##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|          
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended June 30,
    2004                                                 
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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
    incorporation or organization) |  | (I.R.S. Employer
    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


Securities registered pursuant to
Section 12(b) of the Act:

Not Applicable


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $0.001 Par Value Per
Share


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 þ          No o

Indicate by a check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Indicate by a check
mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the
Act).     Yes þ          No o

The aggregate
market value of the voting stock held by non-affiliates of the
Registrant, as of December 31,2003, was
approximately $195,929,478 based upon the closing price for
shares of the registrants common stock as reported by the
Nasdaq National Market on December 31, 2003. Excludes an
aggregate of 63,965,128 shares of common stock held by officers
and directors and by each person known by the Registrant to own
5% or more of the outstanding common stock. Exclusion of shares
held by any of these persons should not be construed to indicate
that such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of
the Registrant, or that such person is controlled by or under
common control with the Registrant.

As of
August 31, 2004, approximately 147,527,621 shares of the
Registrants common stock, $0.001 par value, were
outstanding.

Documents Incorporated by Reference

The
information called for by Part III is incorporated by
reference to specified portions of the Registrants
definitive Proxy Statement to be issued in conjunction with the
Registrants 2004 Annual Meeting of Stockholders, which is
expected to be filed not later than 120 days after the
Registrants fiscal year ended June 30, 2004.



---






---










OPLINK COMMUNICATIONS, INC.

FORM 10-K

June 30, 2004


TABLE OF CONTENTS

|              |  |                                                                                                                      |  |   
|------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | --
|PART I        |  |                                                                                                                     
|Item 1        |  | Business                                                                                                             |  | 2 
|Item 2        |  | Properties                                                                                                           |  | 27
|Item 3        |  | Legal Proceedings                                                                                                    |  | 28
|Item 4        |  | Submission of Matters to a
    Vote of Security Holders                                                              |  | 29
|PART II       |  |                                                                                                                     
|Item 5        |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |  | 29
|Item 6        |  | Selected Financial Data                                                                                              |  | 30
|Item 7        |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |  | 33
|Item 7A       |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                       |  | 53
|Item 8        |  | Financial Statements and
    Supplementary Data                                                                      |  | 54
|Item 9        |  | Changes In and Disagreements
    with Accountants on Accounting and Financial Disclosure                             |  | 54
|Item 9A       |  | Controls and Procedures                                                                                              |  | 54
|Item 9B       |  | Other Information                                                                                                    |  | 54
|PART III      |  |                                                                                                                     
|Item 10       |  | Directors and Executive
    Officers of the Registrant                                                               |  | 54
|Item 11       |  | Executive Compensation                                                                                               |  | 55
|Item 12       |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters               |  | 55
|Item 13       |  | Certain Relationships and
    Related Transactions                                                                   |  | 55
|Item 14       |  | Principal Accountant Fees
    and Services                                                                           |  | 55
|PART IV       |  |                                                                                                                     
|Item 15       |  | Exhibits and Financial
    Statement Schedules                                                                       |  | 55
|EXHIBIT 10.29
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 



1



---



##### Table of Contents






PART I

This report on Form 10-K contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, 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, estimate or
assume 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 and
under the captions Risk Factors contained in
Item 1 and Managements Discussion and Analysis
of Financial Condition and Results of Operations contained
in Item 7. We caution you that our business and financial
performance are subject to substantial risks and uncertainties.
We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new
information, future events or otherwise.






|        |         
|------- | --------
|Item 1. | Business

Overview

We provide design, integration and Optical
Manufacturing Solutions, or OMS, for optical networking
components and subsystems that expand optical bandwidth, amplify
optical signals, monitor and protect wavelength performance,
redirect light signals, reshape light profile to enable extended
signal reach and provide signal transmission and reception
within an optical network. Our product portfolio includes
solutions for next-generation, all-optical Dense and Coarse
Wavelength Division Multiplexing, or DWDM and CWDM,
respectively, optical amplification, switching and routing,
monitoring and conditioning, dispersion management and line
transmission applications. We offer advanced and cost-effective
optical-electrical components and subsystem manufacturing
through our facilities in Zhuhai and Shanghai, China. In
addition, we maintain optical-centric front-end design,
application, and customer service functions at our headquarters
in San Jose, California. As a Photonic Foundry, we offer our
customers expert OMS for the production and packaging of highly
integrated optical subsystems and turnkey solutions based upon a
customers specific product design and specification. Our
broad line of products and services increases the performance of
optical networks and enables optical system manufacturers to
provide flexible and scalable bandwidth to support the increase
of data traffic on the Internet and other public and private
networks. Our customers include telecommunications, data
communications and cable TV equipment manufacturers around the
globe.

Through internal research and development we have
developed over 160 standard products that are sold or integrated
into custom solutions. We provide customers with high quality
optical subsystems and components that are used for bandwidth
creation and management applied to all segments of the fiber
optic network infrastructure including access, metro, and long
haul.

We build these elements to the exacting
requirements of the worlds leading optical networking
equipment companies, and we work closely with customers during
the product design and development cycle. This provides us with
the ability to respond to the volume production requirements of
our customers when their systems are ready for commercial
deployment. We support customers volume, quality, and
time-to-market requirements.

By combining in-house technical expertise with
extensive micro-optic packaging and manufacturing capabilities,
we are able to produce large volumes of customized and
standardized subsystems and component solutions to meet the
specific design needs of customers. Our U.S. headquarters are
third-party certified to the ISO 9001 standard in research and
manufacturing and our products meet the Telcordia compliance
standards. Our manufacturing operations in Zhuhai and Shanghai,
China are third-party certified to the ISO 9001-2000 standard.

We were incorporated in California in September
1995 and reincorporated in Delaware in September 2000. We began
delivering optical networking products to our customers in 1996.
Our website is available on the World Wide Web at oplink.com.
Our website address is given solely for informational purposes;
we do not intend, by this reference, that our website should be
deemed to be part of this Annual Report on Form 10-K or to
incorporate the information available at our internet address
into this Annual Report on Form 10-K.

2



---



##### Table of Contents



We file electronically with the Securities and
Exchange Commission, or SEC, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended. We make these
reports available free of charge through our Internet website as
soon as reasonably practicable after we have electronically
filed such material with, or furnished it to, the SEC.

Products and Technologies

We provide a broad line of fiber optic subsystems
and components designed to satisfy the needs of communications
equipment suppliers. We categorize our products by the
functionalities provided within a network, namely, bandwidth
creation and bandwidth management. Some of our products have
attributes that combine both of these functions. Some of our
bandwidth creation and bandwidth management products utilize
telecommunication interfaces to provide local or remote,
reporting and control to enhance their function in an optical
network. Sales of our bandwidth creation products accounted for
81%, 88% and 88% of our revenues in the fiscal years ended
June 30, 2004, 2003 and 2002, respectively.



| |                            
| | ---------------------------
| | Bandwidth Creation Products

Communications equipment suppliers use our
bandwidth creation products to expand the capacity and/ or
extend the coverage of their customers networks. Other
bandwidth creation products enable optical signals to travel
along more complex network architectures such as mesh networks
and metro networks, or enable optical signals to travel greater
distances over traditional long haul networks.

Wavelength Expansion Products.In fiber optic communications,
different signals are transmitted over multiple wavelengths.
With increases in the number of wavelengths and data rates,
spacing between the wavelengths narrows and it becomes
increasingly difficult to separate and direct them. We offer
wavelength expansion products that enable the combination and
separation of a particular wavelength in all parts of the
network including emerging access and metro networks and
traditional long haul networks. Wavelength expansion products
include wavelength multiplexing (combining), de-multiplexing
(separating), and wavelength interleaving, which combines light
signals from two or more simultaneous sources over a single
fiber. We offer the following products to handle these
tasks:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Dense Wavelength Division
    Multiplexers.A dense wavelength
    division multiplexer, or DWDM, is a solution for scalable,
    reliable, protocol independent bandwidth creation. A DWDM
    multiplexer is an integrated optical module or subsystem that
    combines two or more wavelengths for transmission over a single
    fiber (multiplexing) or separates these wavelengths
    (demultiplexing) at the receiving end. Our DWDM module and
    subsystem solutions are derived from an array of high
    performance technologies including thin film filters, arrayed
    wave guides, or AWGs, and Athermal Fiber Bragg Gratings and
    circulators. Our solutions are available in a variety of channel
    spacings.
|
| |  | Coarse Wavelength Division
    Multiplexers.A coarse wavelength
    division multiplexer, or CWDM, is a solution for cost-effective
    bandwidth creation in the access, cable TV and metro
    environments. A CWDM multiplexer is an integrated optical module
    or subsystem that combines two or more wavelengths, at a channel
    spacing that is many times wider than for standard DWDM channel
    spacing for transmission over a single fiber
    (multiplexing) or separates these wavelengths
    (demultiplexing) at the receiving end.                                                                                                                                                                              
|
| |  | Band Wavelength Division Multiplexers.Band wavelength division multiplexer,
    or BWDM, products help manage multiple International
    Telecommunication Union, or ITU, channels within Mux/ Demux or
    Optical Add/ Drop applications. Our BWDMs pass a band of
    channels while isolating the channels adjacent to the band of
    channels sent. BWDM products facilitate the design of flexible
    (pay as you grow) low loss architectures as well as enable the
    design of complex mesh and ring networks. We offer a variety of
    BWDM products at 50, 100 and 200 GHz spacing.                                                                                                                                    
|
| |  | DWDM Interleavers.A
    DWDM interleaver is an optical component that combines light
    signals from two simultaneous sources over a single fiber, which
    effectively doubles the capacity of the optical network system,
    or separates a single light source into multiple signals.                                                                                                                                                                                                                                                                                                                                                                                                                                           

3



---



##### Table of Contents



Optical Amplification
Products.Optical fiber amplifiers are
widely deployed in optical communications networks to enhance
the optical signal power. Optical signals typically lose power
and eventually are lost after traveling a long distance along an
optical fiber along traditional long haul networks. In emerging
access or metro networks, optical signals lose power at add drop
nodes, which are those locations in a network where wavelength
channels enter or exit the node. This power loss is referred to
as attenuation. Through recent advances in technology, the
optical signal can be amplified with Erbium Doped Fiber
Amplifiers, or EDFAs, or with Raman amplifiers, neither of which
require opto-electrical conversion. The amplifiers are arranged
along fiber cable lines at regular intervals in long haul
networks or at selected nodes in access and metro networks to
enable the optical signal to reach its destination clearly.
While amplifiers range in complexity, a typical amplifier
consists of a fiber and a number of fiber optic components. We
offer both EDFA and Raman amplification products including EDFA
fiber amplifiers and the components used in EDFA and Raman
amplifier designs.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Gain Blocks.Gain
    blocks are integrated optical subsystem building blocks
    consisting of fiber and fiber optic components used in fiber
    optic amplifiers to boost the amplitude of an incoming optical
    signal.                                                                                                                                                                                                                       
|
| |  | EDFAs.Erbium Doped
    Fiber Amplifiers are optical subsystems that employ gain blocks,
    advanced electronics, firmware and software to control the
    optical gain of an incoming optical signal.                                                                                                                                                                                                                                             
|
| |  | WDM Pump/ Signal
    Combiners.Micro-optic WDM pump/signal
    combiners are components that provide power for the optical
    amplifier. They are used to efficiently combine light signals
    with pump laser sources. Pump lasers are active optical
    components used in optical amplifiers such as EDFAs to amplify
    or regenerate light signals that naturally suffer loss while
    traveling over distance within an optical network.
|
| |  | Integrated Hybrid
    Components.Optical amplifier systems
    can combine optical components, including isolators, tap
    couplers and WDM pump/signal combiners. The main advantage of
    hybrid components is that they minimize the amplifier package
    size, increase reliability and reduce manufacturing cost.                                                                                                                          
|
| |  | WDM Pump Combiners.WDM pump combiners are used to increase the power of an optical
    amplifier by combining multiple pump lasers into one common pump
    source for amplification.                                                                                                                                                                                                                                                              
|
| |  | Polarization Beam
    Combiners.Polarization beam combiners
    are optical components that combine two of the same or different
    wavelengths with opposing polarization to increase the power
    output of the optical amplifier.                                                                                                                                                                                                             
|
| |  | Gain Flattening
    Filters.Gain flattening filters are
    used to ensure signals are amplified by equal amounts. Our thin
    film filter technology, or the technology in which layers of
    thin film separate optical signals, employs multiple layers of
    optical materials on glass to adjust optical output at different
    wavelengths to meet the needs of next-generation high power
    amplifiers.                               
|
| |  | Isolators.Isolators
    are fiber optic devices that transmit light in only one
    direction, thus preventing a reflected light signal from
    returning to its laser source. Reflected light can interfere
    with a lasers process and create noise, which can impair
    system performance in optical networks.                                                                                                                            
|
| |  | Tap Couplers.Tap
    couplers transfer optical signals between fibers. They are
    widely used for system monitoring purposes and have very low
    insertion loss, or the power loss incurred when adding
    additional components to a fiber cable.                                                                                                                                                                                            



| |                              
| | -----------------------------
| | Bandwidth Management Products

Communications equipment suppliers use our
bandwidth management products to add intelligence to their
systems, which allows communications service providers to
monitor the performance, control the direction, and condition
the amplitude of light signals throughout the optical network.

Wavelength Performance Monitoring and
Protection Products.The ability to
monitor wavelengths within an optical network enables service
providers to maintain quality of service even in the event of an
interruption in the signal path, such as a cut in the fiber. It
is significantly more difficult to monitor signal flow

4



---



##### Table of Contents



in optical systems as compared to electrical
systems. Monitoring requires that optical signals be extracted
from the fiber without interfering with the optical signal
traveling through the same fiber.


We offer products that enable service providers
to monitor network performance and make necessary decisions for
traffic flow and network efficiency.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Supervisory Channel
    WDM.Our supervisory channel WDM is an
    integrated component that separates the network supervisory
    channel from the signal channel that is used in monitoring the
    network performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Integrated WDM Monitor Arrays.Our integrated WDM monitor arrays
    convert optical signals into electrical signals for network
    selective wavelength power monitoring. This module combines
    multiple network performance monitoring functions in a single
    module and integrates WDM filters and third-party photo
    detectors, a device supplied by other optical component
    manufacturers that receives a light signal in an optical network
    and converts it into an electrical signal. These integrated
    modules allow communications service providers to monitor
    whether or not wavelengths are being transmitted properly
    through the network.
|
| |  | Integrated Tap Monitor
    Arrays.Our integrated tap monitor
    arrays convert optical signals into electrical signals for
    network signal power monitoring. This module integrates a tap
    coupler, a device that splits the light power, and third-party
    photo detectors, a device supplied by other optical component
    manufacturers that receives a light signal in an optical network
    and converts it into an electrical signal. These integrated
    modules allow communications service providers to monitor
    whether or not optical signals are being transmitted properly
    through the network.                                                   
|
| |  | Wavelength Protection
    Subsystems.Our multi-channel
    wavelength protection subsystems are integrated solutions that
    combine tap couplers, splitters, switches, electronics,
    firmware, software and third-party photo detectors. These
    subsystems integrate network switching protection functions and
    monitor optical signal quality such as optical power in response
    to unexpected disruption in the optical network. They provide
    redundant path protection with fast routing and switching with
    network fault management and diagnostic capability.                                                                                          

Optical Switching and Routing
Products.As optical networks become
more complex, there is an increasing demand to provide switching
and routing capability to direct optical signals across multiple
points in the network. We supply optical fiber switching and
routing products that provide all-optical signal switching
between fibers with up to eight different end destinations.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Switches.Optical
    switches are devices that can direct optical signals to
    different end destinations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Optical Add/ Drop
    Multiplexers.Optical add/drop
    multiplexers, or OADMs, are used when part of the information
    from an optical signal carried on the network is demultiplexed,
    or dropped, at an intermediate point and different information
    is multiplexed, or added, for subsequent transmission. The
    remaining traffic passes through the multiplexer without
    additional processing. The OADM is typically used for rerouting
    a number of specific optical wavelengths with different end
    destinations. OADMs can also include other optical components
    such as optical conditioning products or optical monitoring
    products for increased functionality.
|
| |  | Reconfigurable
    OADMs.Reconfigurable OADMs combine
    OADM functionality, optical switching and conditioning products,
    electronic circuitry, integrated firmware and software to add
    remote configuration and provisioning flexibility to the network
    by allowing the dynamic add/drop of variable optical wavelengths
    having different amplitudes with different end destinations.                                                                                                                                                                                                                                                                                                 
|
| |  | Circulators.Circulators consist of sophisticated micro-optic components that
    are used to direct optical signals between different fibers.
    Circulators are also used in optical amplifying applications and
    used in DWDM fiber grating based wavelength expansion products.                                                                                                                                                                                                                                                                                                                                                                                                                  

Wavelength Conditioning Products.For reliable fiber optic communication
systems, the light signal intensity needs to be controlled. For
example, excess input power can overload the receivers and an
optical attenuator is used to reduce the input signal to the
level required by the receiver. Wavelength conditioning

5



---



##### Table of Contents



products are used in optical networks along with
DWDM multiplexers and demultiplexers, optical amplifiers, and
re-configurable optical add drop multiplexers to provide the
power control functions.




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Variable Optical
    Attenuators.Variable optical
    attenuators, or VOAs, are optical devices that reduce the power
    of the optical signal in DWDM networks to ensure that all
    optical signals within a network have equal power. The amount of
    power reduction of a particular optical signal can be adjusted
    to match the power of other optical signals in the network
    thereby enhancing network performance and service quality.                                                                             
|
| |  | Dynamic Band Equalization Products.Dynamic band equalization products
    monitor and adjust power levels of multiple bands of ITU
    channels. These subsystems separate multiple ITU channels into
    bands of channels, and then monitor and control the power levels
    of these bands through standard telecommunication interfaces
    such as RS232 and then multiplex these multiple bands onto a
    single fiber. They are used for power equalization in various
    parts of the network including metro and long haul.

Customers

We sell our products worldwide to
telecommunications, data communications and cable TV equipment
manufacturers around the globe. In certain cases, we sell our
products to our competitors or other component manufacturers for
their resale or integration into their own products. During the
fiscal year ended June 30, 2004, we sold our products to
over 263 companies worldwide.

Our top five customers, although not the same
five customers for each period, together accounted for 69%, 56%
and 49% of our revenues in the fiscal years ended June 30,
2004, 2003 and 2002, respectively. Nortel Networks Corporation
(Nortel), Sanmina-SCI Corporation
(Sanmina) and Marubun Corporation
(Marubun) each accounted for greater than 10% of our
revenue for the fiscal year ended June 30, 2004. For the
fiscal year ended June 30, 2004, a substantial portion of
our shipments to Sanmina, a contract manufacturer, were to
fulfill purchase orders placed by Tellabs, Inc. Through Sanmina
and through direct sales, Tellabs, Inc. accounted for greater
than 10% of our revenues for the fiscal year ended June 30,
2004. For the fiscal year ended June 30, 2004, a
substantial portion of our shipments to Marubun, our third-party
sales representative, were to fulfill purchase orders placed by
Fujitsu Limited (Fujitsu) through Marubun. Through
Marubun and through direct sales, Fujitsu accounted for greater
than 10% of our revenues for the fiscal year ended June 30,
2004. Nortel, Adva AG Optical Networking and Marubun each
accounted for greater than 10% of our revenues for the fiscal
year ended June 30, 2003. A substantial portion of our
shipments to Marubun during fiscal 2003 were to fulfill purchase
orders placed by Fujitsu and NEC Corporation (NEC).
Neither Fujitsu nor NEC accounted for greater than 10% percent
of our revenues for fiscal 2003. Siemens AG and Marubun each
accounted for greater than 10% of our revenues for the fiscal
year ended June 30, 2002. A substantial portion of our
shipments to Marubun during fiscal 2002 were to fulfill purchase
orders placed by Furukawa Co. Ltd. (Furukawa),
Fujitsu and NEC. Neither Furukawa, nor Fujitsu or NEC accounted
for greater than 10% percent of our revenues for fiscal 2002. We
expect that the majority of our revenues will continue to depend
on sales to a relatively small number of customers, although
potentially not the same customers period to period. In
addition, some of our customers are companies with which we
presently compete or in the future may compete. See Note 2
Concentration of Credit Risk, of Notes to
Consolidated Financial Statements.

Backlog

We define backlog to include orders for which we
expect to recognize revenues within the succeeding twelve
months. Historically, through early calendar 2001, a substantial
portion of our net revenues in any fiscal period has been
derived from orders in backlog. However, due to the downturn in
the fiber optics industry, we are substantially dependent upon
orders we receive and fill on a short-term basis. Backlog has
significantly declined and as of June 30, 2004, we do not
believe that backlog is a reliable indicator of our future
revenues for the next year. Sales are made pursuant to purchase
orders, which are frequently subject to revision or
cancellation. Because of the possibility of changes in delivery
or acceptance schedules, cancellations of orders, returns or
price reductions, our backlog, as of any particular date, may
not be representative of actual sales for any succeeding period.

6



---



##### Table of Contents



Marketing, Sales and Customer
Support

We market and sell our products through both
direct sales and distribution channels, including two domestic
and nine international sales representatives and distributors.
Our sales representatives and distributors are independent
organizations within North America, Europe and Asia. As of
June 30, 2004, we employed 22 people in sales, marketing
and customer service and support in the U.S. and 7 people in
sales and marketing in our Zhuhai, China facility, who manage
key customer accounts and support our direct sales force, sales
representatives and distributors. Our marketing team promotes
our products within the communications industry as well as
gathers and analyzes market research. Our marketing
professionals help us to identify and define next-generation
products by working closely with our customers and our research
and development engineers. They also coordinate our
participation in trade shows and design and implement our
advertising effort.

Product Development

As of August 31, 2004, we had 82 engineers,
22 of whom hold Ph.D. degrees, involved in research and
development of our products. Our engineering team has extensive
design, packaging, processing, electrical, mechanical, firmware
and software experience in the fields of fiber optic components,
integrated optic interfaces and systems.

Our primary component development center is
located in Zhuhai, China and our subsystem development center is
located in San Jose, California. Our research and development
expense, including non-cash compensation expense, was
$7.5 million, $8.8 million and $14.9 million for
the fiscal years ended June 30, 2004, 2003 and 2002,
respectively. We spend a substantial proportion of our financial
resources on our research and development budget and staff to
enhance our current fiber optic subsystems and components and to
develop new technologies and products to serve the current and
next-generation communication markets.

Manufacturing

We currently manufacture substantially all of our
subsystems and components at our manufacturing facilities in
China. We maintain a pilot line at our headquarters in San Jose,
California. During the fiscal year ended June 30, 2003, we
completed the transfer of manufacturing processes and assembly
operations to our facility in the Zhuhai Free Trade Zone, China
from the United States.

Our facility in the Zhuhai Free Trade Zone
maintains complete in-house manufacturing capabilities including
component and module design, integration, production and
testing. We plan to continue to invest resources in
manufacturing management, engineering and quality control. We
also plan to continue to develop automated manufacturing systems
to provide higher throughput, improve yields and reduce
manufacturing costs. We own our facility in the Zhuhai Free
Trade Zone totaling approximately 667,000 square feet. Our
facility in the Zhuhai Free Trade Zone is used for
administration, manufacturing, research and development and
employee living quarters. We currently lease 220,000 square feet
of our facility in the Zhuhai Free Trade Zone to third parties
and will attempt to lease to third parties the remaining areas
that are in excess of our current requirements.

We lease a facility located in Shanghai, China,
which is used for administration, manufacturing and research and
development. Our Shanghai facility totals approximately 45,000
square feet. The lease for this facility expires in July 2005.

A number of critical raw materials used in
manufacturing our products are acquired from single or limited
source suppliers. The inability to obtain sufficient quantities
of those materials may result in delays, increased costs and
reductions in our product shipments.

We are subject to various federal, state and
local laws and regulations relating to the storage, use,
discharge and disposal of toxic or otherwise hazardous or
regulated chemicals or materials used in our manufacturing
processes. To date, such laws and regulations have not
materially affected our capital expenditures, earnings and
competitive position. We do not anticipate any material capital
expenditures for environmental control facilities for the
foreseeable future.

7



---



##### Table of Contents



Quality

We have established a quality management system
to assure that the products we provide to our customers meet or
exceed industry standards. This system is based on the
international standard ISO 9001. Our U.S. headquarters have been
third-party certified to the ISO 9001-1994 standard in research
and manufacturing since July 1998. Our manufacturing operations
at Zhuhai and Shanghai, China are both third-party certified to
the ISO 9001:2000 standard.

Competition

The markets in which we sell our products are
highly competitive. Our overall competitive position depends
upon a number of factors, including:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | selling price;                                                                  
|
| |  | the quality of our manufacturing processes;                                     
|
| |  | the breadth of our product line;                                                
|
| |  | availability, performance and reliability of our
    products;                  
|
| |  | our ability to participate in the growth of
    emerging technologies;          
|
| |  | the ability to win designs through prototyping;                                 
|
| |  | the compatibility of our products with existing
    communications networks; and
|
| |  | manufacturing capacity and capability.                                          

We believe that our principal competitors are the
major manufacturers of optical subsystems and components,
including both vendors selling to third parties and business
divisions within communications equipment suppliers. Our
principal competitors include Avanex Corporation, DiCon
Fiberoptics, Inc., Furukawa Electrical Co., Ltd., FDK
Corporation, NEL Hitachi Cable, Santec Corporation, Tyco
Electronics and JDS Uniphase Corporation. We believe that we
primarily compete with diversified suppliers, such as JDS
Uniphase, Santec and FDK, for the majority of our product line
and to a lesser extent with niche players that offer a more
limited product line. We also believe that JDS Uniphase has the
greatest market share for fiber optic components and subsystems.

Many of these companies have substantially
greater financial, engineering and manufacturing resources as
well as greater name recognition and stronger customer
relationships. Competitors in any portion of our business also
may 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 increased, and
will likely continue to increase, competition.

Intellectual Property

As June 30, 2004, we have been granted 50
issued patents, have 13 allowed applications awaiting issuance
and have 46 patent applications pending with the U.S. Patent and
Trademark Office for various technologies and products,
including DWDM interleavers, DWDM subsystems, multi-channel
optic filter arrays, high reliability fused couplers,
circulators, compact optical switches and polarization beam
combiners. The terms of our patents are computed in accordance
with United States federal patent statutes. In general, this
means that a patent will have a term expiring twenty years from
its filing date. All issued patents for our core technology will
not expire for at least a decade. In addition, we currently have
7 issued patents and 29 pending patent applications in the
Peoples Republic of China, 21 of which are counterparts to
U.S. patents or patent applications.

While we rely on patent, copyright, trade secret
and trademark law and restrictions on disclosure to protect our
technology, we believe that factors such as the technological
and creative skills of our personnel, new product developments,
frequent product enhancements and reliable product maintenance
are essential to establishing and maintaining a technology
leadership position. We cannot assure you that others will not
develop technologies that are similar or superior to our
technology.

8



---



##### Table of Contents



Protecting our intellectual property is critical
to the success of our business. Despite our efforts to protect
our proprietary rights, various unauthorized parties may attempt
to copy or otherwise obtain and use our products or technology.
Policing unauthorized use of our products is difficult, and
there can be no assurance that the steps taken by us will
prevent misappropriation of our technology. Moreover, the laws
of some foreign countries, including China, do not protect our
proprietary rights as fully as in the United States.

Substantial litigation regarding intellectual
property rights exists in the optical communications industry.
We expect that fiber optic subsystems and components may be
increasingly subject to third-party infringement claims as the
functionality of products in different industry segments
overlaps. In addition, we believe that many of our competitors
in the optical communications industry have filed or intend to
file patent applications covering aspects of their technology on
which they may claim our technology infringes. For example, we
were previously a defendant in a patent infringement dispute
with Chorum Technologies, Inc. and a lawsuit filed by Oz Optics
Limited et al.alleging trade secret misappropriation and
other related claims.

We cannot make any assurances that other third
parties will not claim infringement by us with respect to our
technology. Any such claims, with or without merit, could be
time-consuming to defend, result in costly litigation, divert
managements attention and resources, cause product
shipment delays or require us to enter into royalty or licensing
agreements. Such royalty or licensing agreements, if required,
may not be available on terms acceptable to us, if at all. A
successful claim of product infringement against us and our
failure or inability to license the infringed or similar
technology could seriously harm our financial condition.

Employees

As of June 30, 2004, we had 102 full-time
employees located in the United States and 873 full-time
employees located in China. None of our employees in the United
States are represented by a labor union. All of our employees in
Zhuhai are represented by a labor union formed on
November 6, 2001, pursuant to the requirements of the
Chinas Labor Union Law. We have not experienced any work
stoppages and we consider our relations with our employees to be
good.

Financial Information About Geographic
Areas

The geographic breakdown of sales by customer
destination is as follows (in thousands):

|       |               |                      |   |        |        |      |   |       |        |  |   |        |        | 
|------ | ------------- | -------------------- | - | ------ | ------ | ---- | - | ----- | ------ |  | - | ------ | ------ | 
|       |               |                     
|       |               | Years Ended June 30,
|       |               |                     
|       |               | 2004                 |   | 2003   |        | 2002
|       |               |                      |   |        |        |     
|Sales: |               |                      |   |        |        |      |   |       |        |  |   |       
|       | United States |                      | $ | 3,534  |        |      | $ | 9,751 |        |  | $ | 19,676 |       
|       | Europe        |                      |   | 6,063  |        |      |   | 4,308 |        |  |   | 10,881 |       
|       | Asia          |                      |   | 8,998  |        |      |   | 7,244 |        |  |   | 6,378  |       
|       | Canada        |                      |   | 15,733 |        |      |   | 1,440 |        |  |   | 1,004  |       
|       |               |                      |   |        |        |      |   |       |        |  |   |       
|       |               | Totals               |   | $      | 34,328 |      |   | $     | 22,743 |  |   | $      | 37,939 | 
|       |               |                      |   |        |        |      |   |       |        |  |   |       

The breakdown of property, plant and equipment,
net by geographical location is as follows (in thousands):

|                                    |                            |          |   |        |        |      |   |        |        |  |   |        |        | 
|----------------------------------- | -------------------------- | -------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                    |                            |         
|                                    |                            | June 30,
|                                    |                            |         
|                                    |                            | 2004     |   | 2003   |        | 2002
|                                    |                            |          |   |        |        |     
|Property, plant and equipment, net: |                            |          |   |        |        |      |   |        |        |  |   |       
|                                    | United States              |          | $ | 4,500  |        |      | $ | 3,976  |        |  | $ | 17,793 |       
|                                    | Peoples Republic of China |          |   | 21,926 |        |      |   | 30,429 |        |  |   | 41,939 |       
|                                    |                            |          |   |        |        |      |   |        |        |  |   |       
|                                    |                            | Totals   |   | $      | 26,426 |      |   | $      | 34,405 |  |   | $      | 59,732 | 
|                                    |                            |          |   |        |        |      |   |        |        |  |   |       

9



---



##### Table of Contents



Executive Officers

The following table sets forth certain
information regarding our executive officers as of
August 31, 2004:

|              |  |     |    |          |  |                                                
|------------- |  | --- | -- | -------- |  | -----------------------------------------------
|Name          |  | Age |    | Position
|              |  |     |    |         
|Joseph Y. Liu |  |     | 53 |          |  | Chief Executive Officer, President and Director
|Bruce D. Horn |  |     | 53 |          |  | Chief Financial Officer and Treasurer          
|River Gong    |  |     | 41 |          |  | Vice President, Sales                          
|Yanfeng Yang  |  |     | 41 |          |  | General Manager, China Operations              

Joseph Y. Liuis one
of our founders and has served as our Chief Executive Officer,
President and a member of our Board of Directors since October
2002. Previously, Mr. Liu was a board member from August
2002 to October 2002. Mr. Liu was our Chief Executive
Officer from September 1999 to November 2001. Mr. Liu was
our Chairman of the Board of Directors from November 2001 to
August 2002 and since our inception in 1995 through May 2000.
From 1994 to 1995, Mr. Liu was the General Partner of
Techlink Technology Ventures. Prior to 1994, Mr. Liu spent
ten years as Chairman and Chief Executive Officer of Techlink
Semiconductor and Equipment Corp., a semiconductor equipment and
technology company. Mr. Liu also serves as a director of
InterVideo, Inc., a DVD software provider. Mr. Liu received
his B.S. from Chinese Cultural University, Taiwan and his M.S.
from California State University, Chico.

Bruce D. Hornhas
served as our Chief Financial Officer and Treasurer since April
2000. Prior to joining Oplink, Mr. Horn was a consultant at
The Brenner Group, a consulting firm, from February 2000 to
April 2000. From January 1993 to February 2000, Mr. Horn
was the Vice President of Finance and Chief Financial Officer,
and from March 1991 to January 1993 he was Director of Finance
and Chief Financial Officer, of Larscom Incorporated, a
telecommunications company. Mr. Horn received his B.A. in
Accounting from the University of Northern Iowa, and his M.B.A.
in Finance from California State University at Hayward.

River Gonghas
served as our Vice President of Sales since February 2003. From
January 2001 to February 2003, Ms. Gong served as our Sr.
Director of Sales, from May 1999 to January 2001 she was
Director of Sales, and from January 1998 to May 1999 she was
Sales Manager. Prior to joining Oplink, Ms. Gong was
Division Manager and Sales Manager of MP Fiber Optics (now
Global Opticom), a fiber optics company, from January 1995 to
December 1997. Prior to that, she was an architect in China for
five years. Ms. Gong received her B.S. in Architecture from
Harbin Institute University.

Yanfeng Yanghas
served as our General Manager, China Operations since August
2004 and from January 1999 to August 2004, he served in various
positions with us, including General Manager, Shanghai
Operation, CEO Staff, Vice President of Global Manufacturing/
Operations, Senior Director of United States Operation and
Research and Development Manager. From March 1993 to January
1999, Mr. Yang was the Director of the Research Institute
of Optoelectronics at China Daheng Corporation, a photonics high
technology company of the Chinese Academy of Sciences.
Mr. Yang received his B.S., M.S. and Ph.D. in Optical
Engineering from Beijing Institute of Technology, China.

Directors

The following table sets forth certain
information regarding our directors as of August 31, 2004:

|                       |  |     |    |          |  |                                                
|---------------------- |  | --- | -- | -------- |  | -----------------------------------------------
|Name                   |  | Age |    | Position
|                       |  |     |    |         
|Joseph Y. Liu          |  |     | 53 |          |  | Chief Executive Officer, President and Director
|Herbert Chang(1)(2)    |  |     | 42 |          |  | Chairman of the Board of Directors             
|Chieh Chang(2)(3)      |  |     | 52 |          |  | Director                                       
|Jesse W. Jack(1)(3)(4) |  |     | 68 |          |  | Director                                       
|Leonard J. LeBlanc(3)  |  |     | 63 |          |  | Director                                       



---



|    |                                                                 
|--- | ----------------------------------------------------------------
|(1) | Member of the Nominating and Corporate Governance
    Committee.
|   
|(2) | Member of the Compensation Committee.                           
|   
|(3) | Member of the Audit Committee.                                  
|   
|(4) | Member of the Special Litigation Committee.                     

10



---



##### Table of Contents



Joseph Y. Liusbiography is set forth above under
Executive Officers.

Herbert Changhas
been a member of our Board of Directors since August 1996 and
became the chairman of the board in August 2002. Since April
1996, Mr. Chang has been President of InveStar Capital
Inc., a technology venture capital management firm based in
Taiwan. From 1994 to 1996, Mr. Chang was Senior Vice
President at WK Technology Fund, a venture capital fund.
Mr. Chang serves on the board of directors of Marvell
Technology Group Ltd., a manufacturer of integrated circuits for
communications-related markets, and Vialta, Inc., a home
entertainment and communications products company.
Mr. Chang received his B.S. from National Taiwan University
and his M.B.A. from National Chiao-Tung University in Taiwan.

Chieh Changhas been
a member of our Board of Directors since September 1995. From
February 2000 to February 2003, Mr. Chang has served as
Chief Executive Officer of Programmable Microelectronics
Company, Inc., a fabless semiconductor design company. From
April 1992 to August 1996, Mr. Chang was the Director of
Technology at Cirrus Logic, Inc., a semiconductor company.
Mr. Chang received his B.S. in Electrical Engineering from
the National Taiwan University and his M.S. in Electrical
Engineering from UCLA.

Jesse W. Jackhas
been a member of our Board of Directors since July 2002. Since
January 2003, Mr. Jack has been self-employed as an
attorney with The Law Offices of Jesse Jack. He is also the Vice
President and General Counsel for I-Bus Corporation, a privately
held company. From 1994 until January 2003, Mr. Jack was a
partner in the law firm of Jack & Keegan, a California
Limited Liability Partnership. Mr. Jack served on the board
of directors of The Parkinsons Institute from 1988 through
2000. Mr. Jack received his B.S. from California State
University, San Jose and his J.D. from Hastings College of
Law.

Leonard J. LeBlanchas been a member of our Board of
Directors since July 2000. Since August 2000, Mr. LeBlanc
has been on the Board of Directors of eBest Inc. From February
2001 to September 2003, Mr. LeBlanc was Vice President of
Corporate Development and Acting Chief Financial Officer of
eBest Inc., a private software company providing collaborative
business management solutions. Mr. LeBlanc was the
Executive Vice President and Chief Financial Officer of Vantive
Corporation, a customer relationship management software and
solution company, from August 1998 to January 2000. From March
1996 to July 1997, Mr. LeBlanc was the Executive Vice
President of Finance and Administration and Chief Financial
Officer at Infoseek Corporation, an Internet search and
navigation company. From September 1993 to December 1994,
Mr. LeBlanc served as Senior Vice President, Finance and
Administration of GTECH Corporation, a manufacturer of lottery
equipment and systems. From May 1987 to December 1992,
Mr. LeBlanc served as Executive Vice President, Finance and
Administration and Chief Financial Officer of Cadence Design
Systems, Inc., an electronic design automation software company.
Mr. LeBlanc also serves on the board of directors of AXT,
Inc., a company involved with the manufacture and sale of
high-performance compound semiconductor substrates.
Mr. LeBlanc received his B.S. and M.S. from the College of
Holy Cross, and his masters degree in finance from George
Washington University.

