
    
    impact on our sales and margins as a result of our customers continued migration to
contract manufacturers and the extent to which we engage in contract manufacturing
activities, which most likely would cause our gross profit margin to decline;
    
    fluctuation in the mix of products sold towards products with lower margins such as
ROADMs;
    
    fluctuations in demand for, and sales of, our products;
    
    changes in customer, geographic or product mix and the average selling prices of our
products;
    
    economic conditions specific to the communications and related industries and the
development and size of the markets for our products;
    
    our inability to cut costs quickly in the event of market or demand downturns, due to
the fact that a high percentage of our expenses, including those related to manufacturing,
engineering, research and development, sales and marketing and general and administrative
functions, is fixed in the short term;
    
    cancellations or delays of orders or shipment rescheduling by our customers;
    
    the lingering effects of the recent economic downturn and resulting uncertainty of the
fiber optic industry;
    
    the ability of our manufacturing operations in China to timely produce and deliver
products in the quantity and of the quality our customers require;
    
    our ability to successfully improve our manufacturing capabilities and achieve
acceptable production yields in our facilities in China;
    
    the tendency of communications equipment suppliers to sporadically place large orders
with short lead times;
    
    competitive factors in the fiber optic components and subsystems market, including
introductions of new products, new technologies and product enhancements by competitors,
consolidation of competitors, customers and service provider end users and pricing
pressures;
    
    the recent acquisition of OCP and its subsequent integration with Oplinks operations
may severely stress our infrastructure resulting in possible operational bottlenecks that
may result in loss of revenue and increased costs;
    
    our ability to develop, introduce, manufacture and ship new and enhanced optical
networking products in a timely manner and in production quantities without defects or
other quality issues;
    
    with respect to new products, a mismatching of research and development expenses and
sales and marketing expenses that are incurred in one quarter with revenues that are not
recognized, if at all, until a subsequent quarter when the new products are introduced and
commercially accepted; and
    
    costs associated with, and the outcomes of, any intellectual property or other
litigation to which we are, or may become, a party.
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If we fail to effectively manage our manufacturing capability, produce products that meet our
customers quality requirements and achieve acceptable production yields in China, we may not be able to
deliver sufficient quantities of products that meet all of our customers order requirements in a timely
manner, which would harm our operating results.
      55




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
    
    our ability to procure the necessary raw materials and equipment on a timely basis;
    
    a potential lack of availability of qualified management and manufacturing personnel;
    
    our ability to maintain quality;
    
    our ability to effectively manage headcount, particularly if we undertake to expand our
manufacturing operations;
    
    vulnerability of telecommunications networks in East Asia to natural disasters, such as
the recent earthquake that damaged several undersea fiber-optic cables responsible for
Internet and telephone connections with parts of China; and
    
    our ability to quickly and efficiently implement an adequate set of financial controls
to effectively track and control inventory levels and inventory mix and to accurately
predict inventory requirements.
  If we fail to predict our manufacturing requirements accurately, we could incur additional carrying
costs
and have excess and obsolete inventory or we could experience manufacturing delays, which could
cause
us to lose orders or customers.
  Our transition of manufacturing operations from California and Taiwan to SAE in China is subject to
risks and uncertainties.
  56




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Our products may have defects that are not detected until full deployment of a customers
equipment,
which could result in a loss of customers, damage to our reputation and substantial costs.
  
    
    loss of customers;
    
    loss of or delay in revenues;
    
    loss of market share;
    
    damage to our brand and reputation;
    
    inability to attract new customers or achieve market acceptance;
    
    diversion of development resources;
    
    increased service and warranty costs;
    
    legal actions by our customers; and
    
    increased insurance costs.
  57




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We depend on the growth and success of the communications industry, which is subject to severe
fluctuations in economic activity and is also experiencing consolidation and realignment, as well
as a
trend towards outsourced manufacturing.
      58




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Because we depend on third parties to supply some of our raw materials and equipment, we may not be
able to obtain sufficient quantities of these materials and equipment, or these materials may
become unavailable due to technological changes, which could limit our ability to fill customer orders and
harm our operating results.
  59




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We compete in a highly competitive industry, and if we are unable to compete successfully or
develop new products and product enhancements that achieve market acceptance, our revenues could
decline, which would harm our operating results.
  60




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61




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The market for our products is characterized by rapid technological changes and evolving industry
standards. If we do not respond to the changes in a timely manner, our products likely will not
achieve market acceptance.
  If our liability for U.S. and foreign taxes is greater than we have anticipated and reserved for,
our operating results may suffer.
  62




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Disruption to commercial activities in the United States or in other countries, particularly in
China and Taiwan, may adversely impact our results of operations, our ability to raise capital or our future
growth.
  
    
    disruptions to commercial activities or damage to our facilities as a result of natural
disasters, political unrest, war, terrorism, labor strikes, and work stoppages;
    
    disruptions of telecommunications networks due to natural disasters, such as the recent
earthquake that damaged several undersea fiber-optic cables responsible for Internet and
telephone connections with parts of China;
    
    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;
    
    economic instability;
    
    any future outbreak of severe acute respiratory syndrome, avian influenza and other
epidemics or illnesses; and
    
    power shortages at our manufacturing facilities in China, which may lead to production
delays.
   63




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We are exposed to currency rate fluctuations and exchange controls that could adversely impact our
operating results.
   64




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If tax benefits available to our subsidiaries located in China are reduced or repealed or our China
subsidiaries fail to meet the requirements for utilizing such tax benefits, our financial condition
and operating results could suffer.
  If we are unable to protect our proprietary technology, our ability to succeed will be harmed.
  65