11



---



##### Table of Contents



RISK FACTORS

In addition to the risks discussed in
Business or Managements Discussion of
Financial Condition and Results of Operations, our
business is subject to the risks set forth below.

Risks Related to Our Business



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | 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 $6.4 million, $36.8 million and
$68.4 million for the fiscal years ended June 30,
2004, 2003 and 2002, respectively. We have not achieved
profitability on a quarterly or annual basis since inception. As
of June 30, 2004, we had an accumulated deficit of
$224.4 million. We will need to generate significantly
greater revenues while containing costs and operating expenses
to achieve profitability. Our revenues may not grow in future
quarters, 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 five customers,
although not the same five customers for each period, together
accounted for 69%, 56% and 49% of our revenues in the fiscal
years ended June 30, 2004, 2003 and 2002, respectively.
Nortel Networks Corporation (Nortel), Sanmina-SCI
Corporation (Sanmina) and Marubun Corporation
(Marubun) each accounted for greater than 10% of our
revenue for the fiscal year ended June 30, 2004. For the
fiscal year ended June 30, 2004, a substantial portion of
our shipments to Sanmina, a contract manufacturer, were to
fulfill purchase orders placed by Tellabs, Inc. Through Sanmina
and through direct sales, Tellabs, Inc. accounted for greater
than 10% of our revenues for the fiscal year ended June 30,
2004. For the fiscal year ended June 30, 2004, a
substantial portion of our shipments to Marubun, our third-party
sales representative, were to fulfill purchase orders placed by
Fujitsu Limited (Fujitsu) through Marubun. Through
Marubun and through direct sales, Fujitsu accounted for greater
than 10% of our revenues for the fiscal year ended June 30,
2004. Nortel, Adva AG Optical Networking and Marubun each
accounted for greater than 10% of our revenues for the fiscal
year ended June 30, 2003. A substantial portion of our
shipments to Marubun during fiscal 2003 were to fulfill purchase
orders placed by Fujitsu and NEC Corporation (NEC).
Neither Fujitsu nor NEC accounted for greater than 10% percent
of our revenues for fiscal 2003. 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. 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 customers are currently experiencing
slow growth following a protracted downturn, which is resulting,
in some instances, in significantly decreased sales to these
customers and harming our results of operations. Loss or
cancellations of orders from, or any further 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
fiber optic components and subsystems industry and our target
markets continue to consolidate.



| |                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 investors expectations, which could cause our stock
    price to drop.

It is difficult to forecast our revenues
accurately. Moreover, our revenues, gross margins, 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 the other risk factors below, that are likely to
cause these variations include, among others:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | economic downturn and uncertainty of the fiber
    optic industry;

12



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | economic conditions specific to the
    communications and related industries and the development and
    size of the markets for our products;                                                                                            
|
| |  | fluctuations in demand for, and sales of, our
    products;                                                                                                                                                                                
|
| |  | changes in customer, geographic or product mix
    and the average selling prices of the products we sell;                                                                                                                                 
|
| |  | cancellations of orders and shipment rescheduling;                                                                                                                                                                                         
|
| |  | the ability of our manufacturing operations in
    China to timely produce and deliver products in the quantity and
    of the quality our customers require;                                                                              
|
| |  | the availability of raw materials used in our
    products and increases in the price of these raw materials;                                                                                                                              
|
| |  | our ability to successfully improve our
    manufacturing capability and achieve acceptable production
    yields in our facilities in China;                                                                                              
|
| |  | the practice of communication equipment suppliers
    to sporadically place large orders with short lead times;                                                                                                                            
|
| |  | competitive factors, including introductions of
    new products, new technologies and product enhancements by
    competitors, consolidation of competitors in the fiber optic
    components and subsystems market and pricing pressures;
|
| |  | our ability to develop, introduce, manufacture
    and ship new and enhanced optical networking products in a
    timely manner without defects; and                                                                                       
|
| |  | costs associated with and the outcomes of any
    intellectual property or other litigation to which we are, or
    may become, a party.                                                                                                   

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.
Moreover, if we experience difficulties in any of these areas,
our operating results could be significantly and adversely
affected and our stock price could decline. Also, it is possible
that in some future quarter our operating results may be below
the expectations of public market analysts and investors, which
could cause our stock price to fall.



| |                                                                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to effectively manage our
    manufacturing capability, produce products meeting 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 the order requirements to our
    customers in a timely manner, which would harm our operating
    results.

We manufacture substantially all of our products
in our facilities in Zhuhai and Shanghai, China. The quality of
our products and our ability to ship products on a timely basis
may suffer if we cannot effectively maintain the necessary
expertise and resources to effectively manage our manufacturing
activities in China.

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. 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 produce our products
cost-effectively 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 meet our manufacturing yield
goals cost-effectively 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. Additionally, our competitors are
automating their manufacturing processes.

13



---



##### Table of Contents



If we are unable to achieve higher levels of
automation and our competitors are successful, it will harm our
gross margins.


Additional risks associated with managing our
manufacturing processes and capability in China include:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | a potential lack of availability of qualified
    management and manufacturing personnel;                                               
|
| |  | our ability to maintain quality;                                                                                                        
|
| |  | our ability to procure the necessary raw
    materials and equipment on a timely basis; and                                             
|
| |  | our ability to quickly and effectively implement
    an adequate set of financial controls to track and control
    levels of inventory.

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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We depend on the growth and success of the
    communications industry, which has recently experienced a
    significant economic downturn as well as rapid consolidation and
    realignment including outsource manufacturing and may not
    continue to demand fiber optic products at historical rates,
    thereby reducing demand for our products and harming our
    operating results, and if it does not recover then we will not
    be able to grow our business.

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. As a result of the relatively
recent unfavorable economic conditions and reduced capital
spending in the communications industry, our growth rate may be
significantly lower than our historical quarterly growth rate.

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.

Our customers continued outsourcing may
result in their utilizing large well established contract
manufacturers to provide final system assembly, rather than
utilizing us for final system assembly. We may therefore be
required to provide lower level components to these contractor
manufacturers rather than final system assembly to our current
customers potentially resulting in reduced revenues and lower
gross margins and profits.



| |                                                                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

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 or defer their
    purchases at any time without penalty;
|
| |  | are free to purchase products from our
    competitors;                                   

14



---



##### Table of Contents





| |   |                                                    
| | - | ---------------------------------------------------
| |  | are not required to make minimum
    purchases; and
|
| |  | may cancel orders that they place with us.         

Sales to any single customer may and do 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 and
do 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 further revenue shortfalls. This can
result in significant quarterly fluctuations in our operating
results.



| |                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

Difficulties in obtaining raw materials in the
future may delay or limit 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. 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 suppliers
could terminate the supply of a particular material at any time
without penalty. Due to the severe downturn in the optical and
communications industries, manufacturers and vendors that we
rely upon for raw materials may scale back their operations or
cease to do business entirely as a result of financial hardship
or other reasons. In addition, our suppliers could terminate the
supply of a particular material due to technological changes,
which would require us to redesign our products, identify and
qualify acceptable replacement suppliers. However, we cannot be
certain that we could obtain qualifications for such
replacements from our customers. In addition, some of the
equipment we use is relatively complex and, in periods of high
market demand, the lead times from order to delivery of this
equipment could be as long as six months.



| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. Currently, due to the downturn in the fiber optics
industry, we are substantially dependent upon orders we receive
and fill on a short-term basis. Our customers can generally
cancel, reschedule or delay orders in backlog 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.

In addition, a portion of our net revenues in the
fiscal year ended June 30, 2004 has been derived from trial
orders. If our products fail to meet customers
specification, we may not be able to convert the trial orders to
production orders and therefore our revenues and operating
results may vary significantly and unexpectedly from quarter to
quarter, which could cause volatility in our stock price.



| |                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If our customers insist on outsourcing to
    contract manufacturers to provide final assembly of their
    products, we will only be able to sell components, which would
    harm our business.

Our customers continued outsourcing may
result in their utilizing large well established contract
manufacturers to provide final system assembly, rather than
utilizing us for final system assembly. We may therefore be
required to provide lower level components to these contractor
manufacturers rather than final system assembly to our current
customers potentially resulting in reduced revenues and lower
gross margins and profits.

15



---



##### Table of Contents





| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because a high percentage of our expenses
    is fixed in the short term, our operating results are likely to
    be harmed if we do not experience growth 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 do not
experience growth in generating and recognizing revenues, our
quarterly operating results are likely to be harmed.

New product development and introduction 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, if at all, until a
subsequent quarter when the new product is introduced and
commercially accepted. If growth in our revenues does not exceed
the increase in our expenses, our results of operations will be
harmed.



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We compete in a highly competitive
    industry, and if we are unable to compete successfully our
    revenues could decline, which would harm our operating
    results.

The market for fiber optic components and
subsystems is intensely competitive. We believe that our
principal competitors are the major manufacturers of optical
components and subsystems, including vendors selling to third
parties and business divisions within communications equipment
suppliers. 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. 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.

Several of our existing and potential customers
are also current and potential competitors of ours. 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 subsystem suppliers will become
increasingly important to our current and potential customers in
the future. Current and potential vendors may also consolidate
with our competitors and thereby reduce or cease providing
materials and equipment to us. Also, we expect to pursue optical
contract manufacturing opportunities 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, the
unavailability of materials and equipment used in our products,
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 planar lightwave circuit, or PLC. Additionally, a
new technology being developed in the design of equalization and
switching is microelectro mechanical systems, or MEMs, that
compete with bulk micro-optics that we incorporate into our
product. If our competitors adopt new technologies before we do,
we could lose market share and our business would suffer.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

16



---



##### Table of Contents



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. Furthermore, we
have implemented, and may continue to implement in the future,
significant cost-cutting measures such as reductions in our
workforce, including reductions in research and development and
manufacturing personnel, that may weaken our research and
development efforts or cause us to have difficulty responding to
sudden increases in customer orders.

In addition, we recently expanded our operations
to include optical contract manufacturing services. We cannot,
however, assure you that we will be able to successfully manage
our manufacturing capabilities to produce quality products in a
cost-effective manner or gain market acceptance with respect to
any optical contract manufacturing service offerings. In
addition, because profit margins with respect to optical
contract manufacturing services may be smaller than the margins
applicable to our current and past product offerings, our gross
margins may decline and our business may be harmed.



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | If we fail to control our inventory levels
    or our inventory mix effectively, 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 are
required to estimate our needs, which estimates may not be
accurate and may result in suboptimal inventory levels or
inventory mix, 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. On the other hand, 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. For example, for the fiscal years ended June 30,
2002 and 2001, our gross margin was negatively impacted by a
provision of $10.4 million and $30.6 million,
respectively, for excess and obsolete inventory due to the
downturn in the fiber optics industry. Conversely, our gross
margins were positively impacted by the unexpected utilization
of fully reserved inventory of $1.0 million and
$1.6 million in fiscal 2004 and 2003, respectively. Though
unexpected utilization of fully reserved inventory decreased
over the past several quarters, we have no visibility to the
amount of such sales in the future, if any. Any difficulty
managing our inventory levels, including failure to effectively
and properly utilize the automated management systems in China,
may cause us to poorly utilize our manufacturing capacity and
further harm our operating efficiency.



| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Disruption to commercial activities in the
    United States or in other countries, particularly in China, may
    adversely impact our results of operations, our ability to raise
    capital or our future growth.

We derive a substantial portion of our revenues
from customers located outside the United States and a
substantial portion of our operations are located in China. Our
international operations expose us to a number of additional
risks associated with international operations, including,
without limitation:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | disruptions to commercial activities or damage to
    our facilities as a result of political unrest, war, terrorism,
    labor strikes, and work stoppages;
|
| |  | difficulties and costs of staffing and managing
    foreign operations with personnel who have expertise in optical
    network technology;                 
|
| |  | unexpected changes in regulatory or certification
    requirements for optical systems or networks;                                                         
|
| |  | disruptions in the transportation of our products
    and other risks related to the infrastructure of foreign
    countries; and                           
|
| |  | economic instability.                                                                                                                                       

To the extent that such disruptions interfere
with our commercial activities, our results of operations could
be harmed.

17



---



##### Table of Contents



Substantially all of our manufacturing operations
are located in China and are subject to the laws and regulations
of China. 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 governments may impose new,
stricter regulations or interpretations of existing regulations,
which would require additional expenditures. In April 2004,
Chinese leaders noted concerns regarding Chinas recent
economic growth and indicated, without providing specific
details, that they may take very forceful measures to bring the
economy under control. Chinas economy differs from the
economies of many countries in terms of structure, government
involvement, specificity and enforcement of governmental
regulations, 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 in China over which we have
no control, such as political unrest, terrorism, war, labor
strikes and work stoppages, could disrupt our operations. There
is currently political tension between the United States and
North Korea and the United States and China, which could, in
either case, result in hostilities or a deterioration in
relations that would impact our trade relations with China.
There is also significant tension between China and Taiwan,
which could result in hostilities or lead to a breakdown in
trade relations between China and the United States.
Additionally, China continues its condemnation of the United
States pledge of military support to Taiwan, which could
lead to hostilities. If hostilities or other events cause a
disruption in our operations, it would be difficult for us to
establish manufacturing operations at an alternative location on
comparable terms.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | The outbreak of any widespread illnesses,
    such as SARS, could disrupt our operations and harm our
    financial results.

The relatively recent outbreak of severe acute
respiratory syndrome, or SARS, that began in China, Hong Kong,
Singapore and Vietnam may have a negative impact on our
operations and financial results. In addition, there may be
other epidemics or illnesses that effect our international
operations, such as the Asian bird influenza. Risks related to
the outbreak of SARS and other illnesses, include, but are not
limited to, temporary closure of one or more of our facilities
in China, which, in turn, would cause a reduction of our
manufacturing capability and a disruption to our research and
development efforts located at our China facilities. We could
also experience a loss of product orders from our customers and
loss of raw materials or equipment from our suppliers to the
extent that the operations of our customers or suppliers,
respectively, are impacted by the outbreak of SARS. The outbreak
of SARS has also increased political and social tension, which
may generally affect the China economy and the international
economy and, as a result, could lead to reduced sales in
international retail channels and increased supply chain costs
for us.



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because a large portion of our business is
    located outside the United States, fluctuations in currency
    exchange rates, particularly with respect to the
    U.S. dollar and Chinese Renminbi exchange rate, could
    adversely impact our operating results.

A significant portion of our operations are
conducted in currencies other than the United States dollar,
particularly, in Chinese Renminbi. Our operating results are
therefore subject to fluctuations in foreign currency exchange
rates. To the extent that the United States dollar weakens
relative to other currencies, our sales made in foreign
currencies would be positively impacted, although intercompany
payments from our China subsidiaries to our parent corporation
that are made in United States dollars would be negatively
impacted. Conversely, to the extent that the United States
dollar strengthens relative to other currencies, our sales made
in foreign currencies would be negatively impacted, although
intercompany payments from our China subsidiaries to our parent
corporation that are made in United States dollars would be
positively impacted. A number of commentators have recently
suggested that a strengthening of the Chinese Renminbi relative
to the United States dollar is anticipated at some point in the
future; however, governmental authorities in China have been
noncommittal to date. To reduce our gains and losses associated
with converting foreign currencies into United States dollars,
we may elect in the future to enter into foreign exchange
forward contracts to hedge our foreign currency exposure.
However, we cannot be certain that any

18



---



##### Table of Contents



such hedging activities will be effective, or
available to us at commercially reasonable rates. As a result,
we will continue to experience foreign currency gains and losses.




| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Power shortages at our manufacturing
    facilities in China may cause disruptions and harm our
    operations.

China has also recently experienced acute power
shortages, and the government has begun imposing regular power
cuts in some areas. If any of our facilities or the facilities
of our suppliers are impacted by these power shortages, we may
be forced to shut down our production activities in China
frequently due to power shortages or incur additional costs to
supply electricity internally, which may cause production delays
or increase manufacturing costs and harm our operating results.



| |                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Currency restrictions in China may limit
    the ability of our subsidiaries in China to obtain and remit
    foreign currency necessary for the purchase of imported
    components, and may limit our ability to obtain and remit
    foreign currency in exchange for Renminbi
    earnings.

Chinas government imposes controls on the
convertibility of Renminbi into foreign currencies and, in
certain cases, the remittance of currency out of China. Any
shortages in the availability of foreign currency may restrict
the ability of our Chinese subsidiaries to obtain and remit
sufficient foreign currency to pay dividends to us, or otherwise
satisfy their foreign currency denominated obligations, such as
payments to us for components, which we export to them and for
technology licensing fees. Such shortages may also cause us to
experience difficulties in completing the administrative
procedures necessary to obtain and remit needed foreign
currency. Under the current foreign exchange control system,
sufficient foreign currency is presently available for our
Chinese subsidiaries to purchase imported components or to
repatriate profits to us, but as demands on Chinas foreign
currency reserves increase over time to meet its commitments,
sufficient foreign currency may not be available to satisfy
Chinas currency needs.

Our business could be negatively impacted if we
are unable to convert and remit our sales received in Renminbi
into U.S. dollars. Under existing foreign exchange laws,
Renminbi held by our Chinese subsidiaries can be converted into
foreign currencies and remitted out of China to pay current
account items such as payments to suppliers for imports, labor
services, payment of interest on foreign exchange loans and
distributions of dividends so long as our subsidiaries have
adequate amounts of Renminbi to purchase the foreign currency.
Expenses of a capital nature such as the repayment of bank loans
denominated in foreign currencies, however, require approval
from appropriate governmental authorities before Renminbi can be
used to purchase foreign currency for remittance out of China.
This system could be changed at any time by executive decision
of the State Council to impose limits on current account
convertibility of the Renminbi or other similar restrictions.

Moreover, even though the Renminbi is intended to
be freely convertible on current accounts, the State
Administration of Foreign Exchange, which is responsible for
administering Chinas foreign currency market, has a
significant degree of administrative discretion in interpreting
and implementing foreign exchange control regulations. From time
to time, the State Administration of Foreign Exchange has used
this discretion in ways that effectively limit the
convertibility of current account payments and restrict
remittances out of China. Furthermore, in many circumstances the
State Administration of Foreign Exchange must approve foreign
currency conversions and remittances. Under the current foreign
exchange control system, sufficient foreign currency may not
always be available in the future at a given exchange rate to
satisfy our currency demands.



| |                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------
| | If tax benefits available to our
    subsidiaries located in China are reduced or repealed, our
    business could suffer.

Our subsidiaries located in China enjoy tax
benefits in China that are generally available to foreign
investment enterprises, including full exemption from national
enterprise income tax for two years starting from the first
profit-making year and a 50% reduction in national income tax
rate for the following three years. In addition, local
enterprise income tax is often waived or reduced during this tax
holiday/incentive period. Furthermore, under current regulations
in China, foreign investment enterprises that have been
accredited as technologically advanced enterprises are entitled
to an additional three-year reduction in national income tax by
50%, with a provision that the income tax rate as so reduced may
not be lower than 10%. However, the

19



---



##### Table of Contents



Chinese government recently announced that
preferential tax treatment for foreign enterprises may be
repealed beginning in 2006. If China elects to repeal or reduce
the tax benefits available to us in the future or we fail to
continue to qualify for the tax benefits, our financial
condition and results of operations may be adversely impacted.




| |                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our wavelength expansion products have
    accounted for a majority of our revenues, and our revenues could
    be harmed if the price of, or demand for, these products further
    declines or if these products fail to achieve broader market
    acceptance.

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. Although we
currently offer a broad spectrum of products, sales of our
wavelength expansion products accounted for a majority of our
revenues in the fiscal years ended June 30, 2004, 2003 and
2002. These products include, among others, dense wavelength
division multiplexers, or DWDMs. These products accounted for
65%, 67% and 66% of our revenues in the fiscal years ended
June 30, 2004, 2003 and 2002, respectively. 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 declining market demand. We
anticipate that ASPs will continue to decrease in the future in
response to product and new technology introductions by
competitors, price pressures from significant customers and
greater manufacturing efficiencies achieved through increased
automation in the manufacturing process. These declining ASPs
have contributed and may continue to contribute to a decline in
our gross margins, which could harm our results of operations.



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we fail to effectively manage our
    operations, including any reductions or increases in the number
    of our employees, our operating results could be
    harmed.

Primarily as a result of the relatively recent
economic downturn and slowdown in capital spending, particularly
in the communications industry, we have implemented, and may
continue to implement in the future, a number of cost-cutting
measures, including reductions in our workforce. The impact of
these cost-cutting measures, combined with the challenges of
managing our geographically-dispersed operations, has placed,
and may continue to place, a significant strain on our
management systems and resources. Moreover, we cannot assure you
that our cost-cutting measures will achieve the benefits we
project. In addition, our ability to effectively manage our
operations will be challenged to the extent that we begin
expanding our workforce. 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 train and
manage our workforce worldwide. Any failure to effectively
manage our operations could harm our operating results.



| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;        

20



---



##### Table of Contents





| |   |                                                                     
| | - | --------------------------------------------------------------------
| |  | 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. As of June 30,
2004, we hold 50 issued patents, have 13 allowed applications
awaiting issuance and 46 pending patent applications in the
United States. In addition, we have 7 issued patents and 29
pending patent applications in the Peoples Republic of
China, 21 of which are counterparts to U.S. patents or patent
applications. 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.



| |                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

Participants in the communications and fiber
optic components and subsystems 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.

From time to time we may be involved in lawsuits
as a result of alleged infringement of others intellectual
property. For example, in June 2000, Chorum Technologies, Inc.
filed a lawsuit against us and our wholly-owned subsidiary,
Telelight Communication Inc., 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.
On May 7, 2001, we filed a lawsuit alleging, among other
matters, that Chorum infringes one of our patents relating to
fiber optic couplers based on Chorums manufacture of and
offer to sell various DWDM products.

In October 2001, we reached an agreement with
Chorum to dismiss the patent infringement litigation between the
companies without prejudice. However, we cannot assure you that
Chorum or Oplink will not in the future elect to refile the
prior patent infringement actions or file new patent
infringement actions against the other.

In December 2001, Oz Optics Limited et al.
filed a lawsuit against us and four individuals, including our
former Vice President of Product Line Management, Zeynep
Hakimoglu (and three other unrelated individuals), alleging
trade secret misappropriation and other related claims. Under
the complaint, the plaintiffs sought damages against the four
individuals in the amounts of approximately $17,550,000, and
against us in the amount of approximately $1,500,000, as well as
enhanced damages, injunctive relief, costs and attorney fees,
and other relief. We settled the lawsuit against us in August
2004 and Oz Optics agreed to

21



---



##### Table of Contents



dismiss the case against us with prejudice.
However, we cannot assure you that Oz Optics will not choose to
pursue further litigation against us in the future. In addition,
to our knowledge Oz Optics is continuing to pursue its lawsuit
against all of the defendants other than us, and we may be
obligated to indemnify Ms. Hakimoglu for certain amounts in
connection with her prior employment with us.


Both prosecuting and defending lawsuits involving
our intellectual property may be costly and time consuming and
may also divert the efforts and attention of our management and
technical personnel. Intellectual property litigation is often
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 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;
|
| |  | 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.



| |                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are the target of a securities class
    action complaint and are at risk of securities class action
    litigation, which will likely result in substantial costs and
    divert management attention and resources.

We are one of hundreds of defendants in a
consolidated set of class action lawsuits, as more fully
described in Item 3 of this Annual Report on
Form 10-K, filed by plaintiffs (the Plaintiffs)
against hundreds of public companies (the Issuers)
that went public in the late 1990s and early 2000s
(collectively, the IPO Lawsuits). In June 2003,
Issuers and Plaintiffs reached a tentative settlement agreement
and entered a memorandum of understanding, providing for, among
other things, a dismissal with prejudice and full release of the
Issuers and their officers and directors from all further
liability resulting from Plaintiffs claims, and the
assignment to Plaintiffs of certain potential claims that the
Issuers may have against the Underwriters. In addition, the
tentative settlement guarantees that, in the event that the
Plaintiffs recover less than $1 billion in settlement or
judgment against the Underwriter defendants in the IPO Lawsuits,
the Plaintiffs would be entitled to payment by each
participating Issuers insurer of a pro rata share of any
shortfall in the plaintiffs guaranteed recovery. In such
event, our obligation would be limited to reimbursement of our
insurer up to the amount remaining under the deductible of our
insurance policy. In June 2004, Oplink executed a settlement
agreement with the Plaintiffs pursuant to the terms of a
memorandum of understanding. The settlement is subject to a
number of conditions, including action by the Court certifying a
class action for settlement purposes and formally approving the
settlement. The Underwriters have opposed both the certification
of the class and the judicial approval of the settlement.
Pending a definitive settlement, we continue to believe that the
action against us is without merit and intend to defend against
it vigorously.



| |                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our lengthy and variable qualification and
    sales cycle requires us to incur substantial costs to make a
    sale, and if the sale does not occur then we will have incurred
    these expenses without obtaining increased sales.

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 that a potential customer
will not purchase our products.

22



---



##### Table of Contents



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.



| |                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.

Our future success depends upon the continued
services of our executive officers 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 are 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.

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. We may not
be successful in attracting, assimilating or retaining qualified
personnel to fulfill our current or future needs. In addition,
our management team has experienced significant personnel
changes over the past two years and may continue to experience
changes in the future. If our management team experiences
further changes and does not work effectively together, it could
substantially 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.

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. 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.



| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because some of our operations are located
    in active earthquake fault zones, we face the risk that a large
    earthquake could harm our operations.

Some of our 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 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. With the exception
of two commodity classifications we obtained from the Department
of Commerce in 2001 with respect to some of our current
products, we have generally relied on self-classification in
determining whether an export license is required and have
determined that export licenses are not required. As we develop
and commercialize new products and technologies, the list of
products and technologies subject to U.S. export controls
changes, or in the event that the relevant export authorities
disagree with the outcome of our self-classification, we may be
required to obtain export licenses or other approvals with
respect to those products and technologies and may possibly be
subject to penalties under

23



---



##### Table of Contents



applicable laws. 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.


We ship inventory and other materials to and from
our facilities in China and, as a result, are subject to various
Chinese and U.S. customs-related laws. Given the geographic
distance and changing regulations and governmental standards, it
can be difficult to monitor and enforce compliance with customs
laws. In fact, there have been inventory and other materials
shipped to and from our facilities in China for which, upon
arrival of the goods, there was not sufficient documentation to
demonstrate the items comply with all local customs regulations.
The U.S. Customs Service may also require us to revise product
classifications from time to time with respect to various items
imported into the United States. In such cases we may be
required to pay any increase in customs duty to account for the
difference in duty actually paid by Oplink and the duty owed
under the amended product classification, and may also be
subject to penalties under applicable laws.

In addition, from time to time we enter into
transfer pricing arrangements with our subsidiaries to establish
sales prices for internal distributions of goods that have the
effect of allocating taxes between the parent corporation and
our subsidiaries. In general, these transfer prices have not
been approved by any governmental entity and, therefore, may be
challenged by the applicable tax authorities. China tax
authorities have recently announced that they plan to increase
transfer pricing audits and specifically identified
telecommunications companies, among others, as priority targets.

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 Bureau of
Citizenship and Immigration Services. We also send our U.S.
employees to China from time to time and for varying durations
of time to assist with our Chinese operations. Depending on the
durations of such arrangements, we may be required to withhold
and pay personal income taxes in respect of the affected U.S.
employees directly to the Chinese tax authorities, and the
affected U.S. employees may be required to register with various
Chinese governmental authorities. Our failure to comply with the
foregoing laws and regulations or any other applicable laws and
regulations could subject us to liability.

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.



| |                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in existing financial accounting
    standards or practices or taxation rules or practices may
    adversely affect our results of operations.

Changes in existing accounting or taxation rules
or practices, new accounting pronouncements or taxation rules,
or varying interpretations of current accounting pronouncements
or taxation practice could have a significant adverse effect on
our results of operations or the manner in which we conduct our
business. Further, such changes could potentially affect our
reporting of transactions completed before such changes are
effective. For example, we currently are not required to expense
stock-based compensation charges in connection with stock option
grants to our employees and stock purchases under our employee
stock purchase plan. However, the Financial Accounting Standards
Board (FASB) has announced a proposal to change
generally accepted accounting principles in the United States
that, if implemented, would require us to expense stock-based
compensation charges for employee stock option grants and stock
purchases. Such charges would negatively impact our operating
results.



| |                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Because the fiber optic components and
    subsystems industry is capital intensive, our business may be
    harmed if we are unable to raise any needed additional
    capital.

The optical components and subsystems industry is
capital intensive, and the development and marketing of new
products and the acquisition from time to time of strategic
businesses and technologies, may continue to require a
significant commitment of resources. Furthermore, we may
continue to incur significant operating

24



---



##### Table of Contents



losses if the market for optical components and
subsystems 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 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.




| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | If we are unable to successfully integrate
    acquired businesses or technologies, our operating results may
    be harmed.

The optical components and subsystems 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 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.

Risks Related to Our Common Stock



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Insiders continue to have substantial
    control over us, which may negatively affect your
    investment.

Our current executive officers, directors and
their affiliates own, in the aggregate, as of June 30,
2004, approximately 16% 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, or
entrenching current management.



| |                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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. For example, the market price of our common stock
has fluctuated from a high sales price of $40.81 to a low sales
price of $0.53 during the period from October 3, 2000, the
date of our initial public offering to June 30, 2004. These
fluctuations may occur in response to a number of factors, some
of which are beyond our control, including:



| |   |                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 us or our competitors of new
    products or of significant acquisitions, strategic partnerships
    or joint ventures;

25



---



##### Table of Contents





| |   |                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------
| |  | 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.

On March 18, 2002, our Board of Directors
adopted a share purchase rights plan, which has certain
additional anti-takeover effects. Specifically, the terms of the
plan provide for a dividend distribution of one preferred share
purchase right for each outstanding share of common stock. These
rights would cause substantial dilution to a person or group
that attempts to acquire us on terms not approved by our Board
of Directors.

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.



| |                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain our Nasdaq
    National Market listing, the liquidity of our common stock would
    be seriously impaired and we would become subject to various
    statutory requirements, which would likely harm our business and
    place downward pressure on our common stock price.

We may be subject to delisting from The Nasdaq
National Market from time to time to the extent our stock price
falls below the minimum bid price requirements or we otherwise
do not satisfy other requirements for continued listing. For
example, on October 17, 2002, we received a determination
letter from Nasdaq advising us that our common stock no longer
meets the requirements for the continued listing on The Nasdaq
National Market. The notification was based on the failure by us
to maintain a minimum bid price of $1.00 as required by Nasdaq
listing maintenance standards. In May 2003, Nasdaq confirmed
that we had evidenced compliance with all requirements necessary
for continued listing on The Nasdaq National Market and that our
common stock would continue to be listed on The Nasdaq National
Market. There can be no assurance, however, that Nasdaq will not
again initiate delisting procedures if we cannot maintain
compliance with the listing requirements.

In the event that we fail to meet the continued
listing standards, our common stock may be delisted from The
Nasdaq National Market and trade on the Nasdaq SmallCap Market
or, possibly, the over-the-counter bulletin board, commonly
referred to as the pink sheets. Such alternatives
are generally considered as less efficient markets and could
seriously impair the liquidity of our common stock and limit our
potential to raise future capital through the sale of our common
stock, which could materially harm our business. If we are

26



---



##### Table of Contents



delisted from The Nasdaq National Market, we will
also face a variety of legal and other consequences that will
likely negatively affect us including, without limitation, the
following:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the state securities law exemptions available to
    us would be more limited and, as a result, future issuances of
    our securities may require time-consuming and costly
    registration statements;                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | due to the application of different securities
    law exemptions and provisions, we may be required to amend our
    stock option and stock purchase plans and comply with
    time-consuming and costly administrative procedures;                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | the coverage of us by securities analysts may
    decrease or cease entirely;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | we may lose current or potential investors and
    customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | we may be unable to regain or maintain compliance
    with the listing requirements of either The Nasdaq SmallCap
    Market or The Nasdaq National Market; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | we may lose our exemption from the provisions of
    Section 2115 of the California Corporations Code which
    imposes aspects of California corporate law on certain
    non-California corporations operating within California. As a
    result, (i) our Board of Directors would no longer be
    classified and our stockholders would elect all of our directors
    at each annual meeting, (ii) our stockholders would be
    entitled to cumulative voting, and (iii) we would be
    subject to more stringent stockholder approval requirements and
    more stockholder-favorable dissenters rights in connection
    with certain strategic transactions.

In addition, some companies that face delisting
as a result of bid prices below the Nasdaqs maintenance
standards seek to maintain their listings by effecting reverse
stock splits. At our annual stockholders meeting in
November 2002, our stockholders approved a proposal to permit
the Board of Directors to effect, at its sole discretion, a
reverse split of our common stock at any time prior to our next
annual stockholders meeting. There is no assurance,
however, that effecting a reverse stock split (if our Board of
Directors elects to effect a split) would result in a sustained
increase in the share price and, as a result, our stock price
may be adversely affected.






|        |           
|------- | ----------
|Item 2. | Properties

In July 2004, we purchased a building in Fremont,
California, totaling approximately 51,000 square feet. The
building will be used for administrative, sales and marketing,
and research and development. We expect to relocate our
headquarters in San Jose, California to the newly acquired
building in the second quarter of fiscal 2005.

We lease a total of approximately 118,000 square
feet in three buildings located in San Jose, California, which
we do not intend to renew following these lease expirations. Of
the 118,000 square feet:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we lease a 62,000 square foot manufacturing
    facility and 43,000 square feet of administrative, sales and
    marketing space pursuant to a lease that expires in February
    2005, which is partially in excess of our current requirements
    and the difference between the rent we are contractually
    obligated to pay for the excess area and sublease rental income,
    if any, is part of our restructuring costs and other charges;
|
| |  | we lease a 13,000 square foot facility pursuant
    to a lease that expires in July 2005 which is in excess of our
    current requirements and the difference between the rent we are
    contractually obligated to pay and sublease rental income, if
    any, is part of our restructuring costs and other charges.                                                                                                                             

We own our facility in the Zhuhai Free Trade
Zone, China, totaling approximately 667,000 square feet. Our
facility in the Zhuhai Free Trade Zone is used for
administration, manufacturing, research and development and
employee living quarters. We currently lease 220,000 square feet
of our facility in the Zhuhai Free Trade Zone to third parties
and will attempt to lease the remaining areas that are in excess
of our current requirements to third parties.

We also lease a total of approximately 45,000
square feet in Shanghai, China. Our Shanghai facility is used
for administration, manufacturing and research and development.
The lease for this facility expires in July 2005.

27



---



##### Table of Contents



In accordance with our restructuring plans
announced on July 2, 2001, our facilities in Beijing,
Chengdu and Fuzhou were closed during fiscal 2002.

We believe that our current facilities structure,
as well as after our relocation to Fremont and expiration of the
San Jose leases, are and will be adequate for our purposes for
the foreseeable future.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In November 2001, we and certain of our officers
and directors were named as defendants in a class action
shareholder complaint filed in the United States District Court
for the Southern District of New York, now captioned, In re
Oplink Communications, Inc. Initial Public Offering Securities
Litigation, Case No. 01-CV-9904. In the amended
complaint, the plaintiffs allege that we, certain of our
officers and directors and the underwriters of our initial
public offering, or IPO, violated section 11 of the
Securities Act of 1933 based on allegations that our
registration statement and prospectus failed to disclose
material facts regarding the compensation to be received by, and
the stock allocation practices of, the IPO underwriters. The
complaint also contains a claim for violation of
section 10(b) of the Securities Exchange Act of 1934 based
on allegations that this omission constituted a deceit on
investors. The plaintiffs seek unspecified monetary damages and
other relief. Similar complaints were filed by plaintiffs (the
Plaintiffs) against hundreds of other public
companies (the Issuers) that went public in the late
1990s (collectively, the IPO Lawsuits).

On August 8, 2001, the IPO Lawsuits were
consolidated for pretrial purposes before United States Judge
Shira Scheindlin of the Southern District of New York. On
July 15, 2002, we joined in a global motion to dismiss the
IPO Lawsuits filed by all of the Issuers (among others). On
October 9, 2002, the Court entered an order dismissing our
named officers and directors from the IPO Lawsuits without
prejudice, pursuant to an agreement tolling the statute of
limitations with respect to these officers and directors until
September 30, 2003. On February 19, 2003, the Court
issued a decision denying the motion to dismiss the
Section 11 claims against us and almost all of the Issuers,
and granting the motion to dismiss the Section 10(b) claim
against us. The Section 10(b) claim was dismissed without leave
to amend.

In June 2003, Issuers and Plaintiffs reached a
tentative settlement agreement and entered a memorandum of
understanding, providing for, among other things, a dismissal
with prejudice and full release of the Issuers and their
officers and directors from all further liability resulting from
Plaintiffs claims, and the assignment to Plaintiffs of
certain potential claims that the Issuers may have against the
Underwriters. In addition, the tentative settlement guarantees
that, in the event that the Plaintiffs recover less than
$1 billion in settlement or judgment against the
Underwriter defendants in the IPO Lawsuits, the Plaintiffs would
be entitled to payment by each participating Issuers
insurer of a pro rata share of any shortfall in the
plaintiffs guaranteed recovery. In such event, our
obligation would be limited to reimbursement of our insurer up
to the amount remaining under the deductible of our insurance
policy. In September 2003, in connection with the tentative
settlement, our officers and directors who had entered tolling
agreements with the Plaintiffs (described above) agreed to
extend those agreements so that they would not expire prior to
any settlement being finalized. In June 2004, Oplink executed a
settlement agreement with the Plaintiffs pursuant to the terms
of a memorandum of understanding. The settlement is subject to a
number of conditions, including action by the Court certifying a
class action for settlement purposes and formally approving the
settlement. The Underwriters have opposed both the certification
of the class and the judicial approval of the settlement.
Pending a definitive settlement, we continue to believe that the
action against us is without merit and intend to defend against
it vigorously.

On December 17, 2001, OZ Optics Limited, OZ
Optics, Inc. and Bitmath, Inc. (collectively, OZ)
sued four individuals and us in California Superior Court for
the County of Alameda. One of the four individual defendants is
Zeynep Hakimoglu, who joined Oplink on November 1, 2001 as
Vice President of Product Line Management. The other three are
unrelated to us. Zeynep Hakimoglus employment with us
terminated on December 17, 2002. The complaint alleges
trade secret misappropriation and related claims against the
four individuals and us concerning OZs alleged
polarization mode dispersion technology. The plaintiffs seek
actual damages against the four individuals and us in the
amounts of approximately $17,550,000 and $1,500,000,
respectively, and enhanced damages, injunctive relief, costs and
attorney fees, and other relief. The plaintiffs sought a
temporary restraining order in December 2001, which the court
denied, and withdrew

28



---



##### Table of Contents



their preliminary injunction motion against us.
We answered the complaint on January 22, 2002, denying
plaintiffs claims. The case is currently in discovery with
a trial date set for April 8, 2005. In August 2004, we
settled the lawsuit against us and OZ agreed to dismiss the case
against us with prejudice. To our knowledge OZ is continuing to
pursue its lawsuit against all of the defendants other than us,
and we may be obligated to indemnify Ms. Hakimoglu for
certain amounts in connection with her prior employment with us.


We are subject to legal proceedings and claims,
either asserted or unasserted, that arise in the ordinary course
of business. While the outcome of these proceedings and claims
cannot be predicted with certainty, management does not believe
that the outcome of any of these legal matters will have a
material adverse effect on our consolidated financial position,
results of operations or cash flows.






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

No matters were submitted to a vote of security
holders during the fourth quarter of the fiscal year covered by
this Report.




PART II






|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

Market for Registrants Common
Equity

(a) Our common stock has been quoted on the
Nasdaq National Market under the symbol OPLK since
our initial public offering in October 2000. Prior to that time,
there was no public market for our common stock. The following
table sets forth the range of high and low bid prices for our
common stock for each period indicated:

|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|               |  | High |      | Low
|               |  |      |      |    
|Fiscal 2004:   |  |      |      |     |  |   |      | 
|First Quarter  |  | $    | 2.52 |     |  | $ | 1.28 | 
|Second Quarter |  | $    | 3.00 |     |  | $ | 1.88 | 
|Third Quarter  |  | $    | 3.18 |     |  | $ | 2.00 | 
|Fourth Quarter |  | $    | 2.64 |     |  | $ | 1.60 | 
|              
|Fiscal 2003:   |  |      |      |     |  |   |      | 
|First Quarter  |  | $    | 1.08 |     |  | $ | 0.57 | 
|Second Quarter |  | $    | 1.10 |     |  | $ | 0.53 | 
|Third Quarter  |  | $    | 1.04 |     |  | $ | 0.76 | 
|Fourth Quarter |  | $    | 2.03 |     |  | $ | 0.87 | 

As of August 31, 2004 there were
approximately 236 stockholders of record and the price per share
of our common stock was $1.75. We have never declared or paid
any cash dividends on our capital stock. We currently expect to
retain future earnings, if any, for use in the operation and
expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.

(b) Use of Proceeds From Sales of Registered
Securities

On October 3, 2000, the Securities and
Exchange Commission (the SEC) declared effective our
Registration Statement on Form S-1 (No. 333-41506).
Pursuant to this Registration Statement, we 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. We 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
Oplink after total expenses were $261.0 million.

As of June 30, 2004, we had
$190.4 million in cash, cash equivalents, short-term and
long-term investments. All remaining proceeds are invested in
cash, cash equivalents, short-term or long-term investments
consisting of money market funds, commercial paper,
government/federal notes and corporate

29



---



##### Table of Contents



bonds. Consistent with the use of proceeds as
discussed in our Registration Statement on Form S-1, we
have approved a program to repurchase up to an aggregate of
$40.0 million of our common stock. As of June 30,
2004, there were repurchases of $35.2 million under this
program. The use of these proceeds does not represent a material
change in the use of proceeds described in our public offering
prospectus.


(c) Repurchases During Quarter Ended
June 30, 2004

None.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
data should be read in conjunction with, and are qualified by
reference to, our consolidated financial statements and related
notes and Managements Discussion and Analysis of
Financial Condition and Results of Operations. The
selected consolidated statement of operations data for the three
fiscal years ended June 30, 2004, 2003 and 2002 and the
selected consolidated balance sheet data as of June 30,
2004 and 2003 are derived from, and qualified by reference to,
the audited consolidated financial statements included in
Item 8 of this Form 10-K. The selected consolidated
statement of operations data for the fiscal years ended
June 30, 2001 and 2000 and the selected consolidated
balance sheet data as of June 30, 2002, 2001 and 2000 are
derived from audited financial statements not included in this
Form 10-K.

30



---



##### Table of Contents



In May 2003, Oplink adopted a plan to sell its
Shanghai operation, and accounted for the Shanghai operation as
a discontinued operation. In May 2004, Oplink determined not to
dispose of this facility and returned it to continuing
operations. Amounts in table below are reclassified to reflect
the Shanghai operation as part of continuing operations.

|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |        |       |        |       | 
|--------------------------------------------------------- | --------------------------------------------------------- | ---------------------------------------- | -------------------------------- | ------------------------- | ----- | ------ | ------- | ------ | ----- | ------ | ------- | ------ | ------ | ------ | ------- | ------- | ------ | ------- | ------- | ------ | ----- | ------ | ----- | 
|                                                          |                                                           |                                         
|                                                          |                                                           | Years Ended June 30,                    
|                                                          |                                                           |                                         
|                                                          |                                                           | 2004                                     |                                  | 2003                      |       | 2002   |         | 2001   |       | 2000  
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |       
|                                                          |                                                           |                                         
|                                                          |                                                           | (In thousands, except per share data)   
|Consolidated Statement of Operations
    Data:            |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|Revenues                                                  |                                                           | $                                        | 34,328                           |                           |       | $      | 22,743  |        |       | $      | 37,939  |        |        | $      | 131,815 |         |        | $       | 39,048  |       
|Cost of revenues:                                         |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          | Cost of revenues                                          |                                          |                                  | 22,736                    |       |        |         | 23,080 |       |        |         | 48,512 |        |        |         | 120,835 |        |         |         | 33,344 |      
|                                                          | Non-cash compensation expense (recovery)                  |                                          |                                  | 177                       |       |        |         | (415   | )     |        |         | 342    |        |        |         | 4,765   |        |         |         | 2,269  |      
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          |                                                           |                                          | Total cost of revenues           |                           |       | 22,913 |         |        |       | 22,665 |         |        |        | 48,854 |         |         |        | 125,600 |         |        |       | 35,613 |      
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|Gross profit (loss)                                       |                                                           |                                          | 11,415                           |                           |       |        | 78      |        |       |        | (10,915 | )      |        |        | 6,215   |         |        |         | 3,435   |       
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|Operating expenses:                                       |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          | Research and development:                                 |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |        |      
|                                                          |                                                           | Research and development                 |                                  |                           | 7,056 |        |         |        | 8,765 |        |         |        | 13,927 |        |         |         | 17,706 |         |         |        | 3,686 |       
|                                                          |                                                           | Non-cash compensation expense            |                                  |                           | 448   |        |         |        | 42    |        |         |        | 984    |        |         |         | 4,390  |         |         |        | 1,801 |       
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          |                                                           |                                          | Total research and development   |                           |       | 7,504  |         |        |       | 8,807  |         |        |        | 14,911 |         |         |        | 22,096  |         |        |       | 5,487  |      
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          | Sales and marketing:                                      |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |        |      
|                                                          |                                                           | Sales and marketing                      |                                  |                           | 3,329 |        |         |        | 4,235 |        |         |        | 8,079  |        |         |         | 19,923 |         |         |        | 2,695 |       
|                                                          |                                                           | Non-cash compensation expense (recovery) |                                  |                           | 53    |        |         |        | 172   |        |         |        | (328   | )      |         |         | 2,363  |         |         |        | 1,312 |       
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          |                                                           |                                          |                                  | Total sales and marketing |       |        | 3,382   |        |       |        | 4,407   |        |        |        | 7,751   |         |        |         | 22,286  |        |       |        | 4,007 | 
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          | General and administrative:                               |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |        |      
|                                                          |                                                           | General and administrative               |                                  |                           | 6,619 |        |         |        | 7,009 |        |         |        | 7,247  |        |         |         | 13,736 |         |         |        | 4,173 |       
|                                                          |                                                           | Non-cash compensation expense            |                                  |                           | 1,011 |        |         |        | 2,074 |        |         |        | 3,716  |        |         |         | 15,120 |         |         |        | 7,358 |       
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          |                                                           |                                          | Total general and administrative |                           |       | 7,630  |         |        |       | 9,083  |         |        |        | 10,963 |         |         |        | 28,856  |         |        |       | 11,531 |      
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          | Impairment charge                                         |                                          |                                  |                          |       |        |         | 2,825  |       |        |         |       |        |        |         |        |        |         |         |       |      
|                                                          | Restructuring costs and other charges                     |                                          |                                  | 452                       |       |        |         | 14,123 |       |        |         | 28,908 |        |        |         | 18,177  |        |         |         |       |      
|                                                          | Merger fees                                               |                                          |                                  |                          |       |        |         | 1,300  |       |        |         | 1,844  |        |        |         |        |        |         |         |       |      
|                                                          | In-process research and development                       |                                          |                                  | 1,565                     |       |        |         |       |       |        |         |       |        |        |         | 793     |        |         |         | 7,020  |      
|                                                          | Amortization of goodwill, intangible and other
    assets |                                          |                                  | 56                        |       |        |         | 78     |       |        |         | 168    |        |        |         | 3,606   |        |         |         | 981    |      
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|                                                          |                                                           |                                          | Total other operating expenses   |                           |       | 2,073  |         |        |       | 18,326 |         |        |        | 30,920 |         |         |        | 22,576  |         |        |       | 8,001  |      
|                                                          |                                                           |                                          | Total operating expenses         |                           |       | 20,589 |         |        |       | 40,623 |         |        |        | 64,545 |         |         |        | 95,814  |         |        |       | 29,026 |      
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|Loss from operations                                      |                                                           |                                          | (9,174                           | )                         |       |        | (40,545 | )      |       |        | (75,460 | )      |        |        | (89,599 | )       |        |         | (25,591 | )     
|Interest and other income, net                            |                                                           |                                          | 2,665                            |                           |       |        | 4,016   |        |       |        | 4,713   |        |        |        | 8,414   |         |        |         |        |       
|Gain (loss) on sale of assets                             |                                                           |                                          | 68                               |                           |       |        | (258    | )      |       |        | 2,373   |        |        |        | 813     |         |        |         | 689     |       
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|Net loss                                                  |                                                           | $                                        | (6,441                           | )                         |       | $      | (36,787 | )      |       | $      | (68,374 | )      |        | $      | (80,372 | )       |        | $       | (24,902 | )     
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|Basic and diluted net loss per share                      |                                                           | $                                        | (0.04                            | )                         |       | $      | (0.23   | )      |       | $      | (0.42   | )      |        | $      | (0.65   | )       |        | $       | (3.18   | )     
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       
|Basic and diluted weighted average shares
    outstanding |                                                           |                                          | 145,479                          |                           |       |        | 158,782 |        |       |        | 162,688 |        |        |        | 124,362 |         |        |         | 7,840   |       
|                                                          |                                                           |                                          |                                  |                           |       |        |         |        |       |        |         |        |        |        |         |         |        |         |         |       

31



---



##### Table of Contents



Consolidated Balance Sheet Data:

|                                                                     |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        | 
|-------------------------------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------ | 
|                                                                     |  |               
|                                                                     |  | June 30,      
|                                                                     |  |               
|                                                                     |  | 2004           |         | 2003 |  | 2002 |         | 2001 |  | 2000
|                                                                     |  |                |         |      |  |      |         |      |  |     
|                                                                     |  |               
|                                                                     |  | (In thousands)
|Cash, cash equivalents, and short-term and
    long-term investments |  | $              | 190,443 |      |  | $    | 188,103 |      |  | $    | 224,749 |  |  | $ | 246,743 |  |  | $ | 26,665 | 
|Working capital                                                      |  |                | 137,268 |      |  |      | 185,138 |      |  |      | 218,683 |  |  |   | 250,708 |  |  |   | 30,618 | 
|Total assets                                                         |  |                | 232,903 |      |  |      | 233,743 |      |  |      | 303,194 |  |  |   | 387,902 |  |  |   | 95,932 | 
|Long-term liabilities                                                |  |                | 104     |      |  |      | 1,555   |      |  |      | 6,894   |  |  |   | 6,712   |  |  |   | 4,225  | 
|Convertible preferred stock                                          |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   | 58,373 | 
|Total stockholders equity                                           |  |                | 219,702 |      |  |      | 218,716 |      |  |      | 273,281 |  |  |   | 338,007 |  |  |   | 10,825 | 

32



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

This discussion contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, 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, estimate or assume
or similar language. All forward-looking statements included
herein are based on information available to us on the date
hereof, and we assume no obligation to update any such
forward-looking statements. We caution you that our business and
financial performance are subject to substantial risks and
uncertainties. Actual results could differ materially from those
projected in the forward-looking statements. In evaluating our
business, you should also carefully consider the information set
forth under the caption Risk Factors contained in
Item 1 in addition to the information contained in this
Item 7. We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new
information, future events or otherwise.

The following discussion of our financial
condition and results of operations should be read in
conjunction with Item 6. Selected Financial
Data and our consolidated financial statements and related
notes thereto in Item 8. Financial Statements and
Supplementary Data.

In May 2003, we adopted a plan to sell our
Shanghai operation. As the sale of the Shanghai operation
represented a disposal of a component of an entity
as defined in SFAS No. 144, Accounting for the
Impairment or Disposal of Long Lived Assets,
(SFAS No. 144), the Shanghai operation was
accounted as a discontinued operation. In May 2004, one year
following the planned sale of our Shanghai operation and
considering growth in the telecommunications market, we have
determined that this facility is more strategic to our
operations than in prior periods due to the need to ensure a
supply of the parts manufactured at the Shanghai facility as a
result of an increase in demand for these types of parts in the
market and the acquisition of one of our suppliers by one of our
competitors. Therefore, we have decided not to dispose of this
facility and have returned it to continuing operations.
Operating results of the Shanghai operation have been
reclassified from discontinued to continuing operations for all
periods presented.

Overview

We provide design, integration and Optical
Manufacturing Solutions, or OMS, for optical networking
components and subsystems that expand optical bandwidth, amplify
optical signals, monitor and protect wavelength performance,
redirect light signals, reshape light profile to enable extended
signal reach and provide signal transmission and reception
within an optical network. Our product portfolio includes
solutions for next-generation, all-optical Dense and Coarse
Wavelength Division Multiplexing, or DWDM and CWDM,
respectively, optical amplification, switching and routing,
monitoring and conditioning, dispersion management and line
transmission applications. We offer advanced and cost-effective
optical-electrical components and subsystem manufacturing
through our facilities in Zhuhai and Shanghai, China. In
addition, we maintain optical-centric front-end design,
application, and customer service functions at our headquarters
in San Jose, California. As a Photonic Foundry, we offer
our customers expert OMS for the production and packaging of
highly integrated optical subsystems and turnkey solutions based
upon a customers specific product design and
specification. Our broad line of products and services increases
the performance of optical networks and enables optical system
manufacturers to provide flexible and scalable bandwidth to
support the increase of data traffic on the Internet and other
public and private networks. Our customers include
telecommunications, data communications and cable TV equipment
manufacturers around the globe.

Our management team, on an internal basis,
informally monitors the general overall worldwide economic
trends and in particular activity within the telecommunication
economic space. This would include known contracts being placed
by end users with our current or potential new customers. Over
the past several quarters, we have noticed a general increase in
spending activity in the telecommunications space as well as a
general improvement in the worldwide economic environment. We
have also noticed a general increase in the number of contracts
being placed by end users with our current or potential new
customers, which we believe indicates a trend towards increasing
opportunities for our revenue growth. However, the fact that our
current or potential new customers are receiving orders does not
necessarily mean we will be a beneficiary of such

33



---



##### Table of Contents



orders, but does provide us with an early notice
of potential activity. To obtain orders from our current or
potential new customers we would need to be selected as a
potential vendor and subsequently would need to demonstrate we
can meet all of the order requirements of our customer. To the
extent we may receive orders, these orders may be only for trial
units and future full deployment orders may not necessarily
follow.


Revenues.We
generate substantially all of our revenues from the sale of
fiber optic components and subsystems. To date, we have
developed over 160 standard products that are sold or integrated
into customized solutions for our customers. Our products are
generally categorized into the following major groups: our
bandwidth creation products, which include wavelength expansion
and optical amplification products; and our bandwidth management
products, which include wavelength performance monitoring and
protection, and optical switching products. A majority of our
revenues are derived from our bandwidth creation products, which
include our wavelength expansion products, in particular,
multiplexers.

Cost of Revenues.Our cost of revenues consists of raw material, salaries and
related personnel expense, manufacturing overhead, and
provisions for excess and obsolete inventories and warranties.
We expect cost of revenues, as a percentage of revenues, to
fluctuate from period to period. Our gross margins will
primarily be affected by manufacturing volume, our pricing
policies, mix of products sold, production yield, costs incurred
in improving manufacturing processes and provisions for excess
and obsolete inventories.

Research and Development
Expenses.Our research and development
expenses consist primarily of salaries including stock-based
compensation expense and related personnel costs, depreciation,
non-recurring engineering charges and prototype costs, patent
filing costs and fees paid to consultants and outside service
providers, all of which relate to the design, development,
testing, pre-manufacturing and significant improvement of our
products. We expense our research and development costs as they
are incurred.

Sales and Marketing
Expenses.Our sales and marketing
expenses consist primarily of salaries and related expenses for
marketing, sales, customer service and application engineering
support personnel, commissions paid to internal and external
sales representatives, as well as costs associated with trade
shows and other marketing expenses.

General and Administrative
Expenses.Our general and
administrative expenses consist primarily of salaries and
related expenses for executive, finance, accounting, and human
resources personnel, professional fees and other corporate
expenses.

Non-Cash Compensation
Expense.Prior to and after our
initial public offering, we granted stock options and issued
warrants to employees and consultants at prices below the fair
value of the underlying stock on the date of grant or issuance.
During the period from July 1, 1998 through June 30,
2004, we recorded aggregate deferred stock compensation, net of
cancellations due to terminations of employment, of
approximately $59.0 million, of which $1.7 million,
$1.9 million and $4.7 million was expensed during the
fiscal years ended June 30, 2004, 2003 and 2002,
respectively. This expense has an impact on our net loss, but
not on our cash flows. With respect to employee stock-based
compensation, we are amortizing the deferred compensation
expense over the vesting period of the related stock options, as
set forth in FASB Interpretation (FIN) No. 28.
Under the FIN No. 28 method, each vested tranche of options
is accounted for as a separate option grant awarded for
services. The compensation expense is recognized over the period
during which the services are provided. Accordingly, this method
results in higher compensation expenses being recognized in the
earlier vesting periods of an option. Stock options or warrants
granted to non-employees are accounted for in accordance with
Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based
Compensation and Emerging Issues Task Force
(EITF) No. 96-18, Accounting for Equity
Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or
Services and valued using the Black-Scholes model. The
deferred compensation expense related to non-employees
stock option grants is amortized over the vesting period as set
forth in FIN No. 28.

Acquisitions.On
November 3, 2003, we acquired substantially all of the
assets of RedClover Networks, Inc., or RedClover, an early-stage
private company that designed and manufactured broadband optical
interface products for access, storage, metro and long-haul
networks. The purchase price was comprised of $250,000 in cash
and $70,000 in transaction costs. In addition, we spent
$1.1 million in cash to settle liabilities

34



---



##### Table of Contents



assumed in connection with the acquisition of
RedClover. We paid $150,000 upon the closing of the acquisition
and the remaining $100,000 will be paid twelve months after the
date of the RedClover acquisition, subject to satisfaction of
any indemnification obligations owed by RedClover and its
stockholders to us. The RedClover acquisition was accounted for
under the purchase method of accounting.


On February 4, 2004, we acquired Accumux
Technologies, Inc., or Accumux, an early-stage private company
that developed a standard-tunable dispersion compensation module
(DCM) for dense wavelength division multiplexing
(DWDM) fiber optic communication systems. Pursuant
to the terms of the definitive merger agreement, a wholly owned
subsidiary of Oplink was merged with and into Accumux and
Accumux became a wholly owned subsidiary of Oplink. The purchase
price was comprised of 600,000 shares of our common stock
valued at $1,611,600 based on the average per share closing
prices on February 2, 2004 through February 6, 2004 of
$2.686 and transaction costs of approximately $50,000. In
addition, we spent $81,000 in cash to settle liabilities assumed
in connection with the acquisition of Accumux. The Accumux
acquisition was accounted for under the purchase method of
accounting.

On March 23, 2004, we acquired substantially
all assets of Gigabit Optics Corporation, or Gigabit, an
early-stage private company that developed and marketed
micro-optical subassemblies. The purchase price was comprised of
transaction costs of approximately $37,000 and $1,150,000 in
cash, of which $500,000 was paid upon closing, $350,000 will be
paid upon satisfaction of certain events and the remaining
$300,000 is subject to an escrow to secure certain
indemnification obligations owned by Gigabit to us. The Gigabit
acquisition was accounted for under the purchase method of
accounting.

Under the purchase method of accounting, the
total purchase price is allocated to the net tangible and
intangible assets based on their estimated fair value as of the
date of the completion of each acquisition. A summary of the
acquisitions is as follows (in thousands):

|                                    |                                              |           |     |         |  |         |       |       |  |   |       |       | 
|----------------------------------- | -------------------------------------------- | --------- | --- | ------- |  | ------- | ----- | ----- |  | - | ----- | ----- | 
|                                    |                                              | RedClover |     | Accumux |  | Gigabit
|                                    |                                              |           |     |         |  |        
|Cash                                |                                              | $         | 250 |         |  | $       |      |       |  | $ | 1,150 |      
|Value of securities issued          |                                              |           |    |         |  |         | 1,612 |       |  |   |      |      
|Transaction costs                   |                                              |           | 70  |         |  |         | 50    |       |  |   | 37    |      
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|                                    | Purchase price                               |           |     | 320     |  |         |       | 1,662 |  |   |       | 1,187 | 
|                                    | Liabilities assumed                          |           |     | 1,135   |  |         |       | 81    |  |   |       |      | 
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|                                    | Total purchase price and assumed liabilities |           | $   | 1,455   |  |         | $     | 1,743 |  |   | $     | 1,187 | 
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|Assets acquired:                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|Cash and cash equivalents           |                                              | $         |    |         |  | $       | 1,054 |       |  | $ |      |      
|Inventories                         |                                              |           | 11  |         |  |         |      |       |  |   | 53    |      
|Fixed assets                        |                                              |           | 583 |         |  |         | 393   |       |  |   | 172   |      
|In-process research and development |                                              |           | 861 |         |  |         | 251   |       |  |   | 453   |      
|Patent                              |                                              |           |    |         |  |         | 45    |       |  |   |      |      
|Technology                          |                                              |           |    |         |  |         |      |       |  |   | 509   |      
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|                                    | Total                                        |           | $   | 1,455   |  |         | $     | 1,743 |  |   | $     | 1,187 | 
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      

We allocated the purchase price of acquired
companies and assets to the tangible and intangible assets
acquired and liabilities assumed based on their estimated fair
values. We engaged independent third-party appraisal firms to
assist us in determining the fair values of the assets acquired
and the liabilities assumed. These valuations require management
to make significant estimations and assumptions, especially with
respect to intangible assets. Managements estimates of
fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain.

35



---



##### Table of Contents



Use of Estimates and Critical Accounting
Policies

The preparation of our consolidated financial
statements in conformity with accounting principles generally
accepted in the United States of America requires us to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related
disclosure. On an ongoing basis, we evaluate our estimates,
including those related to product returns, accounts receivable,
inventories, intangible assets, warranty obligations,
restructuring, contingencies and litigation. We base our
estimates on historical experience and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates due to actual outcomes being
different from those on which we based our assumptions. These
estimates and judgments are reviewed by management on an ongoing
basis, and by the Audit Committee at the end of each quarter
prior to the public release of our financial results. We believe
the following critical accounting policies, and our procedures
relating to these policies, affect our more significant
judgments and estimates used in the preparation of our
consolidated financial statements.



| |                                            
| | -------------------------------------------
| | Revenue Recognition and Product
    Returns

We recognize revenue using the guidance from SEC
Staff Accounting Bulletin No. 104, Revenue
Recognition, which supercedes SAB No. 101
Revenue Recognition in Financial Statements, and
Statement of Financial Accounting Standards (SFAS)
No. 48, Revenue Recognition When Right of Return
Exists. Under these guidelines, we recognize revenue from
product sales upon shipment of the product or customer
acceptance, which ever is later, provided that persuasive
evidence of an arrangement exists, delivery has occurred and no
significant obligations remain, the fee is fixed or determinable
and collectibility is reasonably assured. We recognize revenue
associated with contract-related cancellation payments from
customers when a formal agreement is signed or a purchase order
is issued by the customer covering these payments and we
determined the collectibility of the cancellation payments to be
reasonably assured. In addition, we estimate future product
returns based upon actual historical return rates and reduce our
revenue by these estimated future returns. If the historical
data we use to calculate these estimates does not properly
reflect future returns, future estimates could be revised
accordingly.



| |                     
| | --------------------
| | Warranty Obligations

We provide reserves for the estimated costs of
product warranties at the time we recognize revenue based on our
historical experience of known product failure rates and
expected material and labor costs to provide warranty services.
Additionally, from time to time, we may make specific warranty
accruals if unforeseen technical problems arise. Should our
actual experience relative to these factors differ from
estimates, we may be required to record additional warranty
reserves, which would negatively affect our operating results.
Alternatively, if our estimates are determined to be greater
than the actual amounts necessary, we may reverse a portion of
these provisions in future periods, which would positively
affect our operating results.



| |                                    
| | -----------------------------------
| | Allowance for Doubtful
    Accounts

Our accounts receivable are derived from revenue
earned from customers located in the United States, Europe, Asia
and Canada. We perform ongoing credit evaluations of our
customers financial condition and currently require no
collateral from our customers. We maintain an allowance for
doubtful accounts for estimated losses in anticipation of the
inability or unwillingness of customers to make required
payments. When we become aware that a specific customer is
unable to meet its financial obligations, such as the result of
bankruptcy or deterioration in the customers operating
results or financial position, we record a specific allowance
equal to the amount due to reflect the level of credit risk in
the customers outstanding receivable balance. We are not
able to predict changes in the financial condition of customers,
nor are we able to predict whether a customer experiencing
financial difficulties will ultimately pay us the amounts owed.
If the condition or circumstances of our customers deteriorates,
estimates of the recoverability of trade receivables could be
materially affected and we may be required to record additional
allowances, which would decrease our operating results in that
period. Alternatively, if our estimates are determined to be
greater than the actual

36



---



##### Table of Contents



amounts necessary, we may reverse a portion of
such allowance in future periods based on actual collection
experience, which would increase our operating results in the
future periods.




| |                              
| | -----------------------------
| | Excess and Obsolete Inventory

We regularly assess the valuation of inventories
and write down those inventories which are obsolete or in excess
of forecasted usage to their estimated realizable value.
Estimates of realizable value are based upon our analyses and
assumptions including, but not limited to, forecasted sales
levels by product, expected product lifecycle, product
development plans and future demand requirements. If market
conditions are less favorable than our forecast or actual demand
from customers is lower than our estimates, we may be required
to record additional inventory write-downs. If demand is higher
than expected, we may sell inventories that had previously been
written down as was the case in the years ended June 30,
2004 and 2003. In contrast, in the fiscal years ended 2002 and
2001, we recorded significant charges related to excess and
obsolete inventory. See Restructuring Costs and Other
Charges below. Specifically, in the fiscal years ended
June 30, 2002 and 2001, our gross margins were negatively
impacted by a provision of $10.4 million and
$30.6 million, respectively, for excess and obsolete
inventory due to the downturn in the fiber optics industry.
Conversely, our gross margins were positively impacted by the
unexpected utilization of fully reserved inventory of
$1.0 million and $1.6 million in fiscal 2004 and 2003,
respectively.



| |                           
| | --------------------------
| | Long-Lived Asset Valuation

We evaluate the carrying value of long-lived
assets, whenever certain events or changes in circumstances
indicate that the carrying amount may not be recoverable. These
events or circumstances include, but are not limited to, a
prolonged industry downturn, a significant decline in our market
value, or significant reductions in projected future cash flows.
In assessing the recoverability of long-lived assets, we
generally compare the carrying value to the undiscounted future
cash flows the assets are expected to generate. If the total of
the undiscounted future cash flows is less than the carrying
amount of the assets, we would write down such assets based on
the excess of the carrying amount over the fair value of the
assets. Fair value is generally determined by calculating the
discounted future cash flows using a discount rate based upon
our weighted average cost of capital, and specific appraisal in
certain instances. Significant judgments and assumptions are
required in the forecast of future operating results used in the
preparation of the estimated future cash flows, including
long-term forecasts of the amounts and timing of overall market
growth and our percentage of that market, groupings of assets,
discount rate and terminal growth rates. Changes in these
estimates could have a material adverse effect on the assessment
of long-lived assets, thereby requiring us to write down the
assets. In fiscal 2003 and 2002, we recorded charges of
$10.7 million and $16.6 million, respectively, related
to excess property and equipment. See Restructuring Costs
and Other Charges below.

In May 2003, we adopted a plan to sell our
Shanghai operation. As the sale of the Shanghai operation
represented a disposal of a component of an entity
as defined in SFAS No. 144, Accounting for the
Impairment or Disposal of Long Lived Assets,
(SFAS No. 144), the Shanghai operation was
accounted as a discontinued operation and we recorded an
impairment charge of $2.8 million in the year ended
June 30, 2003 to reflect the write down of net assets of
the Shanghai operation to its estimated net realizable value,
less costs to sell. In May 2004, one year following the planned
sale of our Shanghai operation and considering growth in the
telecommunications market, we have determined that this facility
is more strategic to our operations than in prior periods due to
the need to ensure a supply of the parts manufactured at the
Shanghai facility as a result of an increase in demand for these
types of parts in the market and the acquisition of one of our
suppliers by one of our competitors. Therefore, we have decided
not to dispose of this facility and have returned it to
continuing operations. Accordingly, the Shanghai operation has
been reclassified from discontinued to continuing operations in
the accompanying financial statements. In accordance with
SFAS No. 144, the Shanghai operation is measured at
the lower of its carrying amount before it was classified as a
discontinued operation, adjusted for depreciation expense that
would have been recognized had it been continuously classified
as part of continuing operations, or the fair value at the date
of our decision not to dispose of the facility. We engaged an
independent third-party appraisal firm to assist in determining
the fair value of the Shanghai operation. As the lower of the
fair value of the Shanghai operation at the date of our

37



---



##### Table of Contents



decision and its original carrying value less
depreciation expense is greater than its current carrying value,
we did not record an additional impairment charge in fiscal 2004.




| |                     
| | --------------------
| | Business Combination

We account for our purchases of acquired
companies in accordance with SFAS No. 141,
Business Combinations, and account for the related
acquired intangible assets in accordance with
SFAS No. 142, Goodwill and Other Intangible
Assets. In accordance with SFAS No. 141, we
allocate the cost of the acquired companies to the identifiable
tangible and intangible assets acquired and liabilities assumed,
with the remaining amount being classified as goodwill. We
amortize certain intangible assets to expense over time, while
we immediately expense in-process research and development, or
IP R&D, costs in the period the acquisition is completed. We
record the values of assets and liabilities based on third-party
valuations and internal estimates. The values are based on our
judgments and estimates and, accordingly, our financial position
or results of operations may be affected by changes in these
estimates and judgments.

Results of Operations



| |                                                             
| | ------------------------------------------------------------
| | For Each of the Years Ended June 30,
    2004, 2003 and 2002



| |         
| | --------
| | Revenues

(In thousands, except percentages)

|         |  |             |        |        |  |            |        |             |  |        |        |            |  |  |      |   |  |   |        |  |  |   |        |  |  |   |         |   |  |  |       |   
|-------- |  | ----------- | ------ | ------ |  | ---------- | ------ | ----------- |  | ------ | ------ | ---------- |  |  | ---- | - |  | - | ------ |  |  | - | ------ |  |  | - | ------- | - |  |  | ----- | --
|         |  |             |        |        |  |            |        |             |  |        |        |           
|         |  | Years Ended |        |        |  | Percentage |        | Years Ended |  |        |        | Percentage
|         |  | June 30,    |        | Change |  | Change     |        | June 30,    |  | Change |        | Change    
|         |  |             |        |        |  |            |        |             |  |        |        |           
|         |  | 2004        |        | 2003   |  |            |        |             |  | 2003   |        | 2002       |  |  |      |  
|         |  |             |        |        |  |            |        |             |  |        |        |            |  |  |      |  
|Revenues |  | $           | 34,328 |        |  | $          | 22,743 |             |  | $      | 11,585 |            |  |  | 50.9 | % |  | $ | 22,743 |  |  | $ | 37,939 |  |  | $ | (15,196 | ) |  |  | (40.1 | )%

The increase in revenue for the year ended
June 30, 2004 compared to the year ended June 30, 2003
was primarily due to increased unit shipments of our wavelength
expansion products and optical switching and routing products to
existing and new customers. The increase in shipments was
primarily due to a general increase in spending activity in the
telecommunications industry. The increase in revenue associated
with increased unit shipments was partially offset by minor
decreases in the average selling prices of our products during
the year ended June 30, 2004 as compared to the year ended
June 30, 2003.

The decrease in revenue for the year ended
June 30, 2003 compared to the year ended June 30, 2002
was substantially due to decreased shipments of all our products
including our wavelength expansion products, optical
amplification products and optical switching products. The
decreases in shipments were primarily due to the continued
slowdown in telecommunications equipment spending. Additionally,
in fiscal 2003 there was a minor impact due to decreases in
average selling prices of our products over the prior year.
Included in revenue for the fiscal years ended June 30,
2003 and 2002, is $75,000 and $2.5 million, respectively,
for contract cancellation fees.

We anticipate that there will be further declines
in average selling prices through the fiscal year ending
June 30, 2005. We also expect a modest decline in revenue
in the first quarter of fiscal 2005 from the fourth quarter of
fiscal 2004.



| |                    
| | -------------------
| | Gross Profit (Loss)

(In thousands, except percentages)

|                    |  |             |        |        |  |            |     |             |  |        |        |            |  |  |          |   |  |   |     |   |  |   |         |    |  |   |        |  |  |  |       |  
|------------------- |  | ----------- | ------ | ------ |  | ---------- | --- | ----------- |  | ------ | ------ | ---------- |  |  | -------- | - |  | - | --- | - |  | - | ------- | -- |  | - | ------ |  |  |  | ----- | -
|                    |  |             |        |        |  |            |     |             |  |        |        |           
|                    |  | Years Ended |        |        |  | Percentage |     | Years Ended |  |        |        | Percentage
|                    |  | June 30,    |        | Change |  | Change     |     | June 30,    |  | Change |        | Change    
|                    |  |             |        |        |  |            |     |             |  |        |        |           
|                    |  | 2004        |        | 2003   |  |            |     |             |  | 2003   |        | 2002       |  |  |          |  
|                    |  |             |        |        |  |            |     |             |  |        |        |            |  |  |          |  
|Gross profit (loss) |  | $           | 11,415 |        |  | $          | 78  |             |  | $      | 11,337 |            |  |  | 14,534.6 | % |  | $ | 78  |   |  | $ | (10,915 | )  |  | $ | 10,993 |  |  |  | 100.7 | %
|Gross profit margin |  |             | 33.3   | %      |  |            | 0.3 | %           |  |        |        |            |  |  |          |   |  |   | 0.3 | % |  |   | (28.8   | )% |  |   |        |  |  |  |       |  

38



---



##### Table of Contents



The increase in gross profit for the year ended
June 30, 2004 compared to the year ended June 30, 2003
was primarily due to greater revenue, the cost savings
associated with the worldwide workforce reduction and the
consolidation of excess facilities, and the cost benefits of
operating in China as a result of transitioning our
manufacturing capacity to China. In addition, our gross profit
for the year ended June 30, 2004 was positively impacted by
the unexpected sale of inventory that had been previously fully
reserved of $1.0 million, partially offset by $177,000 of
non-cash compensation expense. Our gross profit for the year
ended June 30, 2003 was positively impacted by the
unexpected sale of inventory that had been previously fully
reserved of $1.6 million and $415,000 recovery of non-cash
compensation expense. Unexpected sales of fully reserved
inventory decreased over the past several quarters. However, we
have no visibility to the amount of such sales in the future, if
any.

The increase in gross profit for the year ended
June 30, 2003 compared to the year ended June 30, 2002
was primarily due to lower excess inventory charges. The
increase was also due to the cost savings associated with the
worldwide workforce reduction and the consolidation of excess
facilities, and the cost benefits of operating in China, offset
by lower revenue. The excess inventory charge of
$10.4 million in the fiscal year ended June 30, 2002
reflects the significant downturn in customer demand. In
addition, our gross profit for the fiscal year ended
June 30, 2003 was positively impacted by a non-cash
compensation recovery of $415,000 and the unexpected sale of
inventory that had been previously fully reserved of
$1.6 million. Our gross loss for the fiscal year ended
June 30, 2002, was positively impacted by the
$2.5 million in revenues for cancellation fees from
significant customers and the unexpected sale of inventory that
had been previously fully reserved of $480,000, partially offset
by $342,000 non-cash compensation expense.