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We may be involved in intellectual property disputes in the future, which will divert managements
attention and could cause us to incur significant costs and prevent us from selling or using the
challenged technology.
     66




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##### Table of Contents




    
    obtain from the owner of the infringed intellectual property right a license to sell or
use the relevant technology, which license may not be available on reasonable terms, or at
all;
    
    stop selling, incorporating or using our products that use the challenged intellectual
property;
    
    pay substantial money damages; or
    
    redesign the products that use the technology.
  We depend on key personnel to manage our business effectively in a rapidly changing market, and if
we are unable to retain our key employees and hire additional personnel, our ability to sell our
products could be harmed.
 .
   67




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Because some of our third-party sales representatives and distributors carry products of one or
more of our competitors, they may not recommend our products over competitors products.
  Our failure to comply with governmental regulations could subject us to liability. New laws could
be enacted that increase the risks and costs to Oplink. A new labor contract law has been enacted
in China.
    68




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Enacted and proposed changes in securities laws and regulations have increased and are likely to
continue to increase our costs.
  69




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Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act of 2002 could impair the reliability of our financial statements, cause us to delay filing our
periodic reports with the SEC, harm our reputation and adversely affect our stock price.
    70




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Changes in existing financial accounting standards or practices may adversely affect our results of
operations.
  Because of the rapid changes taking place in the fiber optics industry, we expect to experience
significant volatility in our stock price, which could cause you to lose all or part of your investment.
  
    
    economic downturn in the fiber optics industry;
    
    preannouncement of financial results;
    
    quarterly variations in our operating results;
    
    changes in financial estimates by securities analysts and our failure to meet
estimates;
    
    changes in market values of comparable companies;
    
    announcements by our competitors or us of new products or of significant acquisitions,
strategic partnerships or joint ventures;
    
    any loss by us of a major customer;
    
    the outcome of, and costs associated with, any litigation to which we are or may become
a party;
    
    additions or departures of key management or engineering personnel; and
    
    future sales of our common stock.
  71




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Provisions of our charter documents and Delaware law and other arrangements may have anti-takeover
effects that could prevent any change in control, which could negatively affect your investment.
  
    
    issue preferred stock with rights senior to those of the common stock without any
further vote or action by the stockholders;
    
    provide for a classified board of directors;
    
    eliminate the right of the stockholders to call a special meeting of stockholders;
    
    eliminate the right of stockholders to act by written consent; and
    
    impose various procedural and other requirements, which could make it difficult for
stockholders to effect certain corporate actions.
  Uncertainties arising out of terrorist activities, resulting military actions and other factors
could adversely affect our business and operating results.
  72




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ITEM 2  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3  DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  Nominee
    
    For
    
    Against
    
    AbstainJoseph Y. Liu
    
    
    18,221,395
    
    
    
    284,061
    
    
    
    0
  For
    
    Against
    
    Abstain
    
    Broker non-votes18,427,283
    
    
    53,613
    
    
    
    24,560
    
    
    
    0
 
 ITEM 5  OTHER INFORMATION
  73




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ITEM 6   EXHIBITS
 Exhibit Index
 Exhibit No.
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(1)
    
    Bylaws of the Registrant.3.3(2)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock.3.4(3)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant.10.37
    
    Amended Agreement of Purchase and Sale and Escrow Instructions between Optical Communication
Products, Inc. and DS Ventures, LLC31.1
    
    Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section 1350).32.2*
    
    Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
 
 (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-1/A, No. 333-41506, as filed on
October 3, 2000.(2)
    
    Previously filed as an Exhibit to the Registrants Report on Form 8-K filed on March 22, 2002 and incorporated
herein by reference.(3)
    
    Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on November 14, 2006 and
incorporated herein by reference.*
    
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly Report on Form
10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by
the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 74




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##### Table of Contents



SIGNATURES
  OPLINK COMMUNICATIONS, INC.
(Registrant)DATE: February 8, 2008
    By:
    /s/ Shirley YinShirley YinChief Financial Officer
(Principal Financial and Accounting Officer) 75




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Description3.1(1)
    
    Amended and Restated Certificate of Incorporation of the Registrant.3.2(1)
    
    Bylaws of the Registrant.3.3(2)
    
    Certificate of Designation of Series A Junior Participating Preferred Stock.3.4(3)
    
    Certificate of Amendment to Amended and Restated Certificate of Incorporation of the Registrant.3.5(4)
    
    Certificate of Amendment to Bylaws
of the Registrant.10.37
    
    Standard Industrial/Commercial
Single-Tenant Lease  Net between Optical Communication Products, Inc. and DS-Variel Avenue, LLC31.1
    
    Certification of Chief Executive Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.31.2
    
    Certification of Chief Financial Officer Required under Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended.32.1*
    
    Certification of Chief Executive Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the
United States Code (18 U.S.C. Section 1350).32.2*
    
    Certification of Chief Financial Officer Required under Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.
 
 (1)
    
    Incorporated by reference to the Registrants Registration Statement on Form S-1/A, No. 333-41506, as filed on
October 3, 2000.(2)
    
    Previously filed as an Exhibit to the Registrants Report on Form 8-K filed on March 22, 2002 and incorporated
herein by reference.(3)
    
    Previously filed as an Exhibit to the Registrants Quarterly Report on Form 10-Q filed on November 14, 2006 and
incorporated herein by reference.(4)
    
    Previously filed as an Exhibit to the Registrants
Report on Form 8-K filed on December 20, 2007 and
incorporated herein by reference.*
    
    The certifications attached as Exhibits 32.1 and 32.2 accompanies this Quarterly Report on Form
10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by
the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.