Our gross profit margin increased for the year
ended June 30, 2004 compared to the year ended
June 30, 2003 due to the cost savings associated with the
worldwide workforce reduction and the consolidation of excess
facilities and the cost benefits of operating in China as a
result of transitioning our manufacturing capacity to China. Our
gross profit margin also increased as a result of greater
revenue resulting in lower manufacturing costs relative to our
production volume. The increase in gross profit margin was
partially offset by a smaller benefit from the unexpected sales
of fully reserved inventory and higher non-cash compensation
expense.

Our gross profit margin increased for the year
ended June 30, 2003 compared to the year ended
June 30, 2002 primarily due to lower excess inventory
charges. The increase was also due to the cost savings
associated with the worldwide workforce reduction and the
consolidation of excess facilities, the cost benefits of
operating in China, lower non-cash compensation expense and
benefit from unexpected sales of fully reserved inventory,
offset by lower revenue resulting in higher manufacturing costs
relative to our production volume.

We expect our gross profit margin to decrease in
the first quarter of fiscal 2005 compared to the fourth quarter
of fiscal 2004 primarily due to lower revenue and changes in
product, customer and geographic mix.



| |                         
| | ------------------------
| | Research and Development

(In thousands, except percentages)

|                         |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |    |  |   |       |  |  |   |        |  |  |   |        |   |  |  |       |   
|------------------------ |  | ----------- | ----- | ------ |  | ---------- | ----- | ----------- |  | ------ | ------ | ---------- |  |  | ----- | -- |  | - | ----- |  |  | - | ------ |  |  | - | ------ | - |  |  | ----- | --
|                         |  |             |       |        |  |            |       |             |  |        |        |           
|                         |  | Years Ended |       |        |  | Percentage |       | Years Ended |  |        |        | Percentage
|                         |  | June 30,    |       | Change |  | Change     |       | June 30,    |  | Change |        | Change    
|                         |  |             |       |        |  |            |       |             |  |        |        |           
|                         |  | 2004        |       | 2003   |  |            |       |             |  | 2003   |        | 2002       |  |  |       |   
|                         |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |   
|Research and development |  | $           | 7,504 |        |  | $          | 8,807 |             |  | $      | (1,303 | )          |  |  | (14.8 | )% |  | $ | 8,807 |  |  | $ | 14,911 |  |  | $ | (6,104 | ) |  |  | (40.9 | )%

The decrease in research and development expenses
for the year ended June 30, 2004 compared to the year ended
June 30, 2003 was primarily due to cost savings associated
with the transition of some research and development functions
to China, lower depreciation and facility costs due to
restructurings and lower non-cash compensation expense,
partially offset by higher personnel costs as a result of the
acquisitions of RedClover, Accumux and Gigabit. The decrease in
research and development expenses for the year ended
June 30, 2003 compared to the year ended June 30, 2002
was primarily due to cost savings associated with the worldwide
workforce reductions, lower costs as a result of transitioning
component research and development to China, lower non-cash
compensation expense, lower depreciation and facility costs due
to restructurings and lower project material costs. We believe
that developing customer solutions at the prototype stage is
critical to our

39



---



##### Table of Contents



strategic product development objectives. We
further believe that, in order to meet the changing requirements
of our customers, we will need to fund investments in several
concurrent product development projects. We expect our quarterly
research and development expenses to increase slightly in the
first quarter of fiscal 2005 compared to the fourth quarter of
fiscal 2004 primarily due to the length of the first quarter of
fiscal 2005 being one week longer for accounting purposes.




| |                    
| | -------------------
| | Sales and Marketing

(In thousands, except percentages)

|                    |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |    |  |   |       |  |  |   |       |  |  |   |        |   |  |  |       |   
|------------------- |  | ----------- | ----- | ------ |  | ---------- | ----- | ----------- |  | ------ | ------ | ---------- |  |  | ----- | -- |  | - | ----- |  |  | - | ----- |  |  | - | ------ | - |  |  | ----- | --
|                    |  |             |       |        |  |            |       |             |  |        |        |           
|                    |  | Years Ended |       |        |  | Percentage |       | Years Ended |  |        |        | Percentage
|                    |  | June 30,    |       | Change |  | Change     |       | June 30,    |  | Change |        | Change    
|                    |  |             |       |        |  |            |       |             |  |        |        |           
|                    |  | 2004        |       | 2003   |  |            |       |             |  | 2003   |        | 2002       |  |  |       |   
|                    |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |   
|Sales and marketing |  | $           | 3,382 |        |  | $          | 4,407 |             |  | $      | (1,025 | )          |  |  | (23.3 | )% |  | $ | 4,407 |  |  | $ | 7,751 |  |  | $ | (3,344 | ) |  |  | (43.1 | )%

The decrease in sales and marketing expenses for
the year ended June 30, 2004 compared to the year ended
June 30, 2003 was primarily due to the cost savings
associated with the worldwide workforce reduction, the
consolidation of excess facilities and lower trade show,
advertising and other customer-related costs, partially offset
by a one time benefit from a change in the estimate of
commission due to external sales representatives in the amount
of $297,000 in fiscal 2003. The decrease in sales and marketing
expenses for the fiscal year ended June 30, 2003 compared
to the year ended June 30, 2002 was primarily due to lower
personnel-related costs and lower commissions earned by our
internal and external sales representatives associated with
decreased revenues. The decrease was partially offset by an
increase in non-cash compensation expense. We expect our
quarterly sales and marketing expenses to increase slightly in
the first quarter of fiscal 2005 compared to the fourth quarter
of fiscal 2004 primarily due to the length of the first quarter
of fiscal 2005 being one week longer for accounting purposes.



| |                           
| | --------------------------
| | General and Administrative

(In thousands, except percentages)

|                           |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |    |  |   |       |  |  |   |        |  |  |   |        |   |  |  |       |   
|-------------------------- |  | ----------- | ----- | ------ |  | ---------- | ----- | ----------- |  | ------ | ------ | ---------- |  |  | ----- | -- |  | - | ----- |  |  | - | ------ |  |  | - | ------ | - |  |  | ----- | --
|                           |  |             |       |        |  |            |       |             |  |        |        |           
|                           |  | Years Ended |       |        |  | Percentage |       | Years Ended |  |        |        | Percentage
|                           |  | June 30,    |       | Change |  | Change     |       | June 30,    |  | Change |        | Change    
|                           |  |             |       |        |  |            |       |             |  |        |        |           
|                           |  | 2004        |       | 2003   |  |            |       |             |  | 2003   |        | 2002       |  |  |       |   
|                           |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |   
|General and administrative |  | $           | 7,630 |        |  | $          | 9,083 |             |  | $      | (1,453 | )          |  |  | (16.0 | )% |  | $ | 9,083 |  |  | $ | 10,963 |  |  | $ | (1,880 | ) |  |  | (17.1 | )%

The decrease in general and administrative
expenses for the year ended June 30, 2004 compared to the
year ended June 30, 2003 was primarily due to lower
non-cash compensation expense, lower premiums for directors and
officers insurance and cost savings associated with the
worldwide workforce reduction, partially offset by higher costs
associated with implementing a more comprehensive internal
control program in response to new laws and requirements from
the Securities and Exchange Commission and $890,000 of expenses
associated with the exploration of strategic business
opportunities. The decrease in general and administrative
expenses for the year ended June 30, 2003 compared to the
year ended June 30, 2002 was primarily due to lower
non-cash compensation expense, a reduction in our legal fees and
cost savings associated with the worldwide workforce reduction.
We expect our general and administrative expenses in the first
quarter of fiscal 2005 to increase slightly primarily due to the
length of the first quarter of fiscal 2005 being one week longer
for accounting purposes.



| |                              
| | -----------------------------
| | Non-Cash Compensation Expense

(In thousands, except percentages)

|                              |  |             |       |        |  |            |       |             |  |        |      |            |  |  |      |    |  |   |       |  |  |   |       |  |  |   |        |   |  |  |       |   
|----------------------------- |  | ----------- | ----- | ------ |  | ---------- | ----- | ----------- |  | ------ | ---- | ---------- |  |  | ---- | -- |  | - | ----- |  |  | - | ----- |  |  | - | ------ | - |  |  | ----- | --
|                              |  |             |       |        |  |            |       |             |  |        |      |           
|                              |  | Years Ended |       |        |  | Percentage |       | Years Ended |  |        |      | Percentage
|                              |  | June 30,    |       | Change |  | Change     |       | June 30,    |  | Change |      | Change    
|                              |  |             |       |        |  |            |       |             |  |        |      |           
|                              |  | 2004        |       | 2003   |  |            |       |             |  | 2003   |      | 2002       |  |  |      |   
|                              |  |             |       |        |  |            |       |             |  |        |      |            |  |  |      |   
|Non-cash compensation expense |  | $           | 1,689 |        |  | $          | 1,873 |             |  | $      | (184 | )          |  |  | (9.8 | )% |  | $ | 1,873 |  |  | $ | 4,714 |  |  | $ | (2,841 | ) |  |  | (60.3 | )%

40



---



##### Table of Contents



From July 1, 1998 through June 30,
2004, we recorded an aggregate of $59.0 million in deferred
non-cash compensation, net of recoveries resulting from stock
option cancellations. The decrease in non-cash compensation
expenses for the year ended June 30, 2004 compared to the
year ended June 30, 2003 was primarily due to the method
under which the deferred non-cash compensation was amortized, as
set out in FASB Interpretation No. 28, which results in
higher compensation expense in the earlier vesting periods of
the related options. The decrease was partially offset by
additional non-cash compensation expense relating to the
modification of option grants in fiscal 2004 and a smaller
benefit as a result of fewer stock option cancellations in
fiscal 2004. The decrease in non-cash compensation for the year
ended June 30, 2003 compared to the year ended
June 30, 2002 was primarily due to the method under which
the deferred non-cash compensation was amortized, as set out in
FASB Interpretation No. 28, and stock option cancellations.

Impairment Charge.In May 2003, we adopted a plan to sell our Shanghai operation.
As the sale of the Shanghai operation represented a disposal of
a component of an entity as defined in SFAS
No. 144, the Shanghai operation was accounted as a
discontinued operation and we recorded an impairment charge of
$2.8 million in the year ended June 30, 2003 to
reflect the write down of net assets of the Shanghai operation
to its estimated net realizable value, less costs to sell. In
May 2004, one year following the planned sale of our Shanghai
operation and considering growth in the telecommunications
market, we have determined that this facility is more strategic
to our operations than in prior periods due to the need to
ensure a supply of the parts manufactured at the Shanghai
facility as a result of an increase in demand for these types of
parts in the market and the acquisition of one of our suppliers
by one of our competitors. Therefore, we have decided not to
dispose of this facility and have returned it to continuing
operations. Accordingly, the Shanghai operation has been
reclassified from discontinued to continuing operations in the
accompanying financial statements. In accordance with SFAS
No. 144, the Shanghai operation is measured at the lower of
its carrying amount before it was classified as a discontinued
operation, adjusted for depreciation expense that would have
been recognized had it been continuously classified as part of
continuing operations, or the fair value at the date of our
decision not to dispose of the facility. We engaged an
independent third-party appraisal firm to assist in determining
the fair value of the Shanghai operation. As the lower of the
fair value of the Shanghai operation at the date of our decision
and its original carrying value less depreciation expense is
greater than its current carrying value, we did not record an
additional impairment charge in fiscal 2004.

41



---



##### Table of Contents



Restructuring
Costs and Other Charges. A summary of the restructuring
charges accrued in fiscal 2001, 2002, 2003 and 2004 is as
follows (in thousands):

|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | --------- | ------ | --------------- |  | ----------------- | ------- | ----------------- |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                    |  |           |        |                 |  |                   |         | Impairment of     |  |      
|                                                                                    |  |           |        |                 |  | Consolidation of  |         | Goodwill and      |  |      
|                                                                                    |  | Workforce |        | Excess Property |  | Excess Facilities |         | Purchased         |  |      
|                                                                                    |  | Reduction |        | and Equipment   |  | and Other Charges |         | Intangible Assets |  | Total
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |      
|Initial restructuring charge in the fourth
    quarter of fiscal 2001               |  | $         | 250    |                 |  | $                 |        |                   |  | $     | 5,485  |   |  | $ | 12,442  |   |  | $ | 18,177  |  
|Non-cash charge                                                                     |  |           |       |                 |  |                   |        |                   |  |       |       |   |  |   | (12,442 | ) |  |   | (12,442 | )
|Cash payments                                                                       |  |           |       |                 |  |                   |        |                   |  |       | (1,191 | ) |  |   |        |   |  |   | (1,191  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2001                                                            |  |           | 250    |                 |  |                   |        |                   |  |       | 4,294  |   |  |   |        |   |  | $ | 4,544   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 2,820   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 1,724   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Additional restructuring charge in the fourth
    quarter of fiscal 2002            |  |           | 2,899  |                 |  |                   | 16,635  |                   |  |       | 9,374  |   |  |   |        |   |  |   | 28,908  |  
|Non-cash charge                                                                     |  |           |       |                 |  |                   | (16,260 | )                 |  |       |       |   |  |   |        |   |  |   | (16,260 | )
|Cash payments                                                                       |  |           | (2,269 | )               |  |                   | (375    | )                 |  |       | (4,869 | ) |  |   |        |   |  |   | (7,513  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2002                                                            |  |           | 880    |                 |  |                   |        |                   |  |       | 8,799  |   |  |   |        |   |  | $ | 9,679   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 4,355   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 5,324   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Additional restructuring charge in the second and
    fourth quarter of fiscal 2003 |  |           | 1,831  |                 |  |                   | 10,724  |                   |  |       | 1,267  |   |  |   | 301     |   |  |   | 14,123  |  
|Non-cash charge                                                                     |  |           |       |                 |  |                   | (10,724 | )                 |  |       | 310    |   |  |   | (301    | ) |  |   | (10,715 | )
|Cash payments                                                                       |  |           | (2,535 | )               |  |                   |        |                   |  |       | (6,062 | ) |  |   |        |   |  |   | (8,597  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2003                                                            |  |           | 176    |                 |  |                   |        |                   |  |       | 4,314  |   |  |   |        |   |  | $ | 4,490   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 3,018   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 1,472   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Additional restructuring charge in the fourth
    quarter of fiscal 2004            |  |           |       |                 |  |                   |        |                   |  |       | 452    |   |  |   |        |   |  |   | 452     |  
|Adjustment                                                                          |  |           | 99     |                 |  |                   |        |                   |  |       | (99    | ) |  |   |        |   |  |   |        |  
|Cash payments                                                                       |  |           | (275   | )               |  |                   |        |                   |  |       | (2,768 | ) |  |   |        |   |  |   | (3,043  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2004                                                            |  | $         |       |                 |  | $                 |        |                   |  | $     | 1,899  |   |  | $ |        |   |  | $ | 1,899   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 1,795   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 104     |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  

42



---



##### Table of Contents





| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Restructuring Costs and Other Charges
    Incurred During the Year Ended June 30, 2004

During fiscal 2004, we increased the
restructuring liabilities related to consolidation of excess
facilities and other charges by a total of $452,000, which was
recorded during the fourth quarter of fiscal 2004, due to
changes in real estate market conditions.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Restructuring Costs and Other Charges
    Incurred During the Year Ended June 30, 2003

For the year ended June 30, 2003, we
recorded $14.1 million of restructuring costs and other
charges as operating expenses for worldwide workforce reduction,
consolidation of excess property and equipment and facilities
and other charges. The following paragraphs provide detailed
information relating to the restructuring costs and other
charges for the year ended June 30, 2003.



| |                              
| | -----------------------------
| | Worldwide Workforce Reduction

During the year ended June 30, 2003, we
recorded a charge of approximately $1.8 million primarily
related to severance and fringe benefits associated with the
planned reduction of approximately 460 employees and
voluntary termination of our former Chief Executive Officer. Of
the $1.8 million charge, approximately $812,000 was
severance and fringe benefits associated with the resignation of
our former Chief Executive Officer. Of the planned reduction of
approximately 460 employees, approximately
360 employees were engaged in manufacturing activities and
approximately 110 employees and 350 employees were
from sites located in San Jose, California and China,
respectively. As of June 30, 2004, the planned worldwide
workforce reductions have been completed.



| |                                                                
| | ---------------------------------------------------------------
| | Excess Property and Equipment, Facilities and
    Other Charges

We recorded a restructuring charge of
$10.7 million relating to excess property and equipment
during the year ended June 30, 2003. Property and equipment
disposed of or removed from operations of $7.1 million were
related to the manufacture of fiber optic subsystems, integrated
modules and components. The excess property and equipment charge
represented the charge required to re-measure such assets at the
lower of carrying amount or fair value less cost to sell. The
carrying amount of property and equipment to be disposed of has
been included in prepaid expenses and other current assets on
the Consolidated Balance Sheet. Additionally, property and
equipment removed from operations of $3.6 million consisted
primarily of leasehold improvements associated with the
consolidation of excess facilities.

In addition, we incurred a charge of
$1.6 million for leases, primarily related to excess or
closed facilities with planned exit dates. We estimated the cost
of the facility leases based on the contractual terms of the
agreements and then-current real estate market conditions. We
determined that it would take approximately two years to
sublease the various properties that will be vacated, and then
subleased at lower values than we are contractually obligated to
pay. Amounts related to the lease expense (net of anticipated
sublease proceeds) as well as projected costs to terminate the
lease will be paid over the respective lease terms ending in
2005. The consolidation of excess facilities includes the
closure of certain manufacturing facilities located in
San Jose, California and Zhuhai, China. The total number of
sites closed under the restructuring plan is three. We also
recorded a benefit to restructuring costs and other charges of
$336,000 relating primarily to change of estimated amounts due
to suppliers and vendors to terminate agreements for the
purchase of capital equipment and inventory.



| |                                                           
| | ----------------------------------------------------------
| | Impairment of Goodwill and Purchased
    Intangible Assets

Due to a decline in business conditions, we
abandoned one of our technologies in the second quarter of
fiscal 2003. As a result, we recorded a charge of $301,000
during the fiscal year ended June 30, 2003.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Restructuring Costs and Other Charges
    Incurred During the Years Ended June 30, 2002 and
    2001

For the years ended June 30, 2002 and 2001,
we recorded $28.9 million and $18.2 million,
respectively, of restructuring costs and other charges as
operating expenses. In addition, a $10.4 million and
$30.6 million excess and obsolete inventory charge was
recorded to cost of sales for the fiscal years ended
June 30, 2002 and 2001, respectively. The following
paragraphs provide detailed information relating to the
restructuring costs and other charges and excess and obsolete
inventory charge during the years ended June 30, 2002 and
2001.

43



---



##### Table of Contents





| |                              
| | -----------------------------
| | Worldwide Workforce Reduction

The worldwide workforce reductions in connection
with our initial plans of restructuring started in the fourth
quarter of fiscal 2001. During the fiscal years ended
June 30, 2002 and 2001, we recorded a charge of
approximately $2.9 million and $250,000, respectively,
primarily related to severance and fringe benefits associated
with the planned reduction of approximately 2,700 employees. Of
the planned reduction of approximately 2,700 employees,
approximately 2,400 were engaged in manufacturing activities and
approximately 800 and 1,900 were from sites located in
San Jose, California and China, respectively. The planned
worldwide workforce reductions in connection with our initial
plans were completed in the second quarter of fiscal 2003.



| |                                                                
| | ---------------------------------------------------------------
| | Excess Property and Equipment, Facilities and
    Other Charges

We recorded a restructuring charge of
$16.6 million relating to excess property and equipment
during the fiscal year ended June 30, 2002. Property and
equipment disposed of or removed from operations were related to
the manufacture of fiber optic subsystems, integrated modules
and components. The excess property and equipment charge
represented the charge required to re-measure such assets at the
lower of carrying amount or fair value less cost to sell. While
the remaining assets removed from operations as of June 30,
2004 are being actively marketed, we expect the period of
disposal to be an additional twelve months for most of the
assets. The property and equipment disposed of or removed from
operations consisted primarily of production and engineering
equipment, but also included leasehold improvements, computer
equipment, office equipment and furniture and fixtures.

In addition, during the fiscal years ended
June 30, 2002 and 2001, we incurred a charge of
$7.5 million and $3.9 million, respectively, for
leases primarily related to excess or closed facilities with
planned exit dates. We estimated the cost of the facility leases
based on the contractual terms of the agreements and then
current real estate market conditions. We determined that it
would take approximately two years to sublease the various
properties that will be vacated, and then subleased at lower
values than we are contractually obligated to pay. Amounts
related to the lease expense (net of anticipated sublease
proceeds) will be paid over the respective lease terms ending in
2005. The consolidation of excess facilities includes the
closure of certain manufacturing and research and development
facilities located in San Jose, California and Beijing,
Chengdu and Fuzhou, China. The total number of sites closed
under the restructuring plan is six. We also recorded
restructuring costs and other charges of $1.9 million and
$1.6 million relating primarily to payments due to
suppliers and vendors to terminate agreements for the purchase
of capital equipment and inventory for the years ended
June 30, 2002 and 2001, respectively.



| |                                                
| | -----------------------------------------------
| | Provision for Excess and Obsolete
    Inventory

We recorded provisions for excess and obsolete
inventory totaling $10.4 million and $30.6 million,
which was charged to cost of sales during the fiscal years ended
June 30, 2002 and June 30, 2001, respectively. These
excess inventory charges were due to sudden and material
declines in backlog and forecasted revenue. We evaluate the need
to provide write downs for excess and obsolete inventory on an
individual part analysis based on estimated future sales of our
products compared to quantities on hand at each balance sheet
date. This analysis is based on specific sales forecasts for
each of our products. Information that we would consider in
determining the forecast would include contractual obligations
to deliver products, purchase orders with delivery dates or
managements knowledge of a specific order that would
significantly alter the sales forecast.



| |                                 
| | --------------------------------
| | Return of Property and Equipment

As of June 30, 2001, we had
$8.6 million of accounts payable associated with the
purchase of capital equipment from a vendor. In connection with
an evaluation of our manufacturing capacity needs, it was
determined that this new capital equipment was excess based on
current anticipated production levels. During the fiscal year
ended June 30, 2002, we negotiated a settlement with the
vendor whereby the vendor accepted the return of equipment over
several quarters totaling $8.6 million for a settlement fee
of $500,000. Accordingly, the change in accounts payable and
property and equipment is reflected as a non-cash item in the
Consolidated Statement of Cash Flows.

44



---



##### Table of Contents





| |                                                           
| | ----------------------------------------------------------
| | Impairment of Goodwill and Purchased
    Intangible Assets

For the year ended June 30, 2001, we
recorded a $12.4 million charge based upon an impairment
analysis of the carrying amount of the goodwill and purchased
intangible assets related to our acquisition of Telelight
Communication, Inc., which we completed in April 2000.

Merger Fees.In
connection with the termination of the proposed merger between
us and Avanex Corporation, which was not approved at the special
meeting of our stockholders held on August 15, 2002, we
incurred $1.3 million and $1.8 million in merger fees
for the fiscal years ended June 30, 2003 and 2002,
respectively.

In-Process Research and
Development.We acquired RedClover,
Accumux and Gigabit in November 2003, February 2004 and March
2004, respectively. As a result of these acquisitions, we
recorded $1.6 million of IP R&D for the fiscal year
ended June 30, 2004.

The IP R&D of $861,000 in connection with the
acquisition of RedClover consisted of a single channel
transponder which is being designed to provide 10 gigabyte
per second, or Gb/s, ethernet physical transceiver layer for
local area network applications, and a narrowly tunable
transponder which is being designed to combine the functionality
of a standard SFI-4 compliant electrical interface,
10 Gb/s optical interface, tunable laser, and adaptive
receiver with embedded ultra-compact dispersion compensation in
a single intelligent sub-system module for optical networks.

The IP R&D of $251,000 in connection with the
acquisition of Accumux consisted of a standard-tunable DCM for
DWDM fiber-optic communication systems, which will be installed
into existing long haul networks to improve the performance of
existing fiber cables and provide low residual transmission
errors at speeds of up to 10 Gb/s.

The IP R&D of $453,000 in connection with the
acquisition of Gigabit consisted of a next generation MicroMux
which is a filter design coarse wavelength division
multiplexing, or CWDM, device and is designed to accommodate
large increases in packet based data traffic and a
laser-equipped Micro-LX4 platform which has four CWDM laser
diodes in a smaller footprint.

The value of the IP R&D products was
determined by estimating the net cash flows from the sale of the
products resulting from the completion of the respective R&D
projects, reduced by the portion of the net cash flows from the
revenue attributable to core technology. The resulting cash
flows were then discounted back to their present value using a
discount rate ranging from 35% to 45%. At the time of the
acquisitions, these products had not yet reached technological
feasibility and had no alternative future use. The fair value
assigned to the IP R&D in connection with the acquisitions
of RedClover, Accumux and Gigabit was charged to expense at the
time of each acquisition, respectively.

Amortization of Intangible and Other
Assets.Amortization of intangible and
other assets of approximately $56,000, $78,000 and $168,000 for
the fiscal years ended June 30, 2004, 2003 and 2002,
respectively, represents charges incurred as a result of our
acquisition of Accumux and Gigabit in fiscal 2004 and Aurora
Associates and Aurora Photonics, Inc. in June 2001. On
July 1, 2002, we ceased to amortize goodwill in accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets.



| |                               
| | ------------------------------
| | Interest and Other Income, Net

(In thousands, except percentages)

|                               |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |    |  |   |       |  |  |   |       |  |  |   |      |   |  |  |       |   
|------------------------------ |  | ----------- | ----- | ------ |  | ---------- | ----- | ----------- |  | ------ | ------ | ---------- |  |  | ----- | -- |  | - | ----- |  |  | - | ----- |  |  | - | ---- | - |  |  | ----- | --
|                               |  |             |       |        |  |            |       |             |  |        |        |           
|                               |  | Years Ended |       |        |  | Percentage |       | Years Ended |  |        |        | Percentage
|                               |  | June 30,    |       | Change |  | Change     |       | June 30,    |  | Change |        | Change    
|                               |  |             |       |        |  |            |       |             |  |        |        |           
|                               |  | 2004        |       | 2003   |  |            |       |             |  | 2003   |        | 2002       |  |  |       |   
|                               |  |             |       |        |  |            |       |             |  |        |        |            |  |  |       |   
|Interest and other income, net |  | $           | 2,665 |        |  | $          | 4,016 |             |  | $      | (1,351 | )          |  |  | (33.6 | )% |  | $ | 4,016 |  |  | $ | 4,713 |  |  | $ | (697 | ) |  |  | (14.8 | )%

The decrease in interest income for the year
ended June 30, 2004 compared to the year ended
June 30, 2003 was primarily due to lower yields on our
investments and lower interest income resulting from repayment
of interest bearing notes receivable from an officer during the
fourth quarter of fiscal 2003. The decrease in interest income
for the year ended June 30, 2003 compared to the year ended
June 30, 2002 was primarily due to lower yields on our cash
investments, overall decreased cash balances from the use of
cash in the fiscal

45



---



##### Table of Contents



years loss from operations, investing
outlays for capital purchases and financing outlays relating to
repurchase of common stock, repayment of line of credit
borrowings and repayment of capital lease obligations.


Gain (Loss) on Sale of
Assets.We recorded a gain of $68,000,
a loss of $258,000 and a gain of $2.4 million for the year
ended June 30, 2004, 2003 and 2002 respectively, from the
sale of fixed assets and intangible assets greater or less than
the carrying amount of these assets.

Provision for Income
Taxes.At June 30, 2004 we had
approximately $101.7 million of federal and
$48.4 million of state net operating loss carryforwards.
Because of certain changes in ownership of Oplink in 1999 and
1998, there is an annual limitation of approximately $600,000 on
the use of the net operating loss carryforwards pursuant to
section 382 of the Internal Revenue Code. We have recorded
a gross deferred tax asset of $56.4 million as of
June 30, 2004, against which a valuation allowance is
recorded that reduces the gross deferred tax asset to zero, an
amount that management believes will more likely than not be
realized.

46



---



##### Table of Contents



Quarterly Results of Operations

The following table presents our operating
results for the last eight quarters. The information for each of
these quarters is unaudited but has been prepared on the same
basis as the audited consolidated financial statements. In May
2003, we adopted a plan to sell its Shanghai operation, and
accounted for the Shanghai operation as a discontinued
operation. In May 2004, we determined not to dispose of this
facility and returned it to continuing operations. The quarterly
results have been restated to reflect the Shanghai operation as
part of continuing operations. In the opinion of management, all
necessary adjustments, consisting only of normal recurring
adjustments, have been included to present fairly the unaudited
quarterly results when read in conjunction with the audited
consolidated financial statements and the related notes. These
operating results are not necessarily indicative of the results
of any future period.

|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |       |       |       | 
|--------------------------------------------------------- | ------------------------------------------- | ---------------------------------------- | -------------------------------- | ------------------------ | ----- | -------- | ------- | --------- | ----- | ----- | ------- | ----- | ----- | ----- | ------- | ----- | ----- | ----- | ----- | 
|                                                          |                                             |                                         
|                                                          |                                             | Three Months Ended                      
|                                                          |                                             |                                         
|                                                          |                                             | June 30,                                 |                                  | Mar. 31,                 |       | Dec. 31, |         | Sept. 30,
|                                                          |                                             | 2004                                     |                                  | 2004                     |       | 2003     |         | 2003     
|                                                          |                                             |                                          |                                  |                          |       |          |         |          
|                                                          |                                             |                                         
|                                                          |                                             | (In thousands, except per share data)   
|                                                          |                                             | (Unaudited)                             
|Revenues                                                  |                                             | $                                        | 9,689                            |                          |       | $        | 9,200   |           |       | $     | 8,131   |       |       | $     | 7,308   |      
|Cost of revenues:                                         |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Cost of revenues                            |                                          |                                  | 5,973                    |       |          |         | 6,088     |       |       |         | 5,585 |       |       |         | 5,090 |      
|                                                          | Non-cash compensation expense               |                                          |                                  | 17                       |       |          |         | 32        |       |       |         | 52    |       |       |         | 76    |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             | Total cost of revenues                   |                                  |                          | 5,990 |          |         |           | 6,120 |       |         |       | 5,637 |       |         |       | 5,166 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Gross profit                                              |                                             |                                          | 3,699                            |                          |       |          | 3,080   |           |       |       | 2,494   |       |       |       | 2,142   |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Operating expenses:                                       |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Research and development:                   |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |      
|                                                          |                                             | Research and development                 |                                  |                          | 2,077 |          |         |           | 1,961 |       |         |       | 1,648 |       |         |       | 1,370 |      
|                                                          |                                             | Non-cash compensation expense            |                                  |                          | 11    |          |         |           | 32    |       |         |       | 55    |       |         |       | 350   |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total research and development   |                          |       | 2,088    |         |           |       | 1,993 |         |       |       | 1,703 |         |       |       | 1,720 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Sales and marketing:                        |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |      
|                                                          |                                             | Sales and marketing                      |                                  |                          | 767   |          |         |           | 946   |       |         |       | 823   |       |         |       | 793   |      
|                                                          |                                             | Non-cash compensation expense (recovery) |                                  |                          | 12    |          |         |           | 22    |       |         |       | 33    |       |         |       | (14   | )    
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total sales and marketing        |                          |       | 779      |         |           |       | 968   |         |       |       | 856   |         |       |       | 779   |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | General and administrative:                 |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |      
|                                                          |                                             | General and administrative               |                                  |                          | 1,565 |          |         |           | 1,354 |       |         |       | 1,409 |       |         |       | 2,291 |      
|                                                          |                                             | Non-cash compensation expense            |                                  |                          | 95    |          |         |           | 293   |       |         |       | 258   |       |         |       | 365   |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total general and administrative |                          |       | 1,660    |         |           |       | 1,647 |         |       |       | 1,667 |         |       |       | 2,656 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Restructuring costs and other charges       |                                          |                                  | 452                      |       |          |         |          |       |       |         |      |       |       |         |      |      
|                                                          | In-process research and development         |                                          |                                  |                         |       |          |         | 704       |       |       |         | 861   |       |       |         |      |      
|                                                          | Amortization of intangible and other assets |                                          |                                  | 45                       |       |          |         | 1         |       |       |         |      |       |       |         | 10    |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total other operating expenses   |                          |       | 497      |         |           |       | 705   |         |       |       | 861   |         |       |       | 10    |      
|                                                          |                                             |                                          |                                  | Total operating expenses |       |          | 5,024   |           |       |       | 5,313   |       |       |       | 5,087   |       |       |       | 5,165 | 
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Loss from operations                                      |                                             |                                          | (1,325                           | )                        |       |          | (2,233  | )         |       |       | (2,593  | )     |       |       | (3,023  | )    
|Interest and other income, net                            |                                             |                                          | 739                              |                          |       |          | 800     |           |       |       | 576     |       |       |       | 550     |      
|(Loss) gain on sale of assets                             |                                             |                                          | (37                              | )                        |       |          | (20     | )         |       |       | (90     | )     |       |       | 215     |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Net loss                                                  |                                             | $                                        | (623                             | )                        |       | $        | (1,453  | )         |       | $     | (2,107  | )     |       | $     | (2,258  | )    
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Basic and diluted net loss per share                      |                                             | $                                        | (0.00                            | )                        |       | $        | (0.01   | )         |       | $     | (0.01   | )     |       | $     | (0.02   | )    
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Basic and diluted weighted average shares
    outstanding |                                             |                                          | 147,257                          |                          |       |          | 146,529 |           |       |       | 145,544 |       |       |       | 142,589 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      

47



---



##### Table of Contents



|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |       |       |       | 
|--------------------------------------------------------- | ------------------------------------------- | ---------------------------------------- | -------------------------------- | ------------------------ | ----- | -------- | ------- | --------- | ----- | ----- | ------- | ----- | ----- | ----- | ------- | ----- | ----- | ----- | ----- | 
|                                                          |                                             |                                         
|                                                          |                                             | Three Months Ended                      
|                                                          |                                             |                                         
|                                                          |                                             | June 30,                                 |                                  | Mar. 31,                 |       | Dec. 31, |         | Sept. 30,
|                                                          |                                             | 2003                                     |                                  | 2003                     |       | 2002     |         | 2002     
|                                                          |                                             |                                          |                                  |                          |       |          |         |          
|                                                          |                                             |                                         
|                                                          |                                             | (In thousands, except per share data)   
|                                                          |                                             | (Unaudited)                             
|Revenues                                                  |                                             | $                                        | 6,001                            |                          |       | $        | 5,622   |           |       | $     | 5,087   |       |       | $     | 6,033   |      
|Cost of revenues:                                         |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Cost of revenues                            |                                          |                                  | 4,846                    |       |          |         | 5,063     |       |       |         | 5,655 |       |       |         | 7,516 |      
|                                                          | Non-cash compensation expense (recovery)    |                                          |                                  | 238                      |       |          |         | (39       | )     |       |         | (716  | )     |       |         | 102   |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             | Total cost of revenues                   |                                  |                          | 5,084 |          |         |           | 5,024 |       |         |       | 4,939 |       |         |       | 7,618 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Gross profit (loss)                                       |                                             |                                          | 917                              |                          |       |          | 598     |           |       |       | 148     |       |       |       | (1,585  | )    
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Operating expenses:                                       |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Research and development:                   |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |      
|                                                          |                                             | Research and development                 |                                  |                          | 1,385 |          |         |           | 1,725 |       |         |       | 2,585 |       |         |       | 3,070 |      
|                                                          |                                             | Non-cash compensation expense (recovery) |                                  |                          | 220   |          |         |           | (5    | )     |         |       | (52   | )     |         |       | (121  | )    
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total research and development   |                          |       | 1,605    |         |           |       | 1,720 |         |       |       | 2,533 |         |       |       | 2,949 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Sales and marketing:                        |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |      
|                                                          |                                             | Sales and marketing                      |                                  |                          | 717   |          |         |           | 595   |       |         |       | 1,251 |       |         |       | 1,672 |      
|                                                          |                                             | Non-cash compensation expense (recovery) |                                  |                          | 66    |          |         |           | 84    |       |         |       | (63   | )     |         |       | 85    |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total sales and marketing        |                          |       | 783      |         |           |       | 679   |         |       |       | 1,188 |         |       |       | 1,757 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | General and administrative:                 |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |       |      
|                                                          |                                             | General and administrative               |                                  |                          | 1,622 |          |         |           | 1,828 |       |         |       | 1,917 |       |         |       | 1,642 |      
|                                                          |                                             | Non-cash compensation expense            |                                  |                          | 678   |          |         |           | 254   |       |         |       | 476   |       |         |       | 666   |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total general and administrative |                          |       | 2,300    |         |           |       | 2,082 |         |       |       | 2,393 |         |       |       | 2,308 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          | Restructuring costs and other charges       |                                          |                                  | 4,843                    |       |          |         |          |       |       |         | 9,280 |       |       |         |      |      
|                                                          | Impairment charge                           |                                          |                                  | 2,825                    |       |          |         |          |       |       |         |      |       |       |         |      |      
|                                                          | Merger fees                                 |                                          |                                  |                         |       |          |         |          |       |       |         | 190   |       |       |         | 1,110 |      
|                                                          | Amortization of intangible and other assets |                                          |                                  | 15                       |       |          |         | 15        |       |       |         | 22    |       |       |         | 26    |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|                                                          |                                             |                                          | Total other operating expenses   |                          |       | 7,683    |         |           |       | 15    |         |       |       | 9,492 |         |       |       | 1,136 |      
|                                                          |                                             |                                          |                                  | Total operating expenses |       |          | 12,371  |           |       |       | 4,496   |       |       |       | 15,606  |       |       |       | 8,150 | 
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Loss from operations                                      |                                             |                                          | (11,454                          | )                        |       |          | (3,898  | )         |       |       | (15,458 | )     |       |       | (9,735  | )    
|Interest and other income, net                            |                                             |                                          | 1,050                            |                          |       |          | 864     |           |       |       | 1,082   |       |       |       | 1,020   |      
|Loss on sale of assets                                    |                                             |                                          | (258                             | )                        |       |          |        |           |       |       |        |       |       |       |        |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Net loss                                                  |                                             | $                                        | (10,662                          | )                        |       | $        | (3,034  | )         |       | $     | (14,376 | )     |       | $     | (8,715  | )    
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Basic and diluted net loss per share                      |                                             | $                                        | (0.07                            | )                        |       | $        | (0.02   | )         |       | $     | (0.09   | )     |       | $     | (0.05   | )    
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      
|Basic and diluted weighted average shares
    outstanding |                                             |                                          | 149,602                          |                          |       |          | 158,556 |           |       |       | 162,213 |       |       |       | 164,767 |      
|                                                          |                                             |                                          |                                  |                          |       |          |         |           |       |       |         |       |       |       |         |      

Our revenues and operating results are likely to
vary significantly from quarter to quarter. The factors, many of
which are more fully discussed in other risk factors, that are
likely to cause these variations include, among others:



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | economic downturn and uncertainty of the fiber
    optic industry;                                                                             
|
| |  | economic conditions specific to the
    communications and related industries and the development and
    size of the markets for our products;
|
| |  | fluctuations in demand for, and sales of, our
    products;                                                                                    
|
| |  | cancellations of orders and shipment rescheduling;                                                                                             

48



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the ability of our manufacturing operations in
    China to timely produce and deliver products and components in
    the quantity and of the quality our customers require;                                                                                       
|
| |  | the availability of raw materials used in our
    products and increases in the price of these raw materials;                                                                                                                                                      
|
| |  | our ability to successfully improve our
    manufacturing capability and achieve acceptable production
    yields in our facilities in China;                                                                                                                      
|
| |  | 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, new technologies and product enhancements by
    competitors, consolidation of competitors in the fiber optic
    subsystems, integrated modules and 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; and                                                                                                               
|
| |  | costs associated with and the outcomes of any
    intellectual property or other litigation to which we are, or
    may become, a party.                                                                                                                           

Due to the factors noted above and other factors
noted under the caption entitled Risk Factors under
Item 1, we believe that quarter-to-quarter comparisons of
our operating results will not be meaningful. You should not
rely on our results for any one quarter as an indication of our
future performance.

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,
offset by $24.9 million in common stock repurchases, net of
proceeds from exercise of stock options, employee stock purchase
plan and warrants through June 30, 2004. In August 2000, we
received $50.0 million in connection with the issuance to
Cisco Systems of a convertible promissory note, which along with
the related interest expense automatically converted into
3,298,773 shares of common stock upon the closing of our
initial public offering in October 2000. As of June 30,
2004, we had cash, cash equivalents and short-term and long-term
investments of $190.4 million and working capital of
$137.3 million. We estimate that the sum of our cash, cash
equivalents and short-term and long-term investments at the end
of the first quarter of fiscal 2005 will be lower than the sum
of our cash, cash equivalents and short-term and long-term
investments at the end of fiscal year 2004 primarily due to our
acquisition of a building in Fremont, California, in the amount
of $4.8 million in cash.



| |            
| | -----------
| | Fiscal 2004

Our operating activities used cash of $545,000 in
fiscal 2004 as a result of our net loss for fiscal 2004 of
$6.4 million adjusted by $11.9 million primarily for
the non-cash charges of depreciation and amortization,
amortization of deferred stock compensation and acquired
in-process research and development offset by usage of
$6.0 million for net changes in assets and liabilities.

In fiscal 2004, the changes in assets and
liabilities were primarily the result of changes in accounts
receivable, inventories and accrued liabilities and accrued
restructuring costs. Accounts receivable used $2.8 million
of cash primarily due to increased shipments during the fiscal
year. Days sales outstanding in accounts receivable ended fiscal
year 2004 at 71 days, as compared to 72 days at the
end of fiscal 2003.

Inventories used $1.3 million of cash during
fiscal 2004 primarily due to increased volumes of sales and
associated purchases of inventory required to meet customer
demand.

Accrued liabilities and accrued restructuring
costs consumed $1.6 million in cash in fiscal 2004
primarily as we paid for obligation we had accrued at the time
we incurred restructuring charges. The payments were primarily
for operating leases of excess facilities.

We typically bill customers on an open account
basis with net thirty to ninety day payment terms. We would
generally expect the level of accounts receivable at the end of
any quarter to reflect the level of sales in that quarter and to
change from one period to another in a direct relationship to
the change in the level of

49



---



##### Table of Contents



sales. Our level of accounts receivable would
also increase if customers delayed their payments or if we
offered extended payment terms to our customers.


Additionally, in order to maintain an adequate
supply of product for our customers, we must carry a certain
level of inventory. Our inventory level may vary based primarily
upon orders received from our customers and our forecast of
demand for these products. These considerations are balanced
against risk of obsolescence or potentially excess inventory
levels. We generally expect the level of inventory to vary from
one period to another in connection with changes in the level of
sales.

Our investing activities used cash of
$13.1 million in fiscal 2004. The net cash used in
investing activities in the fiscal year ended June 30, 2004
was primarily due to purchases of short-term and long-term
investments of $174.1 million partially offset by
maturities of short-term and long-term investments of
$160.3 million resulting in use of cash of
$13.8 million. We invested a significant amount of our
excess cash to purchase short-term and long-term investments in
fiscal 2004 in an effort to take advantage of higher yields and
increase returns on our investments. We expect to use
approximately $6.0 million for capital expenditures
worldwide in fiscal 2005 (including the final payment of
$4.6 million to purchase a building in Fremont, California
in the first quarter of fiscal 2005 to house our US operations).
We expect to use cash generated from our initial public offering
for these expenditures.

Our financing activities provided cash of
$2.6 million in fiscal 2004 primarily due to proceeds from
issuance of common stock of $4.0 million in connection with
the exercise of stock options and employee stock purchase plan,
partially offset by repayment of capital lease obligations of
$1.5 million.



| |            
| | -----------
| | Fiscal 2003

Our operating activities used cash of
$13.8 million in fiscal 2003 as a result of our net loss
for fiscal 2003 of $36.8 million adjusted by
$26.7 million primarily for the non-cash charges of
restructuring costs and other charges, depreciation and
amortization, amortization of deferred stock compensation and
impairment charge as well as a net change in assets and
liabilities of $3.7 million.

In fiscal 2003, the changes in assets and
liabilities were primarily the result of changes in accounts
receivable, inventories, accounts payable and accrued
liabilities and accrued restructuring costs. Accounts receivable
provided $2.1 million of cash primarily due to decreased
shipments during the fiscal year as well as an improvement in
days sales outstanding. Days sales outstanding in accounts
receivable ended fiscal year 2003 at 72 days, as compared
to 81 days at the end of fiscal 2002 as a result of an
improved collection effort.

Inventories provided $3.0 million of cash
during fiscal 2003 primarily due to decreased volumes of sales
and lower purchases of inventory as a result of lower customer
demand for our products.

Accounts payable used cash of $1.4 million
due to a lower accounts payable balance at the end of fiscal
year 2003 compared to the end of fiscal year 2002 primarily due
to lower inventory purchases due to lower demand for our
products by our customers.

Accrued liabilities and accrued restructuring
costs consumed $9.0 million of cash in fiscal 2003
primarily as we paid for obligation we had accrued at the time
we incurred restructuring charges. The payments were primarily
for operating leases of excess facilities and payments
associated with workforce reduction.

Our investing activities used cash of
$60.6 million in fiscal 2003. The net cash used in
investing activities in the fiscal year ended June 30, 2003
was primarily due to purchases of short-term investments of
$189.6 million partially offset by maturities of short-term
investments of $128.7 million resulting in use of cash of
$60.9 million. We invested a significant amount of our
excess cash to purchase short-term investments in fiscal 2003 to
increase returns on our investments.

Our financing activities used cash of
$23.2 million in fiscal 2003 primarily due to our
repurchase of common stock of $33.3 million and repayment
of capital lease obligations of $4.3 million partially
offset by proceeds from the issuance of common stock of
$3.0 million in connection with the exercise of stock
options and employee stock purchase plan and repayment of notes
receivable from our current and former executive officers of
$11.4 million.

50



---



##### Table of Contents





| |            
| | -----------
| | Fiscal 2002

Our operating activities used cash of
$12.0 million in fiscal 2002 as a result of our net loss
for fiscal 2002 of $68.4 million reduced by
$41.3 million primarily for the non-cash charges of
restructuring costs and other charges, depreciation and
amortization, amortization of deferred stock compensation and
provision for excess and obsolete inventory, offset by a net
change in assets and liabilities of $15.1 million.

In fiscal 2002, the changes in assets and
liabilities were primarily the result of changes in accounts
receivable, inventories, prepaid expenses and other current
assets and accounts payable. Accounts receivable provided
$10.3 million of cash primarily due to decreased shipments
during the fiscal year. Days sales outstanding in accounts
receivable ended fiscal year 2002 at 81 days, as compared
to 77 days at the end of fiscal 2001.

Inventories provided $4.8 million of cash
during fiscal 2002 primarily due to decreased volumes of sales
and lower purchases of inventory as a result of lower customer
demand for our products.

Prepaid expenses and other current assets
provided $6.1 million of cash during fiscal 2002 primarily
due to $5.0 million tax refund received in fiscal 2002.

Accounts payable used cash of $6.1 million
due to a lower accounts payable balance at the end of fiscal
year 2002 compared to the end of fiscal year 2001 primarily due
to lower inventory purchases due to lower demand for our
products by our customers.

Our investing activities used cash of
$9.9 million in fiscal 2002. The net cash used in investing
activities in the fiscal year ended June 30, 2003 was
primarily due to purchases of short-term investments of
$70.2 million partially offset by maturities of short-term
investments of $64.9 million resulting in use of cash of
$5.3 million. We invested a significant amount of our
excess cash to purchase short-term investments in fiscal 2002 to
increase returns on our investments. In addition we used
$8.0 million of cash for the purchase of equipment.

In fiscal 2002, our financing activities used
cash of $5.6 million primarily due to our repurchase of
common stock of $1.9 million, repayment of capital lease
obligations of $3.9 million and net repayment of borrowings
under our line of credit of $1.1 million, partially offset
by proceeds from the issuance of common stock of
$1.4 million.

On September 26, 2001, our Board of
Directors authorized a program to repurchase up to an aggregate
of $21.2 million of our common stock. On September 19,
2002, our Board of Directors approved an increase in our buyback
plan to repurchase up to an aggregate of $40.0 million of
our common stock. These repurchases may be made from time to
time on the open market at prevailing market prices, in
negotiated transactions off the market or pursuant to a 10b5-1
plan adopted by us. In accordance with Rule 10b5-1 under
the Securities Exchange Act, we adopted a plan in August 2002,
which allows Oplink to repurchase its shares during specified
periods when we are likely to be in possession of material
non-public information. As of June 30, 2004, repurchases of
$35.2 million have been made under the repurchase program.

Our principal source of liquidity at
June 30, 2004 consisted of $190.4 million in cash,
cash equivalents and short-term and long-term investments. We
believe that our current cash, cash equivalent and short-term
and long-term investment balances will be sufficient to meet our
operating and capital requirements for at least the next
12 months. 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.

51



---



##### Table of Contents



Contractual Obligations

Our contractual obligations as of June 30,
2004 have been summarized below (in thousands):

|                        |                           |       |   |                                       |        |           |   |           |        |               |   |     |     |  |   |   |   |  |   |   |   | 
|----------------------- | ------------------------- | ----- | - | ------------------------------------- | ------ | --------- | - | --------- | ------ | ------------- | - | --- | --- |  | - | - | - |  | - | - | - | 
|                        |                           |       |   |                                      
|                        |                           |       |   | Contractual Obligations Due by Period
|                        |                           |       |   |                                      
|                        |                           | Total |   | Less Than 1 Year                      |        | 1-3 Years |   | 4-5 Years |        | After 5 Years
|                        |                           |       |   |                                       |        |           |   |           |        |              
|Contractual Obligations |                           |       |   |                                       |        |           |   |           |        |               |   |     |     |  |   |   |   |  |   |  
|                        | Capital lease obligations |       | $ | 84                                    |        |           | $ | 84        |        |               | $ |    |     |  | $ |  |   |  | $ |  |  
|                        | Operating leases          |       |   | 2,463                                 |        |           |   | 2,328     |        |               |   | 135 |     |  |   |  |   |  |   |  |  
|                        | Purchase obligations      |       |   | 8,016                                 |        |           |   | 8,016     |        |               |   |    |     |  |   |  |   |  |   |  |  
|                        |                           |       |   |                                       |        |           |   |           |        |               |   |     |     |  |   |   |   |  |   |  
|                        |                           | Total |   | $                                     | 10,563 |           |   | $         | 10,428 |               |   | $   | 135 |  |   | $ |  |  |   | $ |  | 
|                        |                           |       |   |                                       |        |           |   |           |        |               |   |     |     |  |   |   |   |  |   |  

We paid $4.6 million in cash in July 2004 to
complete the purchase of a building in Fremont, California. The
payment of $4.6 million is included in our purchase
obligations in the table presented above.

Recent Accounting Pronouncements

On March 31, 2004, the FASB issued a
proposed Statement, Share-Based Payment, an amendment of
FASB Statements No. 123 and 95, that addresses the
accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for either
equity instruments of the enterprise or liabilities that are
based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of such
equity instruments. The proposed statement would eliminate the
ability to account for share-based compensation transactions
using the intrinsic value method as prescribed by Accounting
Principles Board, or APB, Opinion No. 25, Accounting
for Stock Issued to Employees, and generally would require
that such transactions be accounted for using a fair-value-based
method and recognized as expenses in our consolidated statements
of operations. The proposed standard would require that the
modified prospective method be used, which requires that the
fair value of new awards granted from the beginning of the year
of adoption (plus unvested awards at the date of adoption) be
expensed over the vesting period. In addition, the proposed
statement encourages the use of the binomial
approach to value stock options, which differs from the
Black-Scholes option pricing model that we currently use in the
footnotes to our consolidated financial statements. The
recommended effective date of the proposed standard for public
companies is currently for fiscal years beginning after
December 15, 2004.

Should this proposed statement be finalized in
its current form, it will have a significant impact on our
operating results as we will be required to expense the fair
value of our stock option grants and stock purchases under our
employee stock purchase plan rather than disclose the impact on
our consolidated net loss within our footnotes, as is our
current practice. In addition, there are a number of
implementation questions that are not fully resolved by the
proposed statement. As a result, there may be additional changes
reflected in our consolidated financial statements upon issuance
of the final standard.

At its November 2003 meeting, the Emerging Issues
Task Force (EITF) reached a consensus on disclosure
guidance previously discussed under EITF 03-01, The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments. The consensus provided for certain
disclosure requirements that were effective for fiscal years
ending after December 15, 2003. We adopted the disclosure
requirements during the fiscal year ended June 30, 2004.

At its March 2004 meeting, the EITF reached a
consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the
meaning of other-than-temporary impairment and its application
to investments classified as either available-for-sale or
held-to-maturity under FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, and investments accounted for under the cost
method or the equity method. The recognition and measurement
guidance for which the consensus was reached in the March 2004
meeting is to be applied to other-than-temporary impairment
evaluations in reporting periods beginning after June 15,
2004. We believe that this consensus on the recognition and
measurement guidance will not have a material impact on our
financial position, results of operations, or cash flows.

52



---



##### Table of Contents



In various areas, including revenue recognition
and stock option accounting, accounting standards and practices
continue to evolve. Additionally, the SEC and the FASBs
Emerging Issues Task Force continue to address revenue and stock
option related accounting issues. The management of Oplink
believes it is in compliance with all of the rules and related
guidance as they currently exist. However, any changes to
generally accepted accounting principles in these areas could
impact Oplinks future accounting for its operations.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    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 invest in are subject to
market risk. To minimize this risk, we maintain our portfolio of
cash equivalents and investments in a variety of securities,
including commercial paper, money market funds, government and
non-government debt securities and corporate bonds. As of
June 30, 2004, all of our short-term investments were in
high quality commercial paper, corporate bonds and government
debt securities with maturities of less than twelve months from
June 30, 2004. As of June 30, 2004, our long-term
investments primarily consist of corporate bonds and government
debt securities with maturities of less than three years from
June 30, 2004. We invested our excess cash in long-term
investments in fiscal 2004 to take advantage of higher yields
generated by these investments. We intend to hold these
long-term investments to maturity and we believe we have the
ability to hold them to maturity. However, liquidating our
long-term investments before maturity could have a material
impact on our interest earnings. We do not hold any instruments
for trading purposes. Declines in interest rates could have a
material impact on interest earnings for our investment
portfolio. The following table summarizes our current investment
securities (in thousands, except percentages):

|                                       |       |          |        |              |  |          |     |              |  |   |        |         |  |  |     |   | 
|-------------------------------------- | ----- | -------- | ------ | ------------ |  | -------- | --- | ------------ |  | - | ------ | ------- |  |  | --- | - | 
|                                       |       | Carrying |        | Average Rate |  | Carrying |     | Average Rate
|                                       |       | Value at |        | of Return at |  | Value at |     | of Return at
|                                       |       | June 30, |        | June 30,     |  | June 30, |     | June 30,    
|                                       |       | 2004     |        | 2004         |  | 2003     |     | 2003)       
|                                       |       |          |        |              |  |          |     |             
|                                       |       |          |        | (Annualized) |  |          |     | (Annualized)
|Investment Securities:                 |       |          |        |              |  |          |     |              |  |   |        |         |  |  |     |  
|Cash equivalents  variable rate       |       | $        | 46,034 |              |  |          | 1.1 | %            |  | $ | 54,292 |         |  |  | 1.2 | %
|Cash equivalents  fixed rate          |       |          | 58,919 |              |  |          | 1.4 | %            |  |   | 64,198 |         |  |  | 1.2 | %
|Short-term investments  variable rate |       |          | 7,497  |              |  |          | 1.0 | %            |  |   | 38,927 |         |  |  | 1.2 | %
|Short-term investments  fixed rate    |       |          | 17,352 |              |  |          | 1.3 | %            |  |   | 27,678 |         |  |  | 1.2 | %
|Long-term investments  variable rate  |       |          | 5,002  |              |  |          | 1.2 | %            |  |   |       |         |  |  | 0.0 | %
|Long-term investments  fixed rate     |       |          | 50,202 |              |  |          | 2.3 | %            |  |   |       |         |  |  | 0.0 | %
|                                       |       |          |        |              |  |          |     |              |  |   |        |         |  |  |     |  
|                                       | Total |          | $      | 185,006      |  |          |     |              |  |   | $      | 185,095 |  |  |     |   | 
|                                       |       |          |        |              |  |          |     |              |  |   |        |         |  |  |     |  

|                                      |  |                                    |       |      |  |      |        |       |  |            |        |   |  |   |        |   |  |   |        | 
|------------------------------------- |  | ---------------------------------- | ----- | ---- |  | ---- | ------ | ----- |  | ---------- | ------ | - |  | - | ------ | - |  | - | ------ | 
|                                      |  |                                   
|                                      |  | Expected Fiscal Year Maturity Date
|                                      |  |                                   
|                                      |  | 2005                               |       | 2006 |  | 2007 |        | Total |  | Fair Value
|                                      |  |                                    |       |      |  |      |        |       |  |           
|Long-term investments  variable rate |  | $                                  |      |      |  | $    | 5,002  |       |  | $          |       |   |  | $ | 5,002  |   |  | $ | 4,989  | 
|Average interest rate                 |  |                                    |      |      |  |      | 1.2    | %     |  |            |       |   |  |   | 1.2    | % |  |   |        | 
|Long-term investments  fixed rate    |  | $                                  | 5,009 |      |  | $    | 32,335 |       |  | $          | 12,858 |   |  | $ | 50,202 |   |  | $ | 49,696 | 
|Average interest rate                 |  |                                    | 2.1   | %    |  |      | 2.1    | %     |  |            | 2.7    | % |  |   | 2.3    | % |  |   |        | 

Foreign Currency Exchange Rate
Exposure.We operate in the United
States, manufacture in China, and the substantial majority of
our sales to date have been made in U.S. dollars. Certain
expenses from our China operations are incurred in the Chinese
Renminbi. We expect that gains and losses from fluctuations in
the currency exchange rate related to sales which are made in
Chinese Renminbi are likely to be substantially offset from
fluctuations in the currency exchange rate related to
intercompany payments from our subsidiaries

53



---



##### Table of Contents



in China to our parent corporation which are made
in U.S. dollars. Accordingly, we believe that we currently
have no material exposure to foreign currency rate fluctuations.


We expect our international revenues and expenses
to be denominated largely in U.S. dollars. We also believe
that our China operations will likely expand in the future as
our business continues to grow. As a result, we anticipate that
we may experience increased exposure to the risks of fluctuating
currencies and may choose to engage in currency hedging
activities to reduce these risks. However, we cannot be certain
that any such hedging activities will be effective, or available
to us at commercially reasonable rates.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The financial statements and related notes
thereto required by this item are listed and set forth beginning
on page F-1, and is incorporated by reference here.
Supplementary financial information regarding quarterly
financial information required by this item is set forth under
the caption Quarterly Results of Operations in
Item 7  Managements Discussion and
Analysis of Financial Condition and Results of Operations,
and is incorporated by reference here.






|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and
Procedures.Subject to the limitations
described below, our management, with the participation of our
Chief Executive Officer, Joseph Y. Liu, and our Chief Financial
Officer, Bruce D. Horn, has concluded that our disclosure
controls and procedures were effective as of June 30, 2004.

Changes in Internal Control Over Financial
Reporting.There was no change in our
internal control over financial reporting during the quarter
ended June 30, 2004 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.

Limitations on the Effectiveness of Disclosure
Controls and Procedures.Our
management, including our Chief Executive Officer and our Chief
Financial Officer, does not expect that our disclosure controls
and procedures will necessarily prevent all error and all fraud.
A control system, no matter how well conceived and operated, can
only provide reasonable, not absolute, assurance that the
objectives of the control system are met. Any control system
will reflect inevitable limitations, such as resource
constraints, a cost-benefit analysis based on the level of
benefit of additional controls relative to their costs,
assumptions about the likelihood of future events and human
error. Because of the inherent limitations in a cost-effective
control system, misstatements due to error or fraud may occur
and may not be detected. Accordingly, our disclosure controls
and procedures are designed to provide reasonable, not absolute,
assurance that the objectives of our disclosure control system
are met and, as set forth above, our principal executive officer
and principal financial officer have concluded, based on their
evaluation as of June 30, 2004, that our disclosure
controls and procedures were effective to provide reasonable
assurance that the objectives of our disclosure controls and
procedures were met.






|         |                  
|-------- | -----------------
|Item 9B. | Other Information

None.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Identification of Directors and Executive
Officers

Information regarding the identification of
Oplinks executive officers and directors may be found in
the sections entitled Executive Officers and
Directors, respectively, in Part I of this
Annual Report.

54



---



##### Table of Contents



Identification of Audit Committee and
Financial Expert

Reference is made to the information regarding
directors appearing under the heading
Proposal 1  Election of
Directors  Audit Committee in our 2004 Proxy
Statement anticipated to be filed with the SEC within
120 days of June 30, 2004 (our 2004 Proxy
Statement), which information is hereby incorporated by
reference.

Compliance with Section 16(a) of the
Exchange Act

Reference is made to the information appearing
under the heading Section 16(a) Beneficial Ownership
Reporting Compliance in our 2004 Proxy Statement, which
information is hereby incorporated by reference.

Code of Business Conduct and Ethics

Reference is made to the information appearing
under the heading Code of Business Conduct and
Ethics in our 2004 Proxy Statement, which information is
hereby incorporated by reference.

Disclosure of Any Material Changes to
Procedures for Recommending Directors

Reference is made to the information appearing
under the heading Proposal 1  Election of
Directors in our 2004 Proxy Statement, which information
is hereby incorporated by reference.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Incorporated by reference to the sections of our
2004 Proxy Statement entitled Executive Compensation
and Compensation Committee Interlocks and Insider
Participation.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The information required by this Item with
respect to security ownership of beneficial owners and
management is set forth in our 2004 Proxy Statement under the
caption Security Ownership of Certain Beneficial Owners
and Management, which information is hereby incorporated
by reference.

The information required by this Item with
respect to securities authorized for issuance under our equity
compensation plans is set forth in our 2004 Proxy Statement
under the caption Equity Compensation Plan
Information, which information is hereby incorporated by
reference.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Incorporated by reference to the section of the
our 2004 Proxy Statement entitled Certain Relationships
and Related Transactions.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Incorporated by reference to the section of our
2004 Proxy Statement appearing under the heading Proposal
No. 2  Ratification of Selection of Independent
Auditors  Fees Billed by the Independent
Auditor.




PART IV






|         |                                                
|-------- | -----------------------------------------------
|Item 15. | Exhibits and Financial Statement
    Schedules.

(a)

1.     Financial
Statements

See Item 8 of this Annual Report.

2.     Financial
Statement Schedules

See Item 8 and Schedule II of this
Annual Report immediately following the financial statements.

55



---



##### Table of Contents



3.     Exhibits

|            |             |             |  |                                                                                                                                                                                                        
|----------- | ----------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |             | Description
|            |             |            
|            | 3.1(1)      |             |  | Amended and Restated Certificate of Incorporation
    of Oplink.                                                                                                                                       
|            | 3.2(1)      |             |  | Bylaws of Oplink.                                                                                                                                                                                      
|            | 3.3(2)      |             |  | Certificate of Designation of Series A
    Junior Participating Preferred Stock.                                                                                                                       
|            | 4.1(1)(2)   |             |  | Reference is made to Exhibits 3.1, 3.2 and
    3.3.                                                                                                                                                    
|            | 4.2(1)      |             |  | Third Amended and Restated Rights Agreement,
    dated as of February 7, 2000 by and among Oplink and the
    investors listed on Exhibit A attached thereto.                                          
|            | 4.3(2)      |             |  | Rights Agreement, dated as of March 18,
    2002, between Oplink Communications, Inc. and The Bank of New
    York.                                                                                    
|            | 10.2(1)     |             |  | State-owned Land Use Rights Assignment Contract
    dated May 16, 2000 by and between Oplink Communications
    Inc. and Zhuhai Bonded Area Management Committee.                                      
|            | 10.3(1)     |             |  | Sublease Agreement dated February 29, 2000
    by and among Wyse Technology Inc. and Oplink and Wyse Technology
    Investments Inc.                                                                   
|            | 10.4(1)     |             |  | Amended and Restated Lease Agreement dated
    March 19, 1993 by and between Wyse Technology Investments,
    Inc. and Wyse Technology, Inc.                                                           
|            | 10.5(1)     |             |  | Amendment No. 1 to Sublease Agreement dated
    April 14, 2000 and Amendment No. 2 dated
    September 1, 2000 by and among Oplink, Wyse Technology Inc.
    and Wyse Technology Investments Inc.      
|            | 10.6(1)(5)  |             |  | Oplinks 2000 Equity Incentive Plan.                                                                                                                                                                   
|            | 10.7(1)(5)  |             |  | Oplinks 2000 Employee Stock Purchase Plan.                                                                                                                                                            
|            | 10.8(1)(5)  |             |  | Oplinks 1995 Stock Plan.                                                                                                                                                                              
|            | 10.9(1)(5)  |             |  | Oplinks 1998 Stock Plan.                                                                                                                                                                              
|            | 10.10(1)(5) |             |  | Oplink Form of Indemnity Agreement.                                                                                                                                                                    
|            | 10.14(3)(5) |             |  | Form of Stock Option Agreement between Oplink and
    Chieh Chang, Herbert Chang and Leonard LeBlanc.                                                                                                  
|            | 10.22(4)(5) |             |  | Amended and Restated Executive Corporate Event
    Agreement, dated February 20, 2003, by and between the
    Registrant and Bruce Horn.                                                               
|            | 10.23(4)(5) |             |  | Executive Corporate Event Agreement, dated
    February 20, 2003, by and between the Registrant and
    Yanfeng Yang.                                                                                  
|            | 10.24(4)(5) |             |  | Executive Corporate Event Agreement, dated
    February 24, 2003, by and between the Registrant and River
    Gong.                                                                                    
|            | 10.25(4)(5) |             |  | Executive Corporate Event Agreement, dated
    March 21, 2003, by and between the Registrant and Joseph Y.
    Liu.                                                                                    
|            | 10.27(5)(6) |             |  | Consulting Agreement dated as of January 17,
    2004, by and between the Registrant and Allen Hsu.                                                                                                    
|            | 10.29       |             |  | Building Purchase Agreement dated April 15,
    2004 by and between the Registrant and Dianne S.
    Gagos & Mitchell S. Gagos, Trustees, The Dianne S.
    Gagos Survivors Trust, U/I/D April 8, 1992.
|            | 21.1        |             |  | Subsidiaries of Oplink.                                                                                                                                                                                
|            | 23.1        |             |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                 
|            | 24.1        |             |  | Power of Attorney is contained on the Signatures
    page.                                                                                                                                             
|            | 31.1        |             |  | Certification of Chief Executive Officer Required
    under Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934, as amended.                                                   
|            | 31.2        |             |  | Certification of Chief Financial Officer Required
    under Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934, as amended.                                                   

56



---



##### Table of Contents



|            |       |             |  |                                                                                                                                                                                                                                                      
|----------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 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 18 U.S.C.
    Section 1350.                                                                 
|            | 32.2* |             |  | Certification of Financial 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).



---

() Confidential treatment granted with
respect to portions of these exhibits.



| |     |                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Previously filed as an Exhibit to the
    Registrants Registration Statement on Form S-1
    No. 333-41506, as amended, filed on September 20, 2000
    and incorporated herein by reference.
|
| | (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 Annual Report on Form 10-K filed on
    September 30, 2002 and incorporated herein by reference.                                       
|
| | (4) | Previously filed as an Exhibit to the
    Registrants Quarterly Report on Form 10-Q filed on
    filed on May 13, 2003 and incorporated herein by reference.                                 
|
| | (5) | Management contract or compensatory plan or
    arrangement.                                                                                                                                  
|
| | (6) | Previously filed as an Exhibit to the
    Registrants Quarterly Report on Form 10-Q filed on
    filed on May 11, 2004 and incorporated herein by reference.                                 

* The certifications attached as
Exhibits 32.1 and 32.2 accompany this Annual Report on
Form 10-K pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by Oplink for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended.

57



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) 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, on the 10th day of
September, 2004.



| |                            
| | ---------------------------
| | OPLINK COMMUNICATIONS, INC.



| |     |                  
| | --- | -----------------
| | By: | /s/ BRUCE D. HORN

| |                        
| | -----------------------
| |                        
| | Bruce D. Horn          
| | Chief Financial Officer

KNOW ALL PERSONS BY THESE PRESENTS that each
person whose signature appears below constitutes and appoints
Joseph Y. Liu and Bruce D. Horn, and each of them, his true and
lawful attorneys-in-fact, each with the power of substitution,
for him in any and all capacities, to sign any amendments to
this report on Form 10-K, and to file the same, with
Exhibits thereto and other documents in connection there with
the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or
substitute or substitutes, may do or cause to be done by virtue
hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                         |  |                                                                              |  |                    |  | 
|---------------------------------------- |  | ---------------------------------------------------------------------------- |  | ------------------ |  | 
|                                         |  |                                                                              |  |                   
|Signature                                |  | Title                                                                        |  | Date              
|                                         |  |                                                                              |  |                   
|                                        
|/s/ JOSEPH Y. LIUJoseph Y. Liu           |  | Chief Executive Officer
    and President
    (Principal Executive Officer)  |  | September 10, 2004
|                                        
|/s/ BRUCE D. HORNBruce D. Horn           |  | Chief Financial Officer
    (Principal Financial
    and Accounting Officer) |  | September 10, 2004
|                                        
|/s/ HERBERT CHANGHerbert Chang           |  | Chairman of the Board                                                        |  | September 10, 2004
|                                        
|/s/ CHIEH CHANGChieh Chang               |  | Director                                                                     |  | September 10, 2004
|                                        
|/s/ JESSE W. JACKJesse W. Jack           |  | Director                                                                     |  | September 10, 2004
|                                        
|/s/ LEONARD J. LEBLANCLeonard J. LeBlanc |  | Director                                                                     |  | September 10, 2004

58



---



##### Table of Contents



Item 8.     Financial
Statements and Supplementary Data

OPLINK COMMUNICATIONS, INC.

INDEX TO FINANCIAL STATEMENTS

|                                                            |  |      |     | 
|----------------------------------------------------------- |  | ---- | --- | 
|                                                            |  | Page
|                                                            |  |     
|Report of Independent Registered Public
    Accounting Firm |  |      | F-2 | 
|Consolidated Balance Sheets                                 |  |      | F-3 | 
|Consolidated Statements of Operations                       |  |      | F-4 | 
|Consolidated Statements of Stockholders
    Equity         |  |      | F-5 | 
|Consolidated Statements of Cash Flows                       |  |      | F-6 | 
|Notes to Consolidated Financial Statements                  |  |      | F-7 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the Board of Directors and Stockholders of 
      Oplink Communications, Inc.

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
operations, of stockholders equity and of cash flows
present fairly, in all material respects, the financial position
of Oplink Communications, Inc. and its subsidiaries (the
Company) at June 30, 2004 and 2003, and the
results of their operations and their cash flows for each of the
three years in the period ended June 30, 2004, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles
used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.

PRICEWATERHOUSECOOPERS LLP

San Jose, California

August 26, 2004


F-2



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |          |         |         | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ------------------------------------------ | -------- | ------- | ------- | ------ | -------- | ------- | ------- | 
|                                         |                                                                                                                                                                                 |                            
|                                         |                                                                                                                                                                                 | June 30,                   
|                                         |                                                                                                                                                                                 |                            
|                                         |                                                                                                                                                                                 | 2004                        |                                            | 2003    
|                                         |                                                                                                                                                                                 |                             |                                            |         
|                                         |                                                                                                                                                                                 |                            
|                                         |                                                                                                                                                                                 | (In thousands, except share
|                                         |                                                                                                                                                                                 | and per share data)        
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         | Cash and cash equivalents                                                                                                                                                       |                             | $                                          | 110,390  |         |         | $      | 121,498  |        
|                                         | Short-term investments                                                                                                                                                          |                             |                                            | 24,849   |         |         |        | 66,605   |        
|                                         | Accounts receivable, net                                                                                                                                                        |                             |                                            | 7,545    |         |         |        | 4,716    |        
|                                         | Inventories                                                                                                                                                                     |                             |                                            | 4,767    |         |         |        | 3,436    |        
|                                         | Prepaid expenses and other current assets                                                                                                                                       |                             |                                            | 2,814    |         |         |        | 2,355    |        
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         |                                                                                                                                                                                 | Total current assets        |                                            |          | 150,365 |         |        |          | 198,610 |        
|Long-term investments                    |                                                                                                                                                                                 |                             | 55,204                                     |          |         |         |       |         
|Property, plant and equipment, net       |                                                                                                                                                                                 |                             | 26,426                                     |          |         |         | 34,405 |         
|Intangible assets                        |                                                                                                                                                                                 |                             | 507                                        |          |         |         | 120    |         
|Other assets                             |                                                                                                                                                                                 |                             | 401                                        |          |         |         | 608    |         
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         |                                                                                                                                                                                 | Total assets                |                                            | $        | 232,903 |         |        | $        | 233,743 |        
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         | Accounts payable                                                                                                                                                                |                             | $                                          | 4,926    |         |         | $      | 4,587    |        
|                                         | Accrued liabilities                                                                                                                                                             |                             |                                            | 8,090    |         |         |        | 7,407    |        
|                                         | Capital lease obligations, current                                                                                                                                              |                             |                                            | 81       |         |         |        | 1,478    |        
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         |                                                                                                                                                                                 | Total current liabilities   |                                            |          | 13,097  |         |        |          | 13,472  |        
|Capital lease obligations, non current   |                                                                                                                                                                                 |                             |                                           |          |         |         | 83     |         
|Accrued restructuring costs, non current |                                                                                                                                                                                 |                             | 104                                        |          |         |         | 1,472  |         
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         |                                                                                                                                                                                 | Total liabilities           |                                            |          | 13,201  |         |        |          | 15,027  |        
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|Commitments and contingencies (Note 11)  |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|Stockholders equity:                    |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         | Common stock, $0.001 par value,
    400,000,000 shares authorized; 147,472,871 and
    142,088,677 shares issued and outstanding as of
    June 30, 2004 and 2003, respectively |                             |                                            | 147      |         |         |        | 142      |        
|                                         | Additional paid-in capital                                                                                                                                                      |                             |                                            | 444,125  |         |         |        | 463,449  |        
|                                         | Treasury stock                                                                                                                                                                  |                             |                                            |         |         |         |        | (25,276  | )      
|                                         | Notes receivable from stockholders                                                                                                                                              |                             |                                            | (38      | )       |         |        | (50      | )      
|                                         | Deferred stock compensation                                                                                                                                                     |                             |                                            | (158     | )       |         |        | (1,521   | )      
|                                         | Accumulated other comprehensive income (loss)                                                                                                                                   |                             |                                            | 66       |         |         |        | (29      | )      
|                                         | Accumulated deficit                                                                                                                                                             |                             |                                            | (224,440 | )       |         |        | (217,999 | )      
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         |                                                                                                                                                                                 | Total stockholders equity  |                                            |          | 219,702 |         |        |          | 218,716 |        
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         
|                                         |                                                                                                                                                                                 |                             | Total liabilities and stockholders equity |          | $       | 232,903 |        |          | $       | 233,743 | 
|                                         |                                                                                                                                                                                 |                             |                                            |          |         |         |        |         

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

F-3



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |        |        |        |        | 
|--------------------------------------------------------- | ------------------------------------------- | ---------------------------------------- | -------------------------------- | ------------------------ | ------ | ----- | ------- | ------ | ------ | ------ | ------- | ------ | ------ | ------ | ------ | 
|                                                          |                                             |                                         
|                                                          |                                             | Years Ended June 30,                    
|                                                          |                                             |                                         
|                                                          |                                             | 2004                                     |                                  | 2003                     |        | 2002 
|                                                          |                                             |                                          |                                  |                          |        |      
|                                                          |                                             |                                         
|                                                          |                                             | (In thousands, except per share data)   
|Revenues                                                  |                                             | $                                        | 34,328                           |                          |        | $     | 22,743  |        |        | $      | 37,939  |       
|Cost of revenues:                                         |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          | Cost of revenues                            |                                          |                                  | 22,736                   |        |       |         | 23,080 |        |        |         | 48,512 |       
|                                                          | Non-cash compensation expense (recovery)    |                                          |                                  | 177                      |        |       |         | (415   | )      |        |         | 342    |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          |                                             | Total cost of revenues                   |                                  |                          | 22,913 |       |         |        | 22,665 |        |         |        | 48,854 |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|Gross profit (loss)                                       |                                             |                                          | 11,415                           |                          |        |       | 78      |        |        |        | (10,915 | )     
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|Operating expenses:                                       |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          | Research and development:                   |                                          |                                  |                          |        |       |         |        |        |        |         |        |       
|                                                          |                                             | Research and development                 |                                  |                          | 7,056  |       |         |        | 8,765  |        |         |        | 13,927 |       
|                                                          |                                             | Non-cash compensation expense            |                                  |                          | 448    |       |         |        | 42     |        |         |        | 984    |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          |                                             |                                          | Total research and development   |                          |        | 7,504 |         |        |        | 8,807  |         |        |        | 14,911 |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          | Sales and marketing:                        |                                          |                                  |                          |        |       |         |        |        |        |         |        |       
|                                                          |                                             | Sales and marketing                      |                                  |                          | 3,329  |       |         |        | 4,235  |        |         |        | 8,079  |       
|                                                          |                                             | Non-cash compensation expense (recovery) |                                  |                          | 53     |       |         |        | 172    |        |         |        | (328   | )     
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          |                                             |                                          | Total sales and marketing        |                          |        | 3,382 |         |        |        | 4,407  |         |        |        | 7,751  |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          | General and administrative:                 |                                          |                                  |                          |        |       |         |        |        |        |         |        |       
|                                                          |                                             | General and administrative               |                                  |                          | 6,619  |       |         |        | 7,009  |        |         |        | 7,247  |       
|                                                          |                                             | Non-cash compensation expense            |                                  |                          | 1,011  |       |         |        | 2,074  |        |         |        | 3,716  |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          |                                             |                                          | Total general and administrative |                          |        | 7,630 |         |        |        | 9,083  |         |        |        | 10,963 |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          | Impairment charge                           |                                          |                                  |                         |        |       |         | 2,825  |        |        |         |       |       
|                                                          | Restructuring costs and other charges       |                                          |                                  | 452                      |        |       |         | 14,123 |        |        |         | 28,908 |       
|                                                          | Merger fees                                 |                                          |                                  |                         |        |       |         | 1,300  |        |        |         | 1,844  |       
|                                                          | In-process research and development         |                                          |                                  | 1,565                    |        |       |         |       |        |        |         |       |       
|                                                          | Amortization of intangible and other assets |                                          |                                  | 56                       |        |       |         | 78     |        |        |         | 168    |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|                                                          |                                             |                                          | Total other operating expenses   |                          |        | 2,073 |         |        |        | 18,326 |         |        |        | 30,920 |       
|                                                          |                                             |                                          |                                  | Total operating expenses |        |       | 20,589  |        |        |        | 40,623  |        |        |        | 64,545 | 
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|Loss from operations                                      |                                             |                                          | (9,174                           | )                        |        |       | (40,545 | )      |        |        | (75,460 | )     
|Interest and other income, net                            |                                             |                                          | 2,665                            |                          |        |       | 4,016   |        |        |        | 4,713   |       
|Gain (loss) on sale of assets                             |                                             |                                          | 68                               |                          |        |       | (258    | )      |        |        | 2,373   |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|Net loss                                                  |                                             | $                                        | (6,441                           | )                        |        | $     | (36,787 | )      |        | $      | (68,374 | )     
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|Basic and diluted net loss per share                      |                                             | $                                        | (0.04                            | )                        |        | $     | (0.23   | )      |        | $      | (0.42   | )     
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       
|Basic and diluted weighted average shares
    outstanding |                                             |                                          | 145,479                          |                          |        |       | 158,782 |        |        |        | 162,688 |       
|                                                          |                                             |                                          |                                  |                          |        |       |         |        |        |        |         |       

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

F-4



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY

|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |         |         |         |  
|----------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ------------------------ | ---------- |  | -------- | --- | ---------- |  | ------------ | ------- | ------------- |  | ------------- | ------- | ------------- |  | ------ | ------- | - |  | - | ------- | - |  | - | --- | --- | - | - | -------- | ------- | - | - | ------- | ------- | ------- | ------- | -
|                                                                                    |                                              |                                   |                          |            |  |          |     | Notes      |  |              |         | Accumulated   |  |               |         |              
|                                                                                    |                                              | Common Stock                      |                          | Additional |  |          |     | Receivable |  | Deferred     |         | Other         |  |               |         | Total        
|                                                                                    |                                              |                                   |                          | Paid in    |  | Treasury |     | from       |  | Stock        |         | Comprehensive |  | Accumulated   |         | Stockholders
|                                                                                    |                                              | Shares                            |                          | Amount     |  | Capital  |     | Stock      |  | Stockholders |         | Compensation  |  | Income (Loss) |         | Deficit       |  | Equity
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |       
|                                                                                    |                                              |                                  
|                                                                                    |                                              | (In thousands, except share data)
|Balance at June 30, 2001                                                            |                                              |                                   | 161,198,112              |            |  | $        | 161 |            |  | $            | 472,161 |               |  | $             | (59     | )             |  | $      | (3,889  | ) |  | $ | (17,554 | ) |  | $ | 25  |     |   | $ | (112,838 | )       |   | $ | 338,007 |        
|Exercise of stock options                                                           |                                              |                                   | 5,318,528                |            |  |          | 5   |            |  |              | 6,849   |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 6,854   |        
|Issuance of common stock from ESPP                                                  |                                              |                                   | 781,020                  |            |  |          |    |            |  |              | 856     |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 856     |        
|Note receivable from stockholder to exercise
    stock options and related interest |                                              |                                   |                         |            |  |          |    |            |  |              |        |               |  |               |        |               |  |        | (6,947  | ) |  |   |        |   |  |   |    |     |   |   |         |         |   |   | (6,947  | )      
|Repayment of note receivable from stockholder                                       |                                              |                                   |                         |            |  |          |    |            |  |              |        |               |  |               |        |               |  |        | 65      |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 65      |        
|Repurchase of common stock                                                          |                                              |                                   | (1,620,200)              |            |  |          | (1  | )          |  |              |        |               |  |               | (1,894  | )             |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | (1,895  | )      
|Stock-based compensation expense                                                    |                                              |                                   |                         |            |  |          |    |            |  |              | 281     |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 281     |        
|Amortization of deferred compensation                                               |                                              |                                   |                         |            |  |          |    |            |  |              | (7,696  | )             |  |               |        |               |  |        |        |   |  |   | 12,129  |   |  |   |    |     |   |   |         |         |   |   | 4,433   |        
|Cancellation of common stock in connection with
    acquisition                     |                                              |                                   | (800,000)                |            |  |          |    |            |  |              |        |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   |        |        
|Components of comprehensive loss:                                                   |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|                                                                                    | Net loss                                     |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     |    |   |   |          | (68,374 | ) |   |         | (68,374 | )      
|                                                                                    | Change in cumulative translation adjustments |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     | (15 | ) |   |          |        |   |   |         | (15     | )      
|                                                                                    | Unrealized gain on investments               |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     | 16  |   |   |          |        |   |   |         | 16      |        
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|                                                                                    |                                              | Total comprehensive loss          |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |         | (68,373 | )      
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|Balance at June 30, 2002                                                            |                                              |                                   | 164,877,460              |            |  |          | 165 |            |  |              | 472,451 |               |  |               | (1,953  | )             |  |        | (10,771 | ) |  |   | (5,425  | ) |  |   | 26  |     |   |   | (181,212 | )       |   |   | 273,281 |        
|Exercise of stock options                                                           |                                              |                                   | 5,658,644                |            |  |          | 5   |            |  |              | 2,653   |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 2,658   |        
|Issuance of common stock from ESPP                                                  |                                              |                                   | 465,498                  |            |  |          |    |            |  |              | 312     |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 312     |        
|Interest receivable related to notes receivable
    from stockholders               |                                              |                                   |                         |            |  |          |    |            |  |              |        |               |  |               |        |               |  |        | (686    | ) |  |   |        |   |  |   |    |     |   |   |         |         |   |   | (686    | )      
|Repayment of note receivable from stockholder                                       |                                              |                                   |                         |            |  |          |    |            |  |              |        |               |  |               |        |               |  |        | 11,407  |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 11,407  |        
|Repurchase of common stock                                                          |                                              |                                   | (28,912,925)             |            |  |          | (28 | )          |  |              |        |               |  |               | (33,259 | )             |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | (33,287 | )      
|Retirement of treasury stock                                                        |                                              |                                   |                         |            |  |          |    |            |  |              | (9,936  | )             |  |               | 9,936   |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   |        |        
|Stock-based compensation expense                                                    |                                              |                                   |                         |            |  |          |    |            |  |              | 585     |               |  |               |        |               |  |        |        |   |  |   | (585    | ) |  |   |    |     |   |   |         |         |   |   |        |        
|Amortization of deferred compensation                                               |                                              |                                   |                         |            |  |          |    |            |  |              | (2,616  | )             |  |               |        |               |  |        |        |   |  |   | 4,489   |   |  |   |    |     |   |   |         |         |   |   | 1,873   |        
|Components of comprehensive loss:                                                   |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|                                                                                    | Net loss                                     |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     |    |   |   |          | (36,787 | ) |   |         | (36,787 | )      
|                                                                                    | Change in cumulative translation adjustments |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     | (42 | ) |   |          |        |   |   |         | (42     | )      
|                                                                                    | Unrealized loss on investments               |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     | (13 | ) |   |          |        |   |   |         | (13     | )      
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|                                                                                    |                                              |                                   | Total comprehensive loss |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |         |         | (36,842 | )
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|Balance at June 30, 2003                                                            |                                              |                                   | 142,088,677              |            |  |          | 142 |            |  |              | 463,449 |               |  |               | (25,276 | )             |  |        | (50     | ) |  |   | (1,521  | ) |  |   | (29 | )   |   |   | (217,999 | )       |   |   | 218,716 |        
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|Exercise of stock options                                                           |                                              |                                   | 3,779,094                |            |  |          | 3   |            |  |              | 3,231   |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 3,234   |        
|Issuance of common stock from ESPP                                                  |                                              |                                   | 1,005,100                |            |  |          | 1   |            |  |              | 784     |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 785     |        
|Repayment of note receivable from stockholder                                       |                                              |                                   |                         |            |  |          |    |            |  |              |        |               |  |               |        |               |  |        | 15      |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 15      |        
|Interest receivable related to note receivable
    from stockholder                 |                                              |                                   |                         |            |  |          |    |            |  |              |        |               |  |               |        |               |  |        | (3      | ) |  |   |        |   |  |   |    |     |   |   |         |         |   |   | (3      | )      
|Retirement of treasury stock                                                        |                                              |                                   |                         |            |  |          |    |            |  |              | (25,276 | )             |  |               | 25,276  |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   |        |        
|Stock-based compensation expense                                                    |                                              |                                   |                         |            |  |          |    |            |  |              | 412     |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 412     |        
|Amortization of deferred compensation                                               |                                              |                                   |                         |            |  |          |    |            |  |              | (86     | )             |  |               |        |               |  |        |        |   |  |   | 1,363   |   |  |   |    |     |   |   |         |         |   |   | 1,277   |        
|Issuance of common stock in connection with
    acquisition                         |                                              |                                   | 600,000                  |            |  |          | 1   |            |  |              | 1,611   |               |  |               |        |               |  |        |        |   |  |   |        |   |  |   |    |     |   |   |         |         |   |   | 1,612   |        
|Components of comprehensive loss:                                                   |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|                                                                                    | Net loss                                     |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     |    |   |   |          | (6,441  | ) |   |         | (6,441  | )      
|                                                                                    | Change in cumulative translation adjustments |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     | 57  |   |   |          |        |   |   |         | 57      |        
|                                                                                    | Unrealized gain on investments               |                                   |                          |           |  |          |     |           |  |              |         |              |  |               |         |              |  |        |         |  |  |   |         |  |  |   |     | 38  |   |   |          |        |   |   |         | 38      |        
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|                                                                                    |                                              |                                   | Total comprehensive loss |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |         |         | (6,346  | )
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        
|Balance at June 30, 2004                                                            |                                              |                                   | 147,472,871              |            |  | $        | 147 |            |  | $            | 444,125 |               |  | $             |        |               |  | $      | (38     | ) |  | $ | (158    | ) |  | $ | 66  |     |   | $ | (224,440 | )       |   | $ | 219,702 |        
|                                                                                    |                                              |                                   |                          |            |  |          |     |            |  |              |         |               |  |               |         |               |  |        |         |   |  |   |         |   |  |   |     |     |   |   |          |         |   |   |         |        

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

F-5



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |         |        |        |         |  
|------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------------------------- | ----- | ------ | ------- | -------- | ------ | ------ | ------- | ------- | ------ | ------ | ------- | -
|                                                              |                                                                                                |                                                            
|                                                              |                                                                                                | Years Ended June 30,                                       
|                                                              |                                                                                                |                                                            
|                                                              |                                                                                                | 2004                                                        |                                                         | 2003                                                    |       | 2002  
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |       
|                                                              |                                                                                                |                                                            
|                                                              |                                                                                                | (In thousands)                                             
|Cash flows from operating
    activities:                     |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Net loss                                                                                       |                                                             | $                                                       | (6,441                                                  | )     |        | $       | (36,787  | )      |        | $       | (68,374 | )     
|                                                              | Adjustments to reconcile net loss to net cash
    used in operating activities:                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |         |       
|                                                              |                                                                                                | Non-cash restructuring costs and other charges              |                                                         |                                                         |      |        |         |          | 10,715 |        |         |         | 16,260 |       
|                                                              |                                                                                                | Depreciation and amortization of property and
    equipment |                                                         |                                                         | 8,221 |        |         |          | 11,958 |        |         |         | 13,013 |       
|                                                              |                                                                                                | Amortization of intangible and other assets                 |                                                         |                                                         | 56    |        |         |          | 78     |        |         |         | 168    |       
|                                                              |                                                                                                | Amortization of deferred stock compensation                 |                                                         |                                                         | 1,689 |        |         |          | 1,873  |        |         |         | 4,714  |       
|                                                              |                                                                                                | Amortization of premium (discount) on
    investments       |                                                         |                                                         | 394   |        |         |          | (3     | )      |         |         | (448   | )     
|                                                              |                                                                                                | Provision for excess and obsolete inventory                 |                                                         |                                                         |      |        |         |          |       |        |         |         | 10,407 |       
|                                                              |                                                                                                | Loss (gain) on sale or disposal of assets                   |                                                         |                                                         | (68   | )      |         |          | 258    |        |         |         | (2,373 | )     
|                                                              |                                                                                                | Acquired in-process research and development                |                                                         |                                                         | 1,565 |        |         |          |       |        |         |         |       |       
|                                                              |                                                                                                | Impairment charge                                           |                                                         |                                                         |      |        |         |          | 2,825  |        |         |         |       |       
|                                                              |                                                                                                | Interest income related to stockholder notes                |                                                         |                                                         | (3    | )      |         |          | (686   | )      |         |         | (536   | )     
|                                                              |                                                                                                | Other                                                       |                                                         |                                                         |      |        |         |          | (339   | )      |         |         | 67     |       
|                                                              |                                                                                                | Change in assets and liabilities:                           |                                                         |                                                         |       |        |         |          |        |        |         |         |        |       
|                                                              |                                                                                                |                                                             | Accounts receivable                                     |                                                         |       | (2,829 | )       |          |        | 2,092  |         |         |        | 10,347 |        
|                                                              |                                                                                                |                                                             | Inventories                                             |                                                         |       | (1,268 | )       |          |        | 3,009  |         |         |        | 4,781  |        
|                                                              |                                                                                                |                                                             | Prepaid expenses and other current assets               |                                                         |       | (598   | )       |          |        | 991    |         |         |        | 6,130  |        
|                                                              |                                                                                                |                                                             | Other assets                                            |                                                         |       | 207    |         |          |        | 652    |         |         |        | (2     | )      
|                                                              |                                                                                                |                                                             | Accounts payable                                        |                                                         |       | 102    |         |          |        | (1,383 | )       |         |        | (6,132 | )      
|                                                              |                                                                                                |                                                             | Accrued liabilities and accrued restructuring
    costs |                                                         |       | (1,572 | )       |          |        | (9,011 | )       |         |        | 11     |        
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              |                                                                                                |                                                             |                                                         | Net cash used in operating activities                   |       |        | (545    | )        |        |        | (13,758 | )       |        |        | (11,967 | )
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|Cash flows from investing
    activities:                     |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Purchases of investments                                                                       |                                                             |                                                         | (174,083                                                | )     |        |         | (189,612 | )      |        |         | (70,152 | )     
|                                                              | Maturities of investments                                                                      |                                                             |                                                         | 160,279                                                 |       |        |         | 128,713  |        |        |         | 64,900  |       
|                                                              | Proceeds from sales of property and equipment                                                  |                                                             |                                                         | 588                                                     |       |        |         | 1,022    |        |        |         | 3,410   |       
|                                                              | Purchase of property and equipment                                                             |                                                             |                                                         | (305                                                    | )     |        |         | (690     | )      |        |         | (8,039  | )     
|                                                              | Cash acquired in business combination, net of
    payments                                     |                                                             |                                                         | 404                                                     |       |        |         |         |        |        |         |        |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              |                                                                                                |                                                             |                                                         | Net cash used in investing activities                   |       |        | (13,117 | )        |        |        | (60,567 | )       |        |        | (9,881  | )
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|Cash flows from financing
    activities:                     |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Proceeds from issuance of common stock                                                         |                                                             |                                                         | 4,019                                                   |       |        |         | 2,970    |        |        |         | 1,364   |       
|                                                              | Repurchase of common stock                                                                     |                                                             |                                                         |                                                        |       |        |         | (33,287  | )      |        |         | (1,895  | )     
|                                                              | Repayment of notes receivable from stockholders                                                |                                                             |                                                         | 15                                                      |       |        |         | 11,407   |        |        |         |        |       
|                                                              | Proceeds from borrowings under line of credit                                                  |                                                             |                                                         |                                                        |       |        |         |         |        |        |         | 1,268   |       
|                                                              | Repayment of borrowings under line of credit                                                   |                                                             |                                                         |                                                        |       |        |         |         |        |        |         | (2,416  | )     
|                                                              | Repayment of capital lease obligations                                                         |                                                             |                                                         | (1,480                                                  | )     |        |         | (4,300   | )      |        |         | (3,913  | )     
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              |                                                                                                |                                                             |                                                         | Net cash provided by (used in) financing
    activities |       |        | 2,554   |          |        |        | (23,210 | )       |        |        | (5,592  | )
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|Net decrease in cash and cash equivalents                     |                                                                                                |                                                             | (11,108                                                 | )                                                       |       |        | (97,535 | )        |        |        | (27,440 | )      
|Cash and cash equivalents, beginning of year                  |                                                                                                |                                                             | 121,498                                                 |                                                         |       |        | 219,033 |          |        |        | 246,473 |        
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|Cash and cash equivalents, end of year                        |                                                                                                | $                                                           | 110,390                                                 |                                                         |       | $      | 121,498 |          |        | $      | 219,033 |        
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|Supplemental disclosures of cash flow
    information:        |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Cash paid during the period for interest expense                                               |                                                             | $                                                       | 37                                                      |       |        | $       | 310      |        |        | $       | 679     |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Cash paid during the period for income taxes                                                   |                                                             | $                                                       |                                                        |       |        | $       |         |        |        | $       |        |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|Supplemental non-cash investing and financing
    activities: |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Property and equipment acquired under capital
    lease                                        |                                                             | $                                                       |                                                        |       |        | $       |         |        |        | $       | 1,252   |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Recovery/ Return of property and equipment                                                     |                                                             | $                                                       |                                                        |       |        | $       | (412     | )      |        | $       | 10,052  |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Donation of property and equipment                                                             |                                                             | $                                                       |                                                        |       |        | $       |         |        |        | $       | 83      |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Deferred compensation related to common stock
    option grants and modifications to employees |                                                             | $                                                       |                                                        |       |        | $       | 585      |        |        | $       |        |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Issuance of common stock in connection with
    acquisitions                                   |                                                             | $                                                       | 1,612                                                   |       |        | $       |         |        |        | $       |        |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Issuance of common stock in connection with notes                                              |                                                             | $                                                       |                                                        |       |        | $       |         |        |        | $       | 6,411   |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        
|                                                              | Unrealized gain (loss) on investments                                                          |                                                             | $                                                       | 38                                                      |       |        | $       | (13      | )      |        | $       | 16      |       
|                                                              |                                                                                                |                                                             |                                                         |                                                         |       |        |         |          |        |        |         |        

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

F-6



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|         |            
|-------- | -----------
|Note 1  | The Company



| |            
| | -----------
| | The Company

Oplink Communications, Inc. (Oplink
or the Company) provides design, integration and
Optical Manufacturing Solutions, or OMS, for optical networking
components and subsystems that expand optical bandwidth, amplify
optical signals, monitor and protect wavelength performance,
redirect light signals, reshape light profile to enable extended
signal reach and provide signal transmission and reception
within an optical network. The Companys product portfolio
includes solutions for next-generation, all-optical Dense and
Coarse Wavelength Division Multiplexing, or DWDM and CWDM,
respectively, optical amplification, switching and routing,
monitoring and conditioning, dispersion management and line
transmission applications. The Company offers advanced and
cost-effective optical-electrical components and subsystem
manufacturing through its facilities in Zhuhai and Shanghai,
China. In addition, the Company maintains optical-centric
front-end design, application, and customer service functions at
its headquarters in San Jose, California. As a Photonic
Foundry, Oplink offers its customers expert OMS for the
production and packaging of highly integrated optical subsystems
and turnkey solutions based upon a customers specific
product design and specification. The Companys broad line
of products and services increases the performance of optical
networks and enables optical system manufacturers to provide
flexible and scalable bandwidth to support the increase of data
traffic on the Internet and other public and private networks.
The Companys customers include telecommunications, data
communications and cable TV equipment manufacturers around the
globe.

The Company was incorporated in September 1995,
began selling its products in 1996 and established operations in
Zhuhai, China in April 1999. The Company is headquartered in
San Jose, California and its primary manufacturing facility
and component research and development resources are in Zhuhai,
China. The Company conducts its business within one business
segment and has no organizational structure dictated by product,
service lines, geography or customer type.



| |                        
| | -----------------------
| | Risks and Uncertainties

The optical communications markets have recently
experienced a slight improvement after experiencing a prolonged
severe downturn, which resulted in a significant decline in the
demand for the optical subsystems, integrated modules and
components supplied by the Company and its competitors.
Management believes the market will continue to show improvement
but should the market deteriorate management believes it has the
financial resources, and will take the necessary actions, to
manage through such a downturn. However, a further prolonged
downturn in the optical communications markets, failure by the
Company to anticipate or respond to technological developments
in its industry, changes in customer or supplier requirements or
changes in regulatory requirements or industry standards, any
significant delays in the development or introduction of
products or the occurrence or non-occurrence of other events
could have a material adverse effect on the Companys
financial condition, operating results or cash flows.



| |            
| | -----------
| | Fiscal Year

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.
June 27, 2004, June 29, 2003 and June 30, 2002
represent the Sunday closest to the period ending June 30,
2004, June 30, 2003, and June 30, 2002, respectively.
Fiscal years 2004, 2003 and 2002 consist of 52 weeks. The
first quarter of fiscal 2005 is a 14-week quarter, one week more
than a typical quarter. Fiscal 2005 is a 53-week fiscal year.

F-7



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Reclassification

Certain items previously reported in prior
years financial statements have been reclassified to
conform with the current year presentation. Such
reclassifications had no effect on previously reported financial
position, results of operations or accumulated deficit.



|         |                                               
|-------- | ----------------------------------------------
|Note 2  | Summary of Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements include the
accounts of the Company and its wholly-owned (except as noted
below) subsidiaries, Accumux Technologies, Inc., Shanghai Oplink
Communications, Inc. (Shanghai), Zhuhai Free Trade
Zone Oplink Communications, Inc. (Zhuhai FTZ),
Zhuhai Free Trade Zone Oplink Optical Communications, Inc.
(Zhuhai), Zhuhai Free Trade Zone Telelight
Communication, Inc. (FTZTCI) and Oplink Macau
Commercial Services Company Limited. (Macau). With
respect to Macau, the Company and Joseph Liu, the President,
Chief Executive Officer and a director of the Company, each hold
one share in Macau pursuant to which the Company holds a voting
interest of ninety-eight and three-fourths percent (98.75%) and
Joseph Liu holds the remaining one and one-fourth percent
(1.25%) voting interest. All significant intercompany accounts
and transactions have been eliminated in consolidation.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.



| |                   
| | ------------------
| | Shanghai Operation

The Companys consolidated financial
statements for all periods presented account for the Shanghai
operation as part of continuing operations rather than as a
discontinued operation. In May 2003, the Company adopted a plan
to sell its Shanghai operation. As the sale of the Shanghai
operation represented a disposal of a component of an
entity as defined in SFAS No. 144,
Accounting for the Impairment or Disposal of Long Lived
Assets, (SFAS No. 144), the Shanghai
operation was accounted as a discontinued operation. In May
2004, one year following the planned sale of its Shanghai
operation and considering growth in the telecommunications
market, the Company determined that this facility is more
strategic to its operations than in prior periods due to the
need to ensure a supply of the parts manufactured at the
Shanghai facility as a result of an increase in demand for these
types of parts in the market and the acquisition of one of the
Companys suppliers by one of the Companys
competitors. Therefore, it has decided not to dispose of this
facility and has returned it to continuing operations. Amounts
in the financial statements and related notes for all periods
presented are reclassified to reflect the Shanghai operation as
part of continuing operations in accordance with
SFAS No. 144.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid
investments with a maturity of three months or less when
purchased to be cash equivalents. The Companys cash
equivalents consist of money market funds, debt and commercial
paper.

F-8



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |            
| | -----------
| | Investments

Management determines the appropriate
classification of its investments in marketable securities at
the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are classified as
held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at cost. As of June 30, 2004, all of
the Companys long-term investments were classified as
held-to-maturity.

Marketable securities not classified as
held-to-maturity are classified as available-for-sale.
Available-for-sale securities are stated at fair value, based
upon quoted market prices of the securities, with the unrealized
gains and losses reported as a separate component of accumulated
other comprehensive income (loss). As of June 30, 2004 and
2003, all of the Companys short-term investments were
classified as available-for-sale.

The amortized cost of debt securities classified
as held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts to maturity,
both of which are included in interest income. The cost of
securities sold is based on the specific identification method.



| |                    
| | -------------------
| | Revenue Recognition

The Company derives its revenue from the sale of
fiber optic subsystems and components. Revenue from product
sales is generally recognized upon shipment of the product or
customer acceptance, which ever is later, provided that
persuasive evidence of an arrangement exists, delivery has
occurred and no significant obligations remain, the fee is fixed
or determinable and collectibility is reasonably assured.
Revenue associated with contract-related cancellation payments
from customers is recognized when a formal agreement is signed
or a purchase order is issued by the customer covering such
payments and the collectibility of the cancellation payments is
determined to be reasonably assured. Sales to distributors do
not include the right to return or exchange products or price
protection. Provisions for returns and allowances are recorded
at the time revenue is recognized based on the Companys
historical experience.



| |                              
| | -----------------------------
| | Foreign Currency Translations

The functional currency of the Companys
foreign subsidiaries is the local currency. In consolidation,
assets and liabilities are translated at year-end currency
exchange rates and revenue and expense items are translated at
average currency exchange rates prevailing during the period.
Gains and losses from foreign currency translation are
accumulated as a separate component of stockholders
equity. Realized gains and losses resulting from foreign
currency transactions are included in the consolidated statement
of operations.



| |                                        
| | ---------------------------------------
| | Fair Value of Financial
    Instruments

The Company has determined that the amounts
reported for cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and capital lease
obligations approximate fair value because of their short
maturities and/or variable interest rates. Short-term
investments are reported at their fair market value based on
quoted market prices.



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash,
cash equivalents, short-term and long-term investments and trade
accounts receivable. Substantially all of the Companys
cash, cash equivalents and short-term and long-term investments
primarily composed of investments in money market funds,
commercial paper and government debt securities are maintained
with three high quality financial institutions. The composition
and maturities are regularly monitored by management. Such
deposits are in excess of the amount of the insurance provided
by the federal government on such deposits. To date, the Company
has not experienced any losses on such deposits.

F-9



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys accounts receivable are
derived from revenue earned from customers located in the United
States, Europe, Asia and Canada. There are a limited number of
customers accounting for the majority of purchases in the
industry worldwide. The Company performs ongoing credit
evaluations of its customers financial condition and
currently requires no collateral from its customers. The Company
maintains an allowance for doubtful accounts based upon the
expected collection of its outstanding receivable balance.

The following table summarizes the revenues from
customers in excess of 10% of total revenues:

|           |  |                      |    |      |  |      |    |   |  |  |    |  
|---------- |  | -------------------- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|           |  |                     
|           |  | Years Ended June 30,
|           |  |                     
|           |  | 2004                 |    | 2003 |  | 2002
|           |  |                      |    |      |  |     
|Customer A |  |                      | 21 | %    |  |      | 23 | % |  |  | *  |  
|Customer B |  |                      | 20 | %    |  |      | *  |   |  |  | *  |  
|Customer C |  |                      | 14 | %    |  |      | 10 | % |  |  | 11 | %
|Customer D |  |                      | *  |      |  |      | 11 | % |  |  | *  |  
|Customer E |  |                      | *  |      |  |      | *  |   |  |  | 13 | %



---



|  |               
|- | --------------
|* | Less than 10%.

At June 30, 2004, two customers accounted
for 41% and 28% of total accounts receivable, respectively. At
June 30, 2003, two customers accounted for 27% and 15% of
total accounts receivable, respectively.



| |            
| | -----------
| | Inventories

Inventories are stated at the lower of cost or
market. Cost is determined using standard cost, which
approximates actual cost on a first-in, first-out basis.
Inventory is subject to rapid technological changes that could
have an adverse affect on its realization in future periods. The
Company regularly assesses the valuation of inventories and
writes down those inventories which are obsolete or in excess of
forecasted usage to their estimated realizable value. Estimates
of realizable value are based upon the Companys analyses
and assumptions including, but not limited to, forecasted sales
levels by product, expected product lifecycle, product
development plans and future demand requirements. If market
conditions are less favorable than the Companys forecast
or actual demand from customers is lower than the Companys
estimates, the Company may be required to record additional
inventory write-downs. If demand is higher than expected, the
Company may sell inventories that had previously been written
down.



| |                              
| | -----------------------------
| | Property, Plant and Equipment

Property, plant and equipment are stated at cost.
Depreciation is computed using the straight-line method based
upon the useful lives of the assets. Estimated useful lives of
20 years are used for buildings and five years are used for
manufacturing and engineering equipment. Estimated useful lives
of three to five years are used for computer hardware and
software. Leasehold improvements are amortized using the
straight-line method based upon the shorter of the estimated
useful lives or the lease term of the respective assets.



| |                                   
| | ----------------------------------
| | Long-Lived Assets and
    Goodwill

Periodically, the Company evaluates the
recoverability of the net carrying value of its property, plant
and equipment and its intangible assets by comparing the
carrying values to the estimated future undiscounted cash flows.
A deficiency in these cash flows relative to the carrying
amounts is an indication of the need for a write-down due to
impairment. The impairment write-down would be the difference
between the carrying amounts and the fair value of these assets.
A loss on impairment would be recognized by a charge to
earnings. If an asset being tested for recoverability was
acquired in a business combination, the goodwill that arose in

F-10



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

that business combination is included as part of
the asset in determining recoverability if the asset is or
includes a reporting unit.

In May 2003, the Company adopted a plan to sell
its Shanghai operation. As the sale of the Shanghai operation
represented a disposal of a component of an entity
as defined in SFAS No. 144, Accounting for the
Impairment or Disposal of Long Lived Assets,
(SFAS No. 144), the Shanghai operation was
accounted as a discontinued operation and the Company recorded
an impairment charge of $2,825,000 in the year ended
June 30, 2003 to reflect the write down of net assets of
Shanghai operation to its estimated net realizable value, less
costs to sell. In May 2004, one year following the planned sale
of our Shanghai operation and considering growth in the
telecommunications market, the Company determined that this
facility is more strategic to its operations than in prior
periods due to the need to ensure a supply of the parts
manufactured at the Shanghai facility as a result of an increase
in demand for these types of parts in the market and the
acquisition of one of the Companys suppliers by one of the
Companys competitors. Therefore, the Company has decided
not to dispose of this facility and has returned it to
continuing operations. Accordingly, the Shanghai operation has
been reclassified from discontinued to continuing operations in
the accompanying financial statements. In accordance with
SFAS No. 144, the Shanghai operation is measured at
the lower of its carrying amount before it was classified as a
discontinued operation, adjusted for depreciation expense that
would have been recognized had it been continuously classified
as part of continuing operations, or the fair value at the date
of the Companys decision not to dispose of the facility.
The Company engaged an independent third-party appraisal firm to
assist in determining the fair value of the Shanghai operation.
As the lower of the fair value of the Shanghai operation at the
date of the Companys decision and its original carrying
value less depreciation expense is greater than its current
carrying value, the Company did not record an additional
impairment charge in fiscal 2004.



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes under the
liability method, which recognizes deferred tax assets and
liabilities for the expected future tax consequences of
temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts, and
for net operating loss and tax credit carryforwards. The Company
records a valuation allowance against deferred tax assets when
it is more likely than not that such assets will not be realized.



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Research and development expenses consist
primarily of salaries including stock-based compensation expense
and related personnel costs, depreciation, non-recurring
engineering charges and prototype costs, patent filing costs and
fees paid to consultants and outside service providers, all of
which relate to the design, development, testing,
pre-manufacturing and significant improvement of the
Companys products. Research and development costs are
charged to operations as incurred.



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for its stock-based
compensation issued to employees using the intrinsic value
method prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for
Stock Issued to Employees. SFAS No. 123
establishes accounting and disclosure requirement using a fair
value method of accounting for stock-based employee compensation
plans as well as stock and other equity instruments issued to
non-employees which are accounted for in accordance with
SFAS No. 123 and Emerging Issues Task Force Issue
No. 96-18 and valued using the Black-Scholes option-pricing
model.

F-11



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table sets forth the pro forma
information as if the provisions of SFAS No. 123 had
been applied to account for stock-based employee compensation
(in thousands, except per share data):

|                                                                              |  |                      |         |      |  |      |         |   |  |   |         |  
|----------------------------------------------------------------------------- |  | -------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                              |  |                     
|                                                                              |  | Years Ended June 30,
|                                                                              |  |                     
|                                                                              |  | 2004                 |         | 2003 |  | 2002
|                                                                              |  |                      |         |      |  |     
|Net loss as reported                                                          |  | $                    | (6,441  | )    |  | $    | (36,787 | ) |  | $ | (68,374 | )
|Stock-based employee compensation expense
    included in reported net loss   |  |                      | 1,689   |      |  |      | 1,873   |   |  |   | 4,714   |  
|Pro forma stock compensation expense computed
    under the fair value method |  |                      | (6,415  | )    |  |      | (8,040  | ) |  |   | (23,685 | )
|                                                                              |  |                      |         |      |  |      |         |   |  |   |         |  
|Pro forma net loss                                                            |  | $                    | (11,167 | )    |  | $    | (42,954 | ) |  | $ | (87,345 | )
|                                                                              |  |                      |         |      |  |      |         |   |  |   |         |  
|Basic and diluted net loss per share, as reported                             |  | $                    | (0.04   | )    |  | $    | (0.23   | ) |  | $ | (0.42   | )
|                                                                              |  |                      |         |      |  |      |         |   |  |   |         |  
|Pro forma basic and diluted net loss per share                                |  | $                    | (0.08   | )    |  | $    | (0.27   | ) |  | $ | (0.54   | )
|                                                                              |  |                      |         |      |  |      |         |   |  |   |         |  

The Company calculated the fair value of each
option grant on the date of grant in accordance with
SFAS No. 123 using the following weighted average
assumptions:

|                        |  |                      |          |      |  |      |          |   |  |  |          |  
|----------------------- |  | -------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                        |  |                     
|                        |  | Years Ended June 30,
|                        |  |                     
|                        |  | 2004                 |          | 2003 |  | 2002
|                        |  |                      |          |      |  |     
|Risk-free interest rate |  |                      | 3.32     | %    |  |      | 2.94     | % |  |  | 5.36     | %
|Expected life of option |  |                      | 4  years |      |  |      | 4  years |   |  |  | 4  years |  
|Expected dividends      |  |                      | 0        | %    |  |      | 0        | % |  |  | 0        | %
|Volatility              |  |                      | 70       | %    |  |      | 70       | % |  |  | 70       | %

The estimated fair value of purchase rights under
the Companys Purchase Plan is determined using the
Black-Scholes pricing model with the following assumptions for
the years ended June 30, 2004, 2003 and 2002:

|                        |  |                      |          |      |  |      |          |   |  |  |          |  
|----------------------- |  | -------------------- | -------- | ---- |  | ---- | -------- | - |  |  | -------- | -
|                        |  |                     
|                        |  | Years Ended June 30,
|                        |  |                     
|                        |  | 2004                 |          | 2003 |  | 2002
|                        |  |                      |          |      |  |     
|Risk-free interest rate |  |                      | 1.98     | %    |  |      | 1.43     | % |  |  | 2.13     | %
|Expected average life   |  |                      | 2  years |      |  |      | 2  years |   |  |  | 2  years |  
|Expected dividends      |  |                      | 0        | %    |  |      | 0        | % |  |  | 0        | %
|Volatility              |  |                      | 70       | %    |  |      | 70       | % |  |  | 70       | %

The weighted average per share fair value of
purchase rights under the Purchase Plan was $0.62 during fiscal
2004, $0.37 during fiscal 2003 and $0.64 during fiscal 2002.

Such pro forma disclosures may not be
representative of future compensation cost because options vest
over several years and additional grants are made each year.



| |                                                            
| | -----------------------------------------------------------
| | Derivative Financial Instruments and
    Hedging Activities

SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities requires
companies to value derivative financial instruments, including
those used for hedging foreign currency exposures, at current
market value, with the impact of any change in market value
charged against earnings in the corresponding period or as a
component of comprehensive income (loss), depending on the type
of hedging relationship that exists. The Company has not entered
into any derivative financial instrument contracts.

F-12



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                   
| | ------------------
| | Comprehensive Loss

Comprehensive loss is defined as the change in
equity of a business enterprise during a period from
transactions and other events and circumstances from non-owner
sources, including foreign currency translation adjustments and
unrealized gains and losses on investments.



| |                          
| | -------------------------
| | Net Loss Per Common Share

The Company computes net loss per share in
accordance with SFAS No. 128, Earnings Per
Share, and Securities and Exchange Commission 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 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. Potentially dilutive common equivalent
shares are composed of the incremental common shares issuable
upon the exercise of stock options. 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 share and per share data):

|                                                                              |                                     |                      |            |             |   |      |            |             |   |  |            |             |  
|----------------------------------------------------------------------------- | ----------------------------------- | -------------------- | ---------- | ----------- | - | ---- | ---------- | ----------- | - |  | ---------- | ----------- | -
|                                                                              |                                     |                     
|                                                                              |                                     | Years Ended June 30,
|                                                                              |                                     |                     
|                                                                              |                                     | 2004                 |            | 2003        |   | 2002
|                                                                              |                                     |                      |            |             |   |     
|Numerator:                                                                    |                                     |                      |            |             |   |      |            |             |   |  |            |            
|                                                                              | Net loss                            |                      | $          | (6,441      | ) |      | $          | (36,787     | ) |  | $          | (68,374     | )
|                                                                              |                                     |                      |            |             |   |      |            |             |   |  |            |            
|Denominator:                                                                  |                                     |                      |            |             |   |      |            |             |   |  |            |            
|                                                                              | Weighted average shares outstanding |                      |            | 145,479,442 |   |      |            | 158,781,618 |   |  |            | 162,688,216 |  
|                                                                              |                                     |                      |            |             |   |      |            |             |   |  |            |            
|Net loss per share:                                                           |                                     |                      |            |             |   |      |            |             |   |  |            |            
|                                                                              | Basic and diluted                   |                      | $          | (0.04       | ) |      | $          | (0.23       | ) |  | $          | (0.42       | )
|                                                                              |                                     |                      |            |             |   |      |            |             |   |  |            |            
|Antidilutive stock options not included in net
    loss per share calculation |                                     |                      | 19,794,330 |             |   |      | 20,460,615 |             |   |  | 27,356,849 |            
|                                                                              |                                     |                      |            |             |   |      |            |             |   |  |            |            



| |                                         
| | ----------------------------------------
| | Recently Issued Accounting
    Standards

On March 31, 2004, the FASB issued a
proposed Statement, Share-Based Payment, an amendment of
FASB Statements No. 123 and 95, that addresses the
accounting for share-based payment transactions in which an
enterprise receives employee services in exchange for either
equity instruments of the enterprise or liabilities that are
based on the fair value of the enterprises equity
instruments or that may be settled by the issuance of such
equity instruments. The proposed statement would eliminate the
ability to account for share-based compensation transactions
using the intrinsic value method as prescribed by Accounting
Principles Board, or APB, Opinion No. 25, Accounting
for Stock Issued to Employees, and generally would require
that such transactions be accounted for using a fair-value-based
method and recognized as expenses in our consolidated statement
of operations. The proposed standard would require that the
modified prospective method be used, which requires that the
fair value of new awards granted from the beginning of the year
of adoption (plus unvested awards at the date of adoption) be
expensed over the vesting period. In addition, the proposed
statement encourages the use of the binomial
approach to value stock options, which differs from the
Black-Scholes option pricing model that the Company currently
uses in the footnotes to its consolidated financial statements.
The recommended effective date of the proposed standard for
public companies is currently for fiscal years beginning after
December 15, 2004.

Should this proposed statement be finalized in
its current form, it will have a significant impact on the
Companys operating results as the Company will be required
to expense the fair value of its stock option grants and stock
purchases under the Companys employee stock purchase plan
rather than disclose the

F-13



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

impact on its consolidated net loss within its
footnotes, as is the Companys current practice. In
addition, there are a number of implementation questions that
are not fully resolved by the proposed statement. As a result,
there may be additional changes reflected in the Companys
financial statements upon issuance of the final standard.

At its November 2003 meeting, the Emerging Issues
Task Force (EITF) reached a consensus on disclosure
guidance previously discussed under EITF 03-01, The
Meaning of Other-Than-Temporary Impairment and Its Application
to Certain Investments. The consensus provided for certain
disclosure requirements that were effective for fiscal years
ending after December 15, 2003. The Company adopted the
disclosure requirements during the fiscal year ended
June 30, 2004.

At its March 2004 meeting, the EITF reached a
consensus on recognition and measurement guidance previously
discussed under EITF 03-01. The consensus clarifies the
meaning of other-than-temporary impairment and its application
to investments classified as either available-for-sale or
held-to-maturity under FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity
Securities, and investments accounted for under the cost
method or the equity method. The recognition and measurement
guidance for which the consensus was reached in the March 2004
meeting is to be applied to other-than-temporary impairment
evaluations in reporting periods beginning after June 15,
2004. The Company believes that this consensus on the
recognition and measurement guidance will not have a material
impact on its financial position, results of operations or cash
flows.

In various areas, including revenue recognition
and stock option accounting, accounting standards and practices
continue to evolve. Additionally, the SEC and the FASBs
Emerging Issues Task Force continue to address revenue and stock
option related accounting issues. The management of the Company
believes it is in compliance with all of the rules and related
guidance as they currently exist. However, any changes to
generally accepted accounting principles in these areas could
impact the Companys future accounting for its operations.



|         |                                     
|-------- | ------------------------------------
|Note 3  | Short-Term and Long-Term Investments

The Company generally invests its excess cash in
debt instruments of the U.S. Treasury, government agencies
and corporations with strong credit ratings. Such investments
are made in accordance with the Companys investment
policy, which establishes guidelines relative to diversification
and maturities designed to maintain safety and liquidity. These
guidelines are periodically reviewed and modified to take
advantage of trends in yields and interest rates. To date, the
Company has not experienced any significant losses on its
investments.

F-14



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Short-term and long-term investments consist of
the following (in thousands):

|                              |                                                                  |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |   |        |        | 
|----------------------------- | ---------------------------------------------------------------- | --------------------------------- | ---------------------------- | ---------- | ------ | ---------- |  | ---------- | - | - |  | - | ---- | ---- | - | - | ------ | ------ | 
|                              |                                                                  |                                  
|                              |                                                                  | June 30, 2004                    
|                              |                                                                  |                                  
|                              |                                                                  |                                   |                              | Gross      |        | Gross      |  |           
|                              |                                                                  | Amortized                         |                              | Unrealized |        | Unrealized |  | Estimated 
|                              |                                                                  | Cost                              |                              | Gains      |        | Losses     |  | Fair Value
|                              |                                                                  |                                   |                              |            |        |            |  |           
|Available-for-sale securities |                                                                  |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |  
|                              | Short-term investments                                           |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |   |       
|                              |                                                                  | Commercial paper                  |                              | $          | 7,499  |            |  | $          |  |   |  | $ | (2   | )    |   | $ | 7,497  |       
|                              |                                                                  | Corporate bonds                   |                              |            | 12,457 |            |  |            |  |   |  |   | (82  | )    |   |   | 12,375 |       
|                              |                                                                  | United States government agencies |                              |            | 5,000  |            |  |            |  |   |  |   | (23  | )    |   |   | 4,977  |       
|                              |                                                                  |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |  
|                              |                                                                  |                                   | Total short-term investments |            |        | 24,956     |  |            |   |  |  |   |      | (107 | ) |   |        | 24,849 | 
|                              |                                                                  |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |  
|Held-to-maturity securities   |                                                                  |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |  
|                              | Long-term investments  due between one
    year and three years |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |   |       
|                              |                                                                  | Corporate bonds                   |                              |            | 16,182 |            |  |            |  |   |  |   | (197 | )    |   |   | 15,985 |       
|                              |                                                                  | United States Government agencies |                              |            | 39,022 |            |  |            |  |   |  |   | (322 | )    |   |   | 38,700 |       
|                              |                                                                  |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |  
|                              |                                                                  |                                   | Total long-term investments  |            | $      | 55,204     |  |            | $ |  |  |   | $    | (519 | ) |   | $      | 54,685 | 
|                              |                                                                  |                                   |                              |            |        |            |  |            |   |   |  |   |      |      |   |  

|                              |                        |                                   |                              |            |        |            |  |            |   |    |  |   |    |    |   |   |        |        | 
|----------------------------- | ---------------------- | --------------------------------- | ---------------------------- | ---------- | ------ | ---------- |  | ---------- | - | -- |  | - | -- | -- | - | - | ------ | ------ | 
|                              |                        |                                  
|                              |                        | June 30, 2003                    
|                              |                        |                                  
|                              |                        |                                   |                              | Gross      |        | Gross      |  |           
|                              |                        | Amortized                         |                              | Unrealized |        | Unrealized |  | Estimated 
|                              |                        | Cost                              |                              | Gains      |        | Losses     |  | Fair Value
|                              |                        |                                   |                              |            |        |            |  |           
|Available-for-sale securities |                        |                                   |                              |            |        |            |  |            |   |    |  |   |    |    |   |  
|                              | Short-term investments |                                   |                              |            |        |            |  |            |   |    |  |   |    |    |   |   |       
|                              |                        | Commercial paper                  |                              | $          | 34,940 |            |  | $          | 8 |    |  | $ | (1 | )  |   | $ | 34,947 |       
|                              |                        | Corporate bonds                   |                              |            | 26,677 |            |  |            | 1 |    |  |   | (6 | )  |   |   | 26,672 |       
|                              |                        | United States government agencies |                              |            | 4,985  |            |  |            | 1 |    |  |   |   |    |   |   | 4,986  |       
|                              |                        |                                   |                              |            |        |            |  |            |   |    |  |   |    |    |   |  
|                              |                        |                                   | Total short-term investments |            | $      | 66,602     |  |            | $ | 10 |  |   | $  | (7 | ) |   | $      | 66,605 | 
|                              |                        |                                   |                              |            |        |            |  |            |   |    |  |   |    |    |   |  

During fiscal 2004, the Company did not sell any
held-to-maturity securities.

F-15



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|         |                                          
|-------- | -----------------------------------------
|Note 4  | Restructuring Costs and Other
    Charges

A summary of the restructuring charges accrued in
fiscal 2001, 2002, 2003 and 2004 is as follows (in thousands):

|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | --------- | ------ | --------------- |  | ----------------- | ------- | ----------------- |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                                    |  |           |        |                 |  | Consolidation of  |         | Impairment of     |  |      
|                                                                                    |  |           |        |                 |  | Excess Facilities |         | Goodwill and      |  |      
|                                                                                    |  | Workforce |        | Excess Property |  | and Other         |         | Purchased         |  |      
|                                                                                    |  | Reduction |        | and Equipment   |  | Charges           |         | Intangible Assets |  | Total
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |      
|Initial restructuring charge in the fourth
    quarter of fiscal 2001               |  | $         | 250    |                 |  | $                 |        |                   |  | $     | 5,485  |   |  | $ | 12,442  |   |  | $ | 18,177  |  
|Non-cash charge                                                                     |  |           |       |                 |  |                   |        |                   |  |       |       |   |  |   | (12,442 | ) |  |   | (12,442 | )
|Cash payments                                                                       |  |           |       |                 |  |                   |        |                   |  |       | (1,191 | ) |  |   |        |   |  |   | (1,191  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2001                                                            |  |           | 250    |                 |  |                   |        |                   |  |       | 4,294  |   |  |   |        |   |  | $ | 4,544   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 2,820   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 1,724   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Additional restructuring charge in the fourth
    quarter of fiscal 2002            |  |           | 2,899  |                 |  |                   | 16,635  |                   |  |       | 9,374  |   |  |   |        |   |  |   | 28,908  |  
|Non-cash charge                                                                     |  |           |       |                 |  |                   | (16,260 | )                 |  |       |       |   |  |   |        |   |  |   | (16,260 | )
|Cash payments                                                                       |  |           | (2,269 | )               |  |                   | (375    | )                 |  |       | (4,869 | ) |  |   |        |   |  |   | (7,513  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2002                                                            |  |           | 880    |                 |  |                   |        |                   |  |       | 8,799  |   |  |   |        |   |  | $ | 9,679   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 4,355   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 5,324   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Additional restructuring charge in the second and
    fourth quarter of fiscal 2003 |  |           | 1,831  |                 |  |                   | 10,724  |                   |  |       | 1,267  |   |  |   | 301     |   |  |   | 14,123  |  
|Non-cash charge                                                                     |  |           |       |                 |  |                   | (10,724 | )                 |  |       | 310    |   |  |   | (301    | ) |  |   | (10,715 | )
|Cash payments                                                                       |  |           | (2,535 | )               |  |                   |        |                   |  |       | (6,062 | ) |  |   |        |   |  |   | (8,597  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2003                                                            |  |           | 176    |                 |  |                   |        |                   |  |       | 4,314  |   |  |   |        |   |  | $ | 4,490   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 3,018   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 1,472   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Additional restructuring charge in the fourth
    quarter of fiscal 2004            |  |           |       |                 |  |                   |        |                   |  |       | 452    |   |  |   |        |   |  |   | 452     |  
|Adjustment                                                                          |  |           | 99     |                 |  |                   |        |                   |  |       | (99    | ) |  |   |        |   |  |   |        |  
|Cash payments                                                                       |  |           | (275   | )               |  |                   |        |                   |  |       | (2,768 | ) |  |   |        |   |  |   | (3,043  | )
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance at June 30, 2004                                                            |  | $         |       |                 |  | $                 |        |                   |  | $     | 1,899  |   |  | $ |        |   |  | $ | 1,899   |  
|Less: accrued restructuring costs, current                                          |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   | 1,795   |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  
|Accrued restructuring costs, non current                                            |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  | $ | 104     |  
|                                                                                    |  |           |        |                 |  |                   |         |                   |  |       |        |   |  |   |         |   |  |   |         |  



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Restructuring Costs and Other Charges
    Incurred During the Year Ended June 30, 2004

During fiscal 2004, the Company increased the
restructuring liabilities related to consolidation of excess
facilities and other charges by a total of $452,000, which was
recorded during the fourth quarter of fiscal 2004, due to
changes in real estate market conditions.

F-16



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Restructuring Costs and Other Charges
    Incurred During the Year Ended June 30, 2003

For the year ended June 30, 2003,
$14.1 million of restructuring costs and other charges were
recorded as operating expenses for worldwide workforce
reduction, consolidation of excess property and equipment and
facilities and other charges. The following paragraphs provide
detailed information relating to the restructuring costs and
other charges for the year ended June 30, 2003.



| |                              
| | -----------------------------
| | Worldwide Workforce Reduction

During the year ended June 30, 2003, the
Company recorded a charge of approximately $1.8 million
primarily related to severance and fringe benefits associated
with the planned reduction of approximately 460 employees and
voluntary termination of the Companys former Chief
Executive Officer. Of the $1.8 million charge,
approximately $812,000 was severance and fringe benefits
associated with the resignation of the Companys former
Chief Executive Officer. Of the planned reduction of
approximately 460 employees, approximately 360 employees were
engaged in manufacturing activities and approximately 110
employees and 350 employees were from sites located in
San Jose, California and China, respectively. As of
June 30, 2004, the planned worldwide workforce reductions
have been completed.



| |                                                                
| | ---------------------------------------------------------------
| | Excess Property and Equipment, Facilities and
    Other Charges

The Company recorded a restructuring charge of
$10.7 million relating to excess property and equipment
during the year ended June 30, 2003. Property and equipment
disposed of or removed from operations of $7.1 million were
related to the manufacture of fiber optic subsystems, integrated
modules and components. The excess property and equipment charge
represented the charge required to re-measure such assets at the
lower of carrying amount or fair value less cost to sell. The
carrying amount of property and equipment to be disposed of has
been included in prepaid expenses and other current assets on
the Consolidated Balance Sheet. Additionally, property and
equipment removed from operations of $3.6 million consisted
primarily of leasehold improvements associated with the
consolidation of excess facilities.

In addition, the Company incurred a charge of
$1.6 million for leases, primarily related to excess or
closed facilities with planned exit dates. The Company estimated
the cost of the facility leases based on the contractual terms
of the agreements and then-current real estate market
conditions. The Company determined that it would take
approximately two years to sublease the various properties that
will be vacated, and then subleased at lower values than the
Company is contractually obligated to pay. Amounts related to
the lease expense (net of anticipated sublease proceeds) as well
as projected costs to terminate the lease will be paid over the
respective lease terms ending in 2005. The consolidation of
excess facilities includes the closure of certain manufacturing
facilities located in San Jose, California and Zhuhai,
China. The total number of sites closed under the restructuring
plan is three. The Company also recorded a benefit to
restructuring costs and other charges of $336,000 relating
primarily to change of estimated amounts due to suppliers and
vendors to terminate agreements for the purchase of capital
equipment and inventory.



| |                                                           
| | ----------------------------------------------------------
| | Impairment of Goodwill and Purchased
    Intangible Assets

Due to a decline in business conditions, the
Company abandoned one of its technologies in the second quarter
of fiscal 2003. As a result, the Company recorded a charge of
$301,000 during the fiscal year ended June 30, 2003.



| |                                                                                                     
| | ----------------------------------------------------------------------------------------------------
| | Restructuring Costs and Other Charges
    Incurred During the Years Ended June 30, 2002 and
    2001

For the years ended June 30, 2002 and 2001,
$28.9 million and $18.2 million, respectively, of
restructuring costs and other charges were recorded as operating
expenses. In addition, a $10.4 million and
$30.6 million excess and obsolete inventory charge was
recorded to cost of sales for the fiscal years ended

F-17



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

June 30, 2002 and 2001, respectively. The
following paragraphs provide detailed information relating to
the restructuring costs and other charges and excess and
obsolete inventory charge during the years ended June 30,
2002 and 2001.



| |                              
| | -----------------------------
| | Worldwide Workforce Reduction

The worldwide workforce reductions in connection
with our initial plans of restructuring started in the fourth
quarter of fiscal 2001. During the fiscal years ended
June 30, 2002 and 2001, the Company recorded a charge of
approximately $2.9 million and $250,000, respectively,
primarily related to severance and fringe benefits associated
with the planned reduction of approximately 2,700 employees. Of
the planned reduction of approximately 2,700 employees,
approximately 2,400 were engaged in manufacturing activities and
approximately 800 and 1,900 were from sites located in
San Jose, California and China, respectively. The planned
worldwide workforce reductions in connection with the
Companys initial plans were completed in the second
quarter of fiscal 2003.



| |                                                                
| | ---------------------------------------------------------------
| | Excess Property and Equipment, Facilities and
    Other Charges

The Company recorded a restructuring charge of
$16.6 million relating to excess property and equipment
during the fiscal year ended June 30, 2002. Property and
equipment disposed of or removed from operations were related to
the manufacture of fiber optic subsystems, integrated modules
and components. The excess property and equipment charge
represented the charge required to re-measure such assets at the
lower of carrying amount or fair value less cost to sell. While
the remaining assets removed from operations as of June 30,
2004 are being actively marketed, the Company expects the period
of disposal to be an additional twelve months for most of the
assets. The property and equipment disposed of or removed from
operations consisted primarily of production and engineering
equipment, but also included leasehold improvements, computer
equipment, office equipment and furniture and fixtures.

In addition, during the fiscal years ended
June 30, 2002 and 2001, the Company incurred a charge of
$7.5 million and $3.9 million, respectively, for
leases primarily related to excess or closed facilities with
planned exit dates. The Company estimated the cost of the
facility leases based on the contractual terms of the agreements
and then current real estate market conditions. The Company
determined that it would take approximately two years to
sublease the various properties that will be vacated, and then
subleased at lower values than the Company is contractually
obligated to pay. Amounts related to the lease expense (net of
anticipated sublease proceeds) will be paid over the respective
lease terms ending in 2005. The consolidation of excess
facilities includes the closure of certain manufacturing and
research and development facilities located in San Jose,
California and Beijing, Chengdu and Fuzhou, China. The total
number of sites closed under the restructuring plan is six. The
Company also recorded restructuring costs and other charges of
$1.9 million and $1.6 million relating primarily to
payments due to suppliers and vendors to terminate agreements
for the purchase of capital equipment and inventory for the
years ended June 30, 2002 and 2001, respectively.



| |                                                
| | -----------------------------------------------
| | Provision for Excess and Obsolete
    Inventory

The Company recorded provisions for excess and
obsolete inventory totaling $10.4 million and
$30.6 million, which was charged to cost of sales during
the fiscal years ended June 30, 2002 and June 30,
2001, respectively. These excess inventory charges were due to
sudden and material declines in backlog and forecasted revenue.
The Company evaluates the need to provide write downs for excess
and obsolete inventory on an individual part analysis based on
estimated future sales of its products compared to quantities on
hand at each balance sheet date. This analysis is based on
specific sales forecasts for each of our products. Information
that the Company would consider in determining the forecast
would include contractual obligations to deliver

F-18



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

products, purchase orders with delivery dates or
managements knowledge of a specific order that would
significantly alter the sales forecast.



| |                                 
| | --------------------------------
| | Return of Property and Equipment

As of June 30, 2001, the Company had
$8.6 million of accounts payable associated with the
purchase of certain capital equipment from a vendor. In
connection with an evaluation of its manufacturing capacity
needs, it was determined that this new capital equipment was
excess based on current anticipated production levels. During
the fiscal year ended June 30, 2002, the Company negotiated
a settlement with the vendor whereby the vendor accepted the
return of equipment over several quarters totaling
$8.6 million for a settlement fee of $500,000. Accordingly,
the change in accounts payable and property and equipment is
reflected as a non-cash item in the Consolidated Statement of
Cash Flows.



| |                                                           
| | ----------------------------------------------------------
| | Impairment of Goodwill and Purchased
    Intangible Assets

For the year ended June 30, 2001, a
$12.4 million charge was recorded based upon an impairment
analysis of the carrying amount of the goodwill and purchased
intangible assets related to our acquisition of Telelight
Communication, Inc., which we completed in April 2000.



|         |             
|-------- | ------------
|Note 5  | Acquisitions

On November 3, 2003, the Company acquired
substantially all assets of RedClover Networks, Inc.
(RedClover), an early-stage private company that
designed and manufactured broadband optical interface products
for access, storage, metro and long-haul networks. The purchase
price was comprised of $250,000 in cash and $70,000 in
transaction costs. In addition, the Company spent $1,135,000 in
cash to settle liabilities assumed in connection with the
acquisition of RedClover. The Company paid $150,000 upon the
closing of the acquisition and the remaining $100,000 will be
paid twelve months after the date of the RedClover acquisition,
subject to satisfaction of any indemnification obligations owed
by RedClover and its stockholders to the Company. The RedClover
acquisition was accounted for under the purchase method of
accounting.

On February 4, 2004, the Company acquired
Accumux Technologies, Inc. (Accumux), an early-stage
private company that developed a standard-tunable dispersion
compensation module (DCM) for dense wavelength
division multiplexing (DWDM) fiber optic
communication systems. Pursuant to the terms of the definitive
merger agreement, a wholly owned subsidiary of the Company was
merged with and into Accumux and Accumux became a wholly owned
subsidiary of the Company. The purchase price was comprised of
600,000 shares of the Companys common stock valued at
$1,611,600 based on the average per share closing prices on
February 2, 2004 through February 6, 2004 of $2.686
and transaction costs of approximately $50,000. In addition, the
Company spent $81,000 in cash to settle liabilities assumed in
connection with the acquisition of Accumux. The Accumux
acquisition was accounted for under the purchase method of
accounting.

On March 23, 2004, the Company acquired
substantially all assets of Gigabit Optics Corporation
(Gigabit), an early-stage private company that
developed and marketed micro-optical subassemblies. The purchase
price was comprised of transaction costs of approximately
$37,000 and $1,150,000 in cash, of which $500,000 was paid upon
closing, $350,000 will be paid upon satisfaction of certain
events and the remaining $300,000 is subject to an escrow to
secure certain indemnification obligations owned by Gigabit to
the Company. The Gigabit acquisition was accounted for under the
purchase method of accounting.

F-19



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the acquisitions is as follows (in
thousands):

|                                    |                                              |           |     |         |  |         |       |       |  |   |       |       | 
|----------------------------------- | -------------------------------------------- | --------- | --- | ------- |  | ------- | ----- | ----- |  | - | ----- | ----- | 
|                                    |                                              | RedClover |     | Accumux |  | Gigabit
|                                    |                                              |           |     |         |  |        
|Cash                                |                                              | $         | 250 |         |  | $       |      |       |  | $ | 1,150 |      
|Value of securities issued          |                                              |           |    |         |  |         | 1,612 |       |  |   |      |      
|Transaction costs                   |                                              |           | 70  |         |  |         | 50    |       |  |   | 37    |      
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|                                    | Purchase price                               |           |     | 320     |  |         |       | 1,662 |  |   |       | 1,187 | 
|                                    | Liabilities assumed                          |           |     | 1,135   |  |         |       | 81    |  |   |       |      | 
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|                                    | Total purchase price and assumed liabilities |           | $   | 1,455   |  |         | $     | 1,743 |  |   | $     | 1,187 | 
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|Assets acquired:                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|Cash and cash equivalents           |                                              | $         |    |         |  | $       | 1,054 |       |  | $ |      |      
|Inventories                         |                                              |           | 11  |         |  |         |      |       |  |   | 53    |      
|Fixed assets                        |                                              |           | 583 |         |  |         | 393   |       |  |   | 172   |      
|In-process research and development |                                              |           | 861 |         |  |         | 251   |       |  |   | 453   |      
|Patent                              |                                              |           |    |         |  |         | 45    |       |  |   |      |      
|Technology                          |                                              |           |    |         |  |         |      |       |  |   | 509   |      
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      
|                                    | Total                                        |           | $   | 1,455   |  |         | $     | 1,743 |  |   | $     | 1,187 | 
|                                    |                                              |           |     |         |  |         |       |       |  |   |       |      

The in-process research and development (IP
R&D) in connection with the acquisition of RedClover
consisted of a single channel transponder which is being
designed to provide 10 gigabyte per second (Gb/s)
ethernet physical transceiver layer for local area network
applications, and a narrowly tunable transponder which is being
designed to combine the functionality of a standard SFI-4
compliant electrical interface, 10 Gb/s optical interface,
tunable laser, and adaptive receiver with embedded ultra-compact
dispersion compensation in a single intelligent sub-system
module for optical networks.

The IP R&D in connection with the acquisition
of Accumux consisted of a standard-tunable DCM for DWDM
fiber-optic communication systems, which will be installed into
existing long haul networks to improve the performance of
existing fiber cables and provide low residual transmission
errors at speeds of up to 10 Gb/s.

The IP R&D in connection with the acquisition
of Gigabit consisted of a next generation MicroMux which is a
filter design coarse wavelength division multiplexing
(CWDM) device and is designed to accommodate large
increases in packet based data traffic, and a laser-equipped
Micro-LX4 platform which has four CWDM laser diodes in a smaller
footprint.

The value of the IP R&D products was
determined by estimating the net cash flows from the sale of the
products resulting from the completion of the respective R&D
projects, reduced by the portion of the net cash flows from the
revenue attributable to core technology. The resulting cash
flows were then discounted back to their present value using a
discount rate ranging from 35% to 45%. At the time of the
acquisitions, these products had not yet reached technological
feasibility and had no alternative future use. The fair value
assigned to the IP R&D in connection with the acquisitions
of RedClover, Accumux and Gigabit was $861,000, $251,000 and
$453,000, respectively, and was charged to expense at the time
of each respective acquisition.

The Company acquired developed technology from
Gigabit, which was comprised of products that are
technologically feasible, primarily including first generation
micro-optical assemblies, MicroMux and PatchMux. The Company
amortizes the developed technology on a straight-line basis over
an estimated life of three years.

F-20



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company allocated the purchase price of
acquired companies and assets to the tangible and intangible
assets acquired and liabilities assumed based on their estimated
fair values. The Company engaged independent third-party
appraisal firms to assist in determining the fair values of the
assets acquired and the liabilities assumed. Such valuations
require management to make significant estimations and
assumptions, especially with respect to intangible assets.



|         |                                            
|-------- | -------------------------------------------
|Note 6  | Balance Sheet Components (In
    thousands)

|                                  |                                                  |          |        |         |   |   |        |         |  
|--------------------------------- | ------------------------------------------------ | -------- | ------ | ------- | - | - | ------ | ------- | -
|                                  |                                                  |         
|                                  |                                                  | June 30,
|                                  |                                                  |         
|                                  |                                                  | 2004     |        | 2003   
|                                  |                                                  |          |        |        
|Accounts receivable               |                                                  |          |        |         |   |   |        |        
|                                  | Accounts receivable                              |          | $      | 7,986   |   |   | $      | 5,314   |  
|                                  | Less: Allowance for doubtful accounts            |          |        | (441    | ) |   |        | (598    | )
|                                  |                                                  |          |        |         |   |   |        |        
|                                  |                                                  | $        | 7,545  |         |   | $ | 4,716  |        
|                                  |                                                  |          |        |         |   |   |        |        
|Prepaid expenses and other assets |                                                  |          |        |         |   |   |        |        
|                                  | Prepaid expenses                                 |          | $      | 1,892   |   |   | $      | 1,294   |  
|                                  | Assets held for sale                             |          |        | 922     |   |   |        | 1,061   |  
|                                  |                                                  |          |        |         |   |   |        |        
|                                  |                                                  | $        | 2,814  |         |   | $ | 2,355  |        
|                                  |                                                  |          |        |         |   |   |        |        
|Inventories:                      |                                                  |          |        |         |   |   |        |        
|                                  | Raw materials                                    |          | $      | 9,751   |   |   | $      | 12,636  |  
|                                  | Work-in-process                                  |          |        | 4,282   |   |   |        | 5,224   |  
|                                  | Finished goods                                   |          |        | 4,592   |   |   |        | 4,018   |  
|                                  |                                                  |          |        |         |   |   |        |        
|                                  |                                                  |          | 18,625 |         |   |   | 21,878 |        
|                                  | Less: Reserves for excess and obsolete inventory |          |        | (13,858 | ) |   |        | (18,442 | )
|                                  |                                                  |          |        |         |   |   |        |        
|                                  |                                                  | $        | 4,767  |         |   | $ | 3,436  |        
|                                  |                                                  |          |        |         |   |   |        |        
|Property, plant and equipment:    |                                                  |          |        |         |   |   |        |        
|                                  | Production and engineering equipment             |          | $      | 33,195  |   |   | $      | 31,788  |  
|                                  | Computer hardware and software                   |          |        | 5,970   |   |   |        | 5,785   |  
|                                  | Building and leasehold improvements              |          |        | 11,064  |   |   |        | 12,685  |  
|                                  | Construction in progress                         |          |        | 161     |   |   |        | 975     |  
|                                  |                                                  |          |        |         |   |   |        |        
|                                  |                                                  |          | 50,390 |         |   |   | 51,233 |        
|                                  | Less: Accumulated depreciation and amortization  |          |        | (23,964 | ) |   |        | (16,828 | )
|                                  |                                                  |          |        |         |   |   |        |        
|                                  |                                                  | $        | 26,426 |         |   | $ | 34,405 |        
|                                  |                                                  |          |        |         |   |   |        |        

F-21



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Property, plant and equipment include $1,056,000
and $6,299,000 of production and engineering equipment under
capital leases at June 30, 2004 and 2003, respectively.
Accumulated depreciation of assets under capital leases totaled
$670,000 and $3,026,000 at June 30, 2004 and 2003,
respectively.

|                     |                                            |          |       |       |  |   |       |       | 
|-------------------- | ------------------------------------------ | -------- | ----- | ----- |  | - | ----- | ----- | 
|                     |                                            |         
|                     |                                            | June 30,
|                     |                                            |         
|                     |                                            | 2004     |       | 2003 
|                     |                                            |          |       |      
|Accrued liabilities: |                                            |          |       |       |  |   |       |      
|                     | Payroll and related expenses               |          | $     | 684   |  |   | $     | 598   | 
|                     | Accrued sales commission                   |          |       | 971   |  |   |       | 958   | 
|                     | Accrued warranty                           |          |       | 700   |  |   |       | 700   | 
|                     | Accrued restructuring costs                |          |       | 1,795 |  |   |       | 3,018 | 
|                     | Remaining amounts payable for acquisitions |          |       | 750   |  |   |       |      | 
|                     | Other                                      |          |       | 3,190 |  |   |       | 2,133 | 
|                     |                                            |          |       |       |  |   |       |      
|                     |                                            | $        | 8,090 |       |  | $ | 7,407 |      
|                     |                                            |          |       |       |  |   |       |      



|         |                 
|-------- | ----------------
|Note 7  | Accrued Warranty

The Company provides reserves for the estimated
cost of product warranties at the time revenue is recognized
based on historical experience of known product failure rates
and expected material and labor costs to provide warranty
services. The Company generally provides a one-year warranty on
its products. Additionally, from time to time, specific warranty
accruals may be made if unforeseen technical problems arise.
Alternatively, if estimates are determined to be greater than
the actual amounts necessary, the Company may reverse a portion
of such provisions in future periods.

Changes in the warranty liability, which is
included as a component of Accrued liabilities on
the Consolidated Balance Sheet as disclosed in Note 6, is
as follows (in thousands):

|                                                                                                 |  |   |        |  
|------------------------------------------------------------------------------------------------ |  | - | ------ | -
|Balance at June 30, 2002                                                                         |  | $ | 1,200  |  
|Accruals for warranties issued during the year                                                   |  |   | 659    |  
|Accruals related to pre-existing warranties
    (including changes in estimates) during the year |  |   | (69    | )
|Settlements made (in cash or in kind) during the
    year                                        |  |   | (1,090 | )
|                                                                                                 |  |   |        |  
|Balance at June 30, 2003                                                                         |  | $ | 700    |  
|                                                                                                 |  |   |        |  
|Accruals for warranties issued during the year                                                   |  |   | 830    |  
|Accruals related to pre-existing warranties
    (including changes in estimates) during the year |  |   | (90    | )
|Settlements made (in cash or in kind) during the
    year                                        |  |   | (740   | )
|                                                                                                 |  |   |        |  
|Balance at June 30, 2004                                                                         |  | $ | 700    |  
|                                                                                                 |  |   |        |  



|         |             
|-------- | ------------
|Note 8  | Income Taxes

Consolidated loss before income taxes includes
non-U.S. loss of approximately $3,269,000, $1,782,000 and
$2,130,000 for the years ended June 30, 2004, 2003 and
2002, respectively. No current or deferred provision has been
provided in the years ended June 30, 2004, 2003 and 2002
due to the Companys tax loss position.

F-22



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Deferred tax assets (liabilities) consist of
the following (in thousands):

|                        |                                               |          |   |         |   |   |   |         |  
|----------------------- | --------------------------------------------- | -------- | - | ------- | - | - | - | ------- | -
|                        |                                               |         
|                        |                                               | June 30,
|                        |                                               |         
|                        |                                               | 2004     |   | 2003   
|                        |                                               |          |   |        
|Deferred tax assets:    |                                               |          |   |         |   |   |   |        
|                        | Accruals and reserves                         |          | $ | 14,282  |   |   | $ | 18,327  |  
|                        | Net operating loss carryforwards              |          |   | 37,403  |   |   |   | 41,354  |  
|                        | Research and development credit carryforwards |          |   | 4,676   |   |   |   | 2,920   |  
|                        |                                               |          |   |         |   |   |   |        
|                        | Gross deferred tax assets                     |          |   | 56,361  |   |   |   | 62,601  |  
|                        | Valuation allowance                           |          |   | (56,361 | ) |   |   | (62,601 | )
|                        |                                               |          |   |         |   |   |   |        
|Net deferred tax assets |                                               | $        |  |         |   | $ |  |        
|                        |                                               |          |   |         |   |   |   |        

Reconciliation of the statutory federal income
tax to the Companys effective tax:

|                                    |  |          |     |      |  |      |     |    |  |  |     |   
|----------------------------------- |  | -------- | --- | ---- |  | ---- | --- | -- |  |  | --- | --
|                                    |  |         
|                                    |  | June 30,
|                                    |  |         
|                                    |  | 2004     |     | 2003 |  | 2002
|                                    |  |          |     |      |  |     
|Tax at federal statutory rate       |  |          | (34 | )%   |  |      | (34 | )% |  |  | (34 | )%
|State, net of federal benefit       |  |          | 19  |      |  |      | (2  | )  |  |  | (7  | ) 
|Research credit carryforward        |  |          | 1   |      |  |      | (1  | )  |  |  | (1  | ) 
|Stock compensation                  |  |          | 10  |      |  |      | 2   |    |  |  | 2   |   
|In-process research and development |  |          | 1   |      |  |      |    |    |  |  |    |   
|Foreign rate differences            |  |          | 19  |      |  |      | 2   |    |  |  | 2   |   
|Increase in valuation allowance     |  |          | (15 | )    |  |      | 33  |    |  |  | 38  |   
|Other                               |  |          | (1  | )    |  |      |    |    |  |  |    |   
|                                    |  |          |     |      |  |      |     |    |  |  |     |   
|Provision for taxes                 |  |          |    | %    |  |      |    | %  |  |  |    | % 
|                                    |  |          |     |      |  |      |     |    |  |  |     |   

Based on the available objective evidence at
June 30, 2004, management believes that sufficient
uncertainty exists regarding the realizability of the deferred
tax assets such that a full valuation allowance has been
recorded.

At June 30, 2004, the Company had
approximately $101.7 million of federal and
$48.4 million of state net operating loss carryforwards.
Because of certain changes in ownership of the Company in 1999
and 1998, there is an annual limitation of approximately
$600,000 on the use of the net operating loss carryforwards
pursuant to section 382 of the Internal Revenue Code.

The Companys China subsidiaries have been
granted tax holidays beginning in 1999. Benefits under the
holiday begin on the first year of profitability by a subsidiary
and continues for two additional years, which thereafter the
subsidiary is taxed at a reduced rate for the next three years.
Zhuhai Oplinks tax holiday expired on December 31,
2001. No other subsidiary has yet utilized the tax holidays.

Note 9  Stockholders
Equity

Authorized
Shares

The Companys certificate of incorporation,
as amended, authorizes the Company to issue 400,000,000 shares
of common stock.

The Company is authorized to issue 20,000,000
shares of undesignated preferred stock, $0.001 par value per
share, of which 4,000,000 shares have been designated as
Series A Junior Participating Preferred Stock and no shares
were issued and outstanding as of June 30, 2004 and 2003.
Preferred stock may be issued from

F-23



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

time to time in one or more series. The Board of
Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to and imposed upon any
wholly unissued series of preferred stock and to fix the number
of shares of any series of preferred stock and the designation
of any such series without any vote or action by the
Companys stockholders.

Purchase
Rights Plan

On March 18, 2002, the Board of Directors of
Oplink approved the adoption of a Share Purchase Rights Plan
(the Plan). Terms of the Plan provide for a dividend
distribution of one preferred share purchase right (a
Right) for each outstanding share of common stock,
par value $0.001 per share of Oplink. The dividend was paid on
April 3, 2002 (the Record Date) to the
stockholders of record on that date. Each Right entitles the
registered holder to purchase from Oplink one one-hundredth of a
share of Series A Junior Participating Preferred Stock, par
value $0.001 per share (the Preferred Shares), at a
price of $16.00 per one one-hundredth of a Preferred Share (the
Purchase Price), subject to adjustment. The Rights
will be exercisable only after public announcement that a person
or group has become the beneficial owner of 15% or more of
Oplinks common stock (a 15% holder) or 10
business days after a person or group commences a tender or
exchange offer which would result in the offeror becoming a 15%
holder.

If a person or group becomes a 15% holder, then
each Right (other than Rights held by a 15% holder and certain
related parties, which will be voided) will be adjusted so that
upon exercise the holder will have the right to receive that
number of shares of Oplinks common stock having a value of
twice the exercise price of the Right. In addition, if following
the public announcement of the existence of a 15% holder Oplink
is involved in certain business combination transactions, each
Right (other than Rights which have previously been voided) will
represent the right to purchase, at the exercise price, common
stock of the acquiring entity having a value of twice the
exercise price at the time. The Board of Directors will also
have the right, after a person or group becomes a 15% holder, to
cause each Right (other than Rights held by the 15% holder,
which will be voided) to be exchanged for one share of
Oplinks common stock. The Board of Directors is entitled
to redeem the Rights at $.01 per Right at any time prior to the
public announcement of the existence of a 15% holder.

Stock Option
Plans

In September 1995, the Board of Directors adopted
the 1995 Stock Option Plan (the 1995 Plan). In
January 1998, the Board of Directors adopted the 1998 Stock
Option Plan (the 1998 Plan). The 1995 Plan and 1998
Plan provide for the issuance of incentive and nonqualified
stock options to employees, directors and consultants of the
Company. Under the 1995 Plan and 1998 Plan, options to purchase
6,000,000 and 33,800,000 shares of common stock, respectively,
were authorized for grant. These plans were terminated in
October 2000 with the adoption of the 2000 Equity Incentive Plan
(the 2000 Plan) in July 2000. The 2000 Plan provides
for grant of 20,000,000 stock awards to employees, directors and
consultants. These stock awards include incentive stock options
to employees, including officers and employee directors,
nonstatutory stock options, stock bonuses and stock purchase
rights to employees, directors and consultants. Options granted
under the 2000 Plan must be granted with exercise prices not
less than 100% and 85% for incentive and nonqualified stock
options, respectively, of the fair value of the Companys
common stock on the date of grant. Options granted to
stockholders who own greater than 10% of the Companys
outstanding stock must be issued with exercise prices not less
than 110% of the fair value of the Companys common stock
on the date of grant. Options under the 2000 Plan generally
become exercisable at a rate of 25% during the first year of the
vesting period and then at a rate of 1/48 per month thereafter.
Options will expire, if not exercised, upon the earlier of
10 years from the date of grant or generally 90 days after
termination as an employee of the Company. The number of shares
of common stock reserved for issuance will automatically be
increased on each January 1 beginning on January 1,
2001 by the greater of the total number of shares of common
stock for which stock options, stock bonuses and stock purchase
rights were granted in the preceding calendar year, or

F-24



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5.0% of the total outstanding common stock on
that date on a fully diluted basis; provided, that the Board of
Directors may designate a smaller number of shares by which the
reserve will increase on a particular date. Shares of common
stock, which are covered by a stock option grant under the 1995
and 1998 Plan without having been exercised will be added to the
reserve of the 2000 Plan. Over the ten-year term of the 2000
Plan, no more than 50,000,000 shares may be reserved for
issuance pursuant to the exercise of incentive stock options.

The 2000 Equity Incentive Plan provides for the
automatic grant of nonstatutory stock options to purchase shares
of common stock to its non-employee directors. Beginning in
2001, on the day after the Companys annual
stockholders meeting, any person who is then a
non-employee director and who is elected at such annual meeting
will automatically be granted an option to purchase 72,000
shares of common stock. These grants will vest on a monthly
basis over a three-year period. Any non-employee director who is
elected or appointed to the board during a three-year term will
automatically be granted an option to purchase a pro rata
portion of shares based on the number of months remaining in the
term.

During the years ended June 30, 2003, 2002
and 2001, in connection with the granting of stock options to
employees and members of the Board of Directors with exercise
prices below fair value, the Company recorded additional
deferred stock compensation aggregating $585,000, $281,000 and
$28,009,000 respectively. These amounts are being amortized into
expense over the vesting period of the related options,
generally four years, using the method set out in FASB
Interpretation No. 28 (FIN 28). Under the FIN
28 method, each vested tranche of options is accounted for as a
separate option grant awarded for past services. Accordingly,
the compensation expense is recognized over the period during
which the services have been provided. This results in higher
compensation expense in the earlier vesting periods of the
related options. Non-cash compensation expense totaled
$1,689,000, $1,873,000 and $4,714,000 for the years ended
June 30, 2004, 2003 and 2002, respectively.

Information with respect to 1995, 1998 and 2000
stock option plan activity for the three years ended
June 30, 2004 is set forth below:

|                                      |  |               |             |           |  |          |            |   |  |   |        | 
|------------------------------------- |  | ------------- | ----------- | --------- |  | -------- | ---------- | - |  | - | ------ | 
|                                      |  |               |             |           |  | Weighted
|                                      |  | Shares        |             |           |  | Average 
|                                      |  | Available for |             | Number of |  | Exercise
|                                      |  | Grant         |             | Options   |  | Price   
|                                      |  |               |             |           |  |         
|Balance, June 30, 2001                |  |               | 26,216,826  |           |  |          | 26,820,972 |   |  | $ | 3.4787 | 
|Options authorized during fiscal 2002 |  |               | 16,969,704  |           |  |          |            |   |  |   |        | 
|Options granted                       |  |               | (13,449,995 | )         |  |          | 13,449,995 |   |  |   | 1.1451 | 
|Options exercised                     |  |               |             |           |  |          | (5,318,528 | ) |  |   | 1.2880 | 
|Options canceled                      |  |               | 7,595,590   |           |  |          | (7,595,590 | ) |  |   | 4.7264 | 
|                                      |  |               |             |           |  |          |            |   |  |   |        | 
|Balance, June 30, 2002                |  |               | 37,332,125  |           |  |          | 27,356,849 |   |  | $ | 2.4109 | 
|                                      |  |               |             |           |  |          |            |   |  |   |        | 
|Options granted                       |  |               | (5,783,000  | )         |  |          | 5,783,000  |   |  |   | 0.6780 | 
|Options exercised                     |  |               |             |           |  |          | (5,658,644 | ) |  |   | 0.4691 | 
|Options canceled                      |  |               | 7,020,590   |           |  |          | (7,020,590 | ) |  |   | 3.3179 | 
|                                      |  |               |             |           |  |          |            |   |  |   |        | 
|Balance, June 30, 2003                |  |               | 38,569,715  |           |  |          | 20,460,615 |   |  | $ | 2.1599 | 
|                                      |  |               |             |           |  |          |            |   |  |   |        | 
|Options granted                       |  |               | (4,746,700  | )         |  |          | 4,746,700  |   |  |   | 2.1118 | 
|Options exercised                     |  |               |             |           |  |          | (3,779,094 | ) |  |   | 0.8535 | 
|Options canceled                      |  |               | 1,633,891   |           |  |          | (1,633,891 | ) |  |   | 3.4471 | 
|                                      |  |               |             |           |  |          |            |   |  |   |        | 
|Balance, June 30, 2004                |  |               | 35,456,906  |           |  |          | 19,794,330 |   |  | $ | 2.2665 | 
|                                      |  |               |             |           |  |          |            |   |  |   |        | 

F-25



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of June 30, 2004, the options outstanding
and exercisable under the 1995, 1998 and 2000 Plans are
presented below:

|                        |  |                                      |            |                         |  |          |     |                    |  |          |         |  |  |  |            |  |  |   |         | 
|----------------------- |  | ------------------------------------ | ---------- | ----------------------- |  | -------- | --- | ------------------ |  | -------- | ------- |  |  |  | ---------- |  |  | - | ------- | 
|                        |  |                                      |            |                         |  |          |     |                   
|                        |  |                                      |            |                         |  |          |     | Options Vested and
|                        |  |                                      |            | Exercisable at June 30,
|                        |  | Options Outstanding at June 30, 2004 |            | 2004                   
|                        |  |                                      |            |                        
|                        |  |                                      |            | Weighted                |  |          |     |                   
|                        |  |                                      |            | Average                 |  | Weighted |     |                    |  | Weighted
|                        |  |                                      |            | Remaining               |  | Average  |     |                    |  | Average 
|                        |  | Number                               |            | Contractual             |  | Exercise |     | Number             |  | Exercise
|Range of Exercise Price |  | Outstanding                          |            | Life (in Years)         |  | Price    |     | Outstanding        |  | Price   
|                        |  |                                      |            |                         |  |          |     |                    |  |         
|$0.0000 - $2.4500       |  |                                      | 13,112,784 |                         |  |          | 8.0 |                    |  | $        | 1.1367  |  |  |  | 5,796,675  |  |  | $ | 0.9582  | 
|$2.4501 - $4.9000       |  |                                      | 3,558,073  |                         |  |          | 7.7 |                    |  |          | 2.6618  |  |  |  | 2,060,925  |  |  |   | 2.7589  | 
|$4.9001 - $7.3500       |  |                                      | 2,706,473  |                         |  |          | 6.1 |                    |  |          | 5.3686  |  |  |  | 2,690,657  |  |  |   | 5.3648  | 
|$7.3501 - $9.8000       |  |                                      | 92,000     |                         |  |          | 6.3 |                    |  |          | 8.9633  |  |  |  | 86,141     |  |  |   | 8.9647  | 
|$9.8001 - $12.250       |  |                                      |           |                         |  |          |    |                    |  |          |        |  |  |  |           |  |  |   |        | 
|$12.2501 - $14.700      |  |                                      | 2,000      |                         |  |          | 6.6 |                    |  |          | 12.5625 |  |  |  | 1,666      |  |  |   | 12.5625 | 
|$14.7001 - $17.150      |  |                                      | 255,500    |                         |  |          | 6.3 |                    |  |          | 15.0000 |  |  |  | 235,422    |  |  |   | 15.0000 | 
|$17.1501 - $19.600      |  |                                      | 40,000     |                         |  |          | 6.5 |                    |  |          | 18.1875 |  |  |  | 35,000     |  |  |   | 18.1875 | 
|$19.6001 - $22.050      |  |                                      | 27,500     |                         |  |          | 6.6 |                    |  |          | 19.9375 |  |  |  | 22,811     |  |  |   | 19.9375 | 
|                        |  |                                      |            |                         |  |          |     |                    |  |          |         |  |  |  |            |  |  |   |         | 
|                        |  |                                      | 19,794,330 |                         |  |          | 7.6 |                    |  | $        | 2.2665  |  |  |  | 10,929,297 |  |  | $ | 2.8447  | 
|                        |  |                                      |            |                         |  |          |     |                    |  |          |         |  |  |  |            |  |  |   |         | 

Notes
Receivable

In April and November 2001, an executive officer
borrowed from the Company, pursuant to three full recourse
promissory notes, the aggregate principal amount of $10,068,751.
The principal amount borrowed was $3,657,500 on April 3,
2001 at an annual interest rate of 8.0%, $828,750 on
November 27, 2001 at an annual interest rate of 6.5%, and
$5,582,501 on November 28, 2001 at an annual interest rate
of 6.5%. Interest income related to these notes of $749,000 and
$536,000 were recorded in fiscal 2003 and 2002, respectively.
Originally, these promissory notes provided that the outstanding
principal amount and any accrued and unpaid interest would be
due and payable on the fifth anniversary of the respective dates
of issuance. The promissory notes also provided for acceleration
of their maturity dates upon the demand of the Board of
Directors or upon the termination of service to the Company.
These promissory notes were amended on March 18, 2002 to
provide for the outstanding principal amount and any accrued and
unpaid interest to become due and payable in full on
March 19, 2007. The notes were secured each by an escrow
comprising all of the shares of the Companys common stock
covered by the stock options granted to this executive officer.
The notes were recorded as a component of stockholders
equity. In June 2003, all three promissory notes and related
accrued interests in the total amount of $11,353,398 were repaid
in full.

In March 2001, an executive officer borrowed from
Oplink, pursuant to a full recourse promissory note, the
principal amount of $160,000 at an annual interest rate of 8.5%.
The promissory note, which had a balance of $100,000 as of
March 31, 2002, was amended and is now due and payable in
four equal installments, one every six months from the date of
new employment by the former executive officer. The note is
secured by an escrow comprising all of the shares of the
Companys common stock covered by the stock options granted
to this former executive officer. The note is recorded as a
component of stockholders equity. As of June 30,
2004, the outstanding balance of note receivable from this
former executive officer including accrued interest was $37,627.

F-26



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Repurchase of
Common Stock

On September 26, 2001, the Companys
Board of Directors authorized a program to repurchase up to an
aggregate of $21.2 million of the Companys Common
Stock. On September 19, 2002, the Companys Board of
Directors approved an increase in the buyback plan to repurchase
up to an aggregate of $40.0 million of the Companys
Common Stock. Such repurchases may be made from time to time on
the open market at prevailing market prices, in negotiated
transactions off the market or pursuant to a 10b5-1 plan adopted
by the Company. The Company adopted a 10b5-1 plan in August
2002, which allows the Company to repurchase its shares during a
period in which the Company is in possession of material
non-public information, provided the Company communicates share
repurchase instructions to the broker at a time when the Company
was not in possession of such material non-public information.
As of June 30, 2004 repurchases of $35.2 million have
been made under the repurchase program.

2000 Employee
Stock Purchase Plan

In July 2000, the Board of Directors adopted the
2000 Employee Stock Purchase Plan (the Purchase
Plan), which authorizes the issuance of 4,000,000 shares
of its common stock pursuant to purchase rights granted to
employees or to employees of any of its affiliates. The number
of shares reserved for issuance under the Purchase Plan will be
increased each January, beginning January 1, 2001, and
ending January 1, 2010, by the greater of the total number
of shares issued under the plan during the preceding calendar
year or 1.5% of the number of shares of common stock outstanding
on that date. The Board of Directors has the authority to
designate a smaller number of shares by which the authorized
number of shares of common stock will be increased on that date.
A maximum of 20,000,000 shares may be issued during the term of
the Purchase Plan. The Purchase Plan authorizes the granting of
stock purchase rights to eligible employees during an offering
period not more than 27 months with exercise dates
approximately every six months. Shares are purchased through
employee payroll deductions at purchase prices equal to 85% of
the lesser of the fair market value of the Companys common
stock at either the first day of each offering period or the
date of purchase. As of June 30, 2004, 2,382,375 shares had
been issued under the Purchase Plan at an average price of $1.15
per share.

Note 10  Related Party
Transactions

Investor
Rights Agreement

The Company has an agreement with the former
holders of its preferred stock, including entities with which
its directors are affiliated, that provides these stockholders
certain rights relating to the registration of their shares of
common stock issued upon conversion of the preferred stock.
These rights survived the Companys initial public offering
and will terminate no later than eight years after the closing
date.

Indemnification
Agreements

The Company has entered into indemnification
agreements with each of its directors and officers. These
indemnification agreements and its certificate of incorporation
and bylaws require the Company to indemnify its directors and
officers to the fullest extent permitted by Delaware law.

Loan to
Officer

In August 2000, an executive officer borrowed
from Oplink, pursuant to a full recourse promissory note, the
principal amount of $400,000 at an annual interest rate of 6.5%.
Originally, this promissory note provided that the outstanding
principal amount and any accrued and unpaid interest would be
due and payable in two equal installments on August 16,
2002 and August 16, 2004. The promissory note also provided
for the acceleration of its maturity date upon the termination
of the executive officers employment with Oplink. The

F-27



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

executive officer and Oplink subsequently amended
the promissory note on March 18, 2002 to provide for the
outstanding principal amount and any accrued and unpaid interest
to become due and payable in full on June 30, 2007. The
note is recorded as a component of other assets. As of
June 30, 2004, the outstanding balance, including accrued
interest was $252,540.

Sales to
Investors

Beginning from July 1, 1998, the Company
sold products to a customer who was also one of the shareholders
of the Companys Series D preferred stock, which
converted to common stock simultaneously with the close of the
Companys initial public offering. Total revenues from
sales to this customer were $226,000, $326,000 and $1,453,000
for the years ended June 30, 2004, 2003 and 2002,
respectively.

The Company sold products to Cisco Systems, Inc.
who, in August 2000, provided the Company $50,000,000 cash in
exchange for a note payable. Upon the closing of the
Companys initial public offering, the note payable was
converted into 3,298,773 shares of common stock. Total
revenues from sales to Cisco Systems, Inc. were $30,000, $87,000
and $2,452,000 for the years ended June 30, 2004, 2003 and
2002, respectively.



| |                       
| | ----------------------
| | Purchases From Vendors

The Company purchased $91,700 and $228,800 of
software and related support in the years ended June 30,
2003 and 2002, respectively, from a vendor whose board of
directors shares with the Companys Board of Directors
three common board members.

The Company received $7,500 and $14,600 of legal
services in fiscal 2003 and 2002, respectively, from a firm
whose partner is a director of the Company. The director ceased
to be a partner of the firm in January 2003.



| |                           
| | --------------------------
| | Repurchase of Common Stock

On June 13, 2003, the Company purchased
6,170,325 shares of its common stock from its Chief
Executive Officer for a purchase price of $1.84 per share,
which the Board of Directors determined to be the fair market
value based on the three-day trailing average of the closing
price of the Companys common stock on the Nasdaq National
Market System. The closing price of the Companys common
stock on the date of purchase was $1.85 per share. The
proceeds in the amount of $11,353,398 received by the
Companys Chief Executive Officer for the shares were
applied against outstanding promissory notes owed by him to the
Company as disclosed in Note 9 of the Notes to Consolidated
Financial Statements. The shares were returned to the Company as
treasury stock.



|          |                              
|--------- | -----------------------------
|Note 11  | Commitments and Contingencies



| |               
| | --------------
| | Line of Credit

In July 2003, the Company entered into a line of
credit agreement, which provides for borrowings of up to
$2,420,000 for working capital purpose. The line of credit
expired in January 2004.

F-28



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Operating Leases

The Company leases its facilities under
non-cancelable operating leases. The leases require the Company
to pay taxes, maintenance and repair costs. Future minimum lease
payments under the Companys non-cancelable operating
leases are as follows (in thousands):

|                     |  |   |       | 
|-------------------- |  | - | ----- | 
|Year Ending June 30, |  |   |       | 
|2005                 |  | $ | 2,328 | 
|2006                 |  |   | 135   | 
|Thereafter           |  |   |      | 
|                     |  |   |       | 
|                     |  | $ | 2,463 | 
|                     |  |   |       | 

Rent expense for all operating leases was
approximately $622,000, $1,165,000 and $2,758,000 in fiscal
2004, 2003 and 2002, respectively.



| |               
| | --------------
| | Capital Leases

During fiscal 2002, the Company entered into six
capital leases for equipment in the amount of $1,252,000 with
interest accruing at the rate of 8.30% per annum.

Future minimum lease payments for all capital
leases are as follows (in thousands):

|                                             |  |   |    |  
|-------------------------------------------- |  | - | -- | -
|Year Ending June 30,                         |  |   |    |  
|2005                                         |  | $ | 84 |  
|Less: Amount representing interest           |  |   | (3 | )
|                                             |  |   |    |  
|Present value of capital lease obligations   |  |   | 81 |  
|Current portion of capital lease obligations |  |   | 81 |  
|                                             |  |   |    |  
|Capital lease obligations, non current       |  | $ |   |  
|                                             |  |   |    |  



| |           
| | ----------
| | Litigation

In November 2001, the Company and certain of its
officers and directors were named as defendants in a class
action shareholder complaint filed in the United States District
Court for the Southern District of New York, now captioned,
In re Oplink Communications, Inc. Initial Public Offering
Securities Litigation, Case No. 01-CV-9904. In the
amended complaint, the plaintiffs allege that the Company,
certain of the Companys officers and directors and the
underwriters of the Companys initial public offering, or
IPO, violated section 11 of the Securities Act of 1933
based on allegations that the Companys registration
statement and prospectus failed to disclose material facts
regarding the compensation to be received by, and the stock
allocation practices of, the IPO underwriters. The complaint
also contains a claim for violation of section 10(b) of the
Securities Exchange Act of 1934 based on allegations that this
omission constituted a deceit on investors. The plaintiffs seek
unspecified monetary damages and other relief. Similar
complaints were filed by plaintiffs (the Plaintiffs)
against hundreds of other public companies (the
Issuers) that went public in the late 1990s
(collectively, the IPO Lawsuits).

On August 8, 2001, the IPO Lawsuits were
consolidated for pretrial purposes before United States Judge
Shira Scheindlin of the Southern District of New York. On
July 15, 2002, the Company joined in a global motion to
dismiss the IPO cases filed by all of the Issuers (among
others). On October 9, 2002, the Court entered an order
dismissing the Companys named officers and directors from
the IPO Lawsuits without prejudice, pursuant to an agreement
tolling the statute of limitations with respect to these
officers and directors until September 30, 2003. On
February 19, 2003, the Court issued a decision denying the
motion to dismiss

F-29



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Section 11 claims against the Company
and almost all of the Issuers, and granting the motion to
dismiss the Section 10(b) claim against the Company. The
Section 10(b) claim was dismissed without leave to amend.

In June 2003, Issuers and Plaintiffs reached a
tentative settlement agreement and entered a memorandum of
understanding, providing for, among other things, a dismissal
with prejudice and full release of the Issuers and their
officers and directors from all further liability resulting from
Plaintiffs claims, and the assignment to Plaintiffs of
certain potential claims that the Issuers may have against the
Underwriters. In addition, the tentative settlement guarantees
that, in the event that the Plaintiffs recover less than
$1 billion in settlement or judgment against the
Underwriter defendants in the IPO Lawsuits, the Plaintiffs would
be entitled to payment by each participating Issuers
insurer of a pro rata share of any shortfall in the
plaintiffs guaranteed recovery. In such event, the
Companys obligation would be limited to reimbursement of
the Companys insurer up to the amount remaining under the
deductible of the Companys insurance policy. In September
2003, in connection with the tentative settlement, the
Companys officers and directors who had entered tolling
agreements with the Plaintiffs (described above) agreed to
extend those agreements so that they would not expire prior to
any settlement being finalized. In June 2004, the Company
executed a settlement agreement with the Plaintiffs pursuant to
the terms of a memorandum of understanding. The settlement is
subject to a number of conditions, including action by the Court
certifying a class action for settlement purposes and formally
approving the settlement. The Underwriters have opposed both the
certification of the class and the judicial approval of the
settlement. Pending a definitive settlement, the Company
continues to believe that the action against the Company is
without merit and intends to defend against it vigorously.

On December 17, 2001, OZ Optics Limited, OZ
Optics, Inc. and Bitmath, Inc. (collectively, OZ)
sued four individuals and the Company in California Superior
Court for the County of Alameda. One of the four individual
defendants is Zeynep Hakimoglu, who joined the Company on
November 1, 2001 as Vice President of Product Line
Management. The other three are unrelated to the Company. Zeynep
Hakimoglus employment with the Company terminated on
December 17, 2002. The complaint alleges trade secret
misappropriation and related claims against the four individuals
and the Company concerning OZs alleged polarization mode
dispersion technology. The plaintiffs seek actual damages
against the four individuals and the Company in the amounts of
approximately $17,550,000 and $1,500,000, respectively, and
enhanced damages, injunctive relief, costs and attorney fees,
and other relief. The plaintiffs sought a temporary restraining
order in December 2001, which the court denied, and withdrew
their preliminary injunction motion against the Company. The
Company answered the complaint on January 22, 2002, denying
plaintiffs claims. The case is currently in discovery with
a trial date set for April 8, 2005. In August 2004, the
Company settled the lawsuit with respect to the claims against
the Company and OZ agreed to dismiss the case against the
Company with prejudice.

The Company is subject to legal proceedings and
claims, either asserted or unasserted, that arise in the
ordinary course of business. While the outcome of these
proceedings and claims cannot be predicted with certainty,
management does not believe that the outcome of any of these
legal matters will have a material adverse effect on the
Companys consolidated financial position, results of
operations or cash flows.

Note 12  Segment
Reporting

The Company has determined that it has one
reportable segment: fiber optic component and subsystem product
sales. This segment consists of organizations located in the
United States and China, which develop, manufacture, and/or
market fiber optic networking components.

F-30



---



##### Table of Contents



OPLINK COMMUNICATIONS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The geographic breakdown of sales by customer
destination is as follows (in thousands):

|       |               |                      |   |        |        |      |   |       |        |  |   |        |        | 
|------ | ------------- | -------------------- | - | ------ | ------ | ---- | - | ----- | ------ |  | - | ------ | ------ | 
|       |               |                     
|       |               | Years Ended June 30,
|       |               |                     
|       |               | 2004                 |   | 2003   |        | 2002
|       |               |                      |   |        |        |     
|Sales: |               |                      |   |        |        |      |   |       |        |  |   |       
|       | United States |                      | $ | 3,534  |        |      | $ | 9,751 |        |  | $ | 19,676 |       
|       | Europe        |                      |   | 6,063  |        |      |   | 4,308 |        |  |   | 10,881 |       
|       | Asia          |                      |   | 8,998  |        |      |   | 7,244 |        |  |   | 6,378  |       
|       | Canada        |                      |   | 15,733 |        |      |   | 1,440 |        |  |   | 1,004  |       
|       |               |                      |   |        |        |      |   |       |        |  |   |       
|       |               | Totals               |   | $      | 34,328 |      |   | $     | 22,743 |  |   | $      | 37,939 | 
|       |               |                      |   |        |        |      |   |       |        |  |   |       

The breakdown of property, plant and equipment,
net by geographical location is as follows (in thousands):

|                                    |                            |          |   |        |        |  |   |        |        | 
|----------------------------------- | -------------------------- | -------- | - | ------ | ------ |  | - | ------ | ------ | 
|                                    |                            |         
|                                    |                            | June 30,
|                                    |                            |         
|                                    |                            | 2004     |   | 2003  
|                                    |                            |          |   |       
|Property, plant and equipment, net: |                            |          |   |        |        |  |   |       
|                                    | United States              |          | $ | 4,500  |        |  | $ | 3,976  |       
|                                    | Peoples Republic of China |          |   | 21,926 |        |  |   | 30,429 |       
|                                    |                            |          |   |        |        |  |   |       
|                                    |                            | Totals   |   | $      | 26,426 |  |   | $      | 34,405 | 
|                                    |                            |          |   |        |        |  |   |       



|          |            
|--------- | -----------
|Note 13  | 401(K) Plan

In 1997, the Company adopted a defined
contribution retirement savings plan under Section 401(k)
of the Internal Revenue Code. This plan covers substantially all
employees who meet minimum age and service requirements and
allows participants to defer a portion of their annual
compensation on a pretax basis. All employees are eligible to
participate three months after employment. Matching
contributions are at the discretion of the Company. The Company
made no matching contribution to the plan during the three years
ended June 30, 2004.

Note 14  Subsequent
Event

In April 2004, the Company made a $200,000
deposit to acquire a building in Fremont, California that is
expected to house the Companys U.S. operation. In
July 2004, the Company paid $4,565,000 in cash to complete the
purchase of this building.

F-31



---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ON

FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Stockholders of

Oplink
Communications, Inc.


Our audits of the consolidated financial
statements referred to in our report dated August 26, 2004,
appearing in this Form 10-K also included an audit of the
financial statement schedule listed in Item 15(a)(2) of
this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.

PricewaterhouseCoopers LLP

San Jose, California

August 26, 2004


F-32



---



##### Table of Contents



SCHEDULE II

OPLINK COMMUNICATIONS, INC.

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended June 30, 2004, 2003
and 2002


|                                |                          |                |   |            |  |               |   |             |   |  |   |        |  |  |   |        | 
|------------------------------- | ------------------------ | -------------- | - | ---------- |  | ------------- | - | ----------- | - |  | - | ------ |  |  | - | ------ | 
|                                |                          | Balance at     |   | Charged to |  |               |   |            
|                                |                          | Beginning      |   | Costs and  |  |               |   | Balance at 
|                                |                          | of Year        |   | Expenses   |  | Deductions(1) |   | End of Year
|                                |                          |                |   |            |  |               |   |            
|                                |                          |               
|                                |                          | (In thousands)
|Allowance for doubtful accounts |                          |                |   |            |  |               |   |             |   |  |   |        |  |  |   |       
|                                | Year Ended June 30, 2004 |                | $ | 598        |  |               | $ | 22          |   |  | $ | 179    |  |  | $ | 441    | 
|                                | Year Ended June 30, 2003 |                | $ | 704        |  |               | $ | 62          |   |  | $ | 168    |  |  | $ | 598    | 
|                                | Year Ended June 30, 2002 |                | $ | 876        |  |               | $ | (69         | ) |  | $ | 103    |  |  | $ | 704    | 
|Inventory reserve               |                          |                |   |            |  |               |   |             |   |  |   |        |  |  |   |       
|                                | Year Ended June 30, 2004 |                | $ | 18,442     |  |               | $ | 303         |   |  | $ | 4,887  |  |  | $ | 13,858 | 
|                                | Year Ended June 30, 2003 |                | $ | 35,601     |  |               | $ |            |   |  | $ | 17,159 |  |  | $ | 18,442 | 
|                                | Year Ended June 30, 2002 |                | $ | 27,134     |  |               | $ | 10,407      |   |  | $ | 1,940  |  |  | $ | 35,601 | 
|Accrued restructuring costs     |                          |                |   |            |  |               |   |             |   |  |   |        |  |  |   |       
|                                | Year Ended June 30, 2004 |                | $ | 4,490      |  |               | $ | 452         |   |  | $ | 3,043  |  |  | $ | 1,899  | 
|                                | Year Ended June 30, 2003 |                | $ | 9,679      |  |               | $ | 12,167      |   |  | $ | 17,356 |  |  | $ | 4,490  | 
|                                | Year Ended June 30, 2002 |                | $ | 4,544      |  |               | $ | 28,105      |   |  | $ | 22,970 |  |  | $ | 9,679  | 



---



|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Deductions represent costs charged or amounts
    written off against the reserve or allowance.

S-1



---



##### Table of Contents



INDEX TO EXHIBITS

|            |             |             |  |                                                                                                                                                                                                        
|----------- | ----------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |             | Description
|            |             |            
|            | 3.1(1)      |             |  | Amended and Restated Certificate of Incorporation
    of Oplink.                                                                                                                                       
|            | 3.2(1)      |             |  | Bylaws of Oplink.                                                                                                                                                                                      
|            | 3.3(2)      |             |  | Certificate of Designation of Series A
    Junior Participating Preferred Stock.                                                                                                                       
|            | 4.1(1)(2)   |             |  | Reference is made to Exhibits 3.1, 3.2 and
    3.3.                                                                                                                                                    
|            | 4.2(1)      |             |  | Third Amended and Restated Rights Agreement,
    dated as of February 7, 2000 by and among Oplink and the
    investors listed on Exhibit A attached thereto.                                          
|            | 4.3(2)      |             |  | Rights Agreement, dated as of March 18,
    2002, between Oplink Communications, Inc. and The Bank of New
    York.                                                                                    
|            | 10.2(1)     |             |  | State-owned Land Use Rights Assignment Contract
    dated May 16, 2000 by and between Oplink Communications
    Inc. and Zhuhai Bonded Area Management Committee.                                      
|            | 10.3(1)     |             |  | Sublease Agreement dated February 29, 2000
    by and among Wyse Technology Inc. and Oplink and Wyse Technology
    Investments Inc.                                                                   
|            | 10.4(1)     |             |  | Amended and Restated Lease Agreement dated
    March 19, 1993 by and between Wyse Technology Investments,
    Inc. and Wyse Technology, Inc.                                                           
|            | 10.5(1)     |             |  | Amendment No. 1 to Sublease Agreement dated
    April 14, 2000 and Amendment No. 2 dated
    September 1, 2000 by and among Oplink, Wyse Technology Inc.
    and Wyse Technology Investments Inc.      
|            | 10.6(1)(5)  |             |  | Oplinks 2000 Equity Incentive Plan.                                                                                                                                                                   
|            | 10.7(1)(5)  |             |  | Oplinks 2000 Employee Stock Purchase Plan.                                                                                                                                                            
|            | 10.8(1)(5)  |             |  | Oplinks 1995 Stock Plan.                                                                                                                                                                              
|            | 10.9(1)(5)  |             |  | Oplinks 1998 Stock Plan.                                                                                                                                                                              
|            | 10.10(1)(5) |             |  | Oplink Form of Indemnity Agreement.                                                                                                                                                                    
|            | 10.14(3)(5) |             |  | Form of Stock Option Agreement between Oplink and
    Chieh Chang, Herbert Chang and Leonard LeBlanc.                                                                                                  
|            | 10.22(4)(5) |             |  | Amended and Restated Executive Corporate Event
    Agreement, dated February 20, 2003, by and between the
    Registrant and Bruce Horn.                                                               
|            | 10.23(4)(5) |             |  | Executive Corporate Event Agreement, dated
    February 20, 2003, by and between the Registrant and
    Yanfeng Yang.                                                                                  
|            | 10.24(4)(5) |             |  | Executive Corporate Event Agreement, dated
    February 24, 2003, by and between the Registrant and River
    Gong.                                                                                    
|            | 10.25(4)(5) |             |  | Executive Corporate Event Agreement, dated
    March 21, 2003, by and between the Registrant and Joseph Y.
    Liu.                                                                                    
|            | 10.27(5)(6) |             |  | Consulting Agreement dated as of January 17,
    2004, by and between the Registrant and Allen Hsu.                                                                                                    
|            | 10.29       |             |  | Building Purchase Agreement dated April 15,
    2004 by and between the Registrant and Dianne S.
    Gagos & Mitchell S. Gagos, Trustees, The Dianne S.
    Gagos Survivors Trust, U/I/D April 8, 1992.
|            | 21.1        |             |  | Subsidiaries of Oplink.                                                                                                                                                                                
|            | 23.1        |             |  | Consent of PricewaterhouseCoopers LLP.                                                                                                                                                                 
|            | 24.1        |             |  | Power of Attorney is contained on the Signatures
    page.                                                                                                                                             
|            | 31.1        |             |  | Certification of Chief Executive Officer Required
    under Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934, as amended.                                                   



---



##### Table of Contents



|            |       |             |  |                                                                                                                                                                                                                                                      
|----------- | ----- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |       | Description
|            |       |            
|            | 31.2  |             |  | Certification of Chief Financial Officer Required
    under Rule 13a-14(a) or Rule 15d-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 18 U.S.C.
    Section 1350.                                                                 
|            | 32.2* |             |  | Certification of Financial 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).



---

() Confidential treatment granted with
respect to portions of these exhibits.



| |     |                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Previously filed as an Exhibit to the
    Registrants Registration Statement on Form S-1
    No. 333-41506, as amended, filed on September 20, 2000
    and incorporated herein by reference.
|
| | (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 Annual Report on Form 10-K filed on
    September 30, 2002 and incorporated herein by reference.                                       
|
| | (4) | Previously filed as an Exhibit to the
    Registrants Quarterly Report on Form 10-Q filed on
    filed on May 13, 2003 and incorporated herein by reference.                                 
|
| | (5) | Management contract or compensatory plan or
    arrangement.                                                                                                                                  
|
| | (6) | Previously filed as an Exhibit to the
    Registrants Quarterly Report on Form 10-Q filed on
    filed on May 11, 2004 and incorporated herein by reference.                                 

* The certifications attached as
Exhibits 32.1 and 32.2 accompany this Annual Report on
Form 10-K pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed
filed by Oplink for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended.