##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    March 31, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number
    001-33306
  Opnext, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

22-3761205(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification Number)1 Christopher Way, Eatontown,
    New Jersey(Address of principal
    executive offices)

07724(Zip Code)   (732) 544-3400
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to section 12(b) of the
    Act:
 None
  Securities registered pursuant to Section 12(g) of the
    Act:
 Common Stock, $0.01 par value
 (title of class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K




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##### 



TABLE OF
    CONTENTS
   
 PagePART IITEM 1.


Business


3ITEM 1A.


Risk
    Factors


13ITEM 1B.


Unresolved Staff
    Comments


26ITEM 2.


Properties


26ITEM 3.


Legal
    Proceedings


26ITEM 4.


Submission of
    Matters to a Vote of Security Holders


26PART IIITEM 5.


Market for
    Registrants Common Equity, Related Stockholder Matters And
    Issuer Purchases of Equity Securities


27ITEM 6.


Selected
    Consolidated Financial Data


29ITEM 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


31ITEM 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


42ITEM 8.


Consolidated
    Financial Statements and Supplementary Data


43ITEM 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


69ITEM 9A.


Controls and
    Procedures


69ITEM 9B.


Other
    Information


69PART IIIITEM 10.


Executive Officers,
    Directors, Director Independence and Corporate
    Governance


70ITEM 11.


Executive
    Compensation


70ITEM 12.


Security Ownership
    of Certain Beneficial Owners, Management and Related
    Stockholders Matters


70ITEM 13.


Certain
    Relationships, Related Transactions,


70ITEM 14.


Principal
    Accountant Fees and Services


70PART IVITEM 15.


Exhibits, Financial
    Statement Schedules


70Signatures


73EX-10.4.D: FORM OF AMENDMENT TO STOCK APPRECIATION RIGHT AGREEMENTEX-23.1: CONSENT OF ERNST & YOUNG LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION   2




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##### Table of Contents



PART I  Item 1.
    Business.  Business
    Description
      30-year
     3




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##### Table of Contents



Industry
    Background
  IP-based e-mail,
      
    The Power Challenge.  Modules that operate at
    10Gbps consume two to more than five times as much electrical
    power as those modules operating at the preceding data rate and
    the power challenges are expected to become more difficult as
    the industry moves beyond 10Gbps. Network service providers
    generally have fixed, limited space in their network central
    offices, closets, and data centers to house network equipment,
    creating de facto standards on the physical size allowed for
    each piece of network equipment regardless of data rate. To
    offer increasingly higher speed systems, network system vendors
    need more efficient modules to support greater port density
    while adhering to power supply and cooling system constraints.
    These constraints drive the need for laser technology with
    higher temperature tolerance and improved efficiency which
    reduces power consumption and enables smaller form factor
    modules to be used.
    The Temperature Challenge.  Within an optical
    module, the laser diode is the most sensitive component to
    temperature. As a result, 10Gbps modules have in the past been
    constrained to
    70oC
    maximum operating case temperature. Even in temperature
    controlled environments, heat dissipation from neighboring
    electronic components can raise internal equipment temperatures
    to levels that degrade laser and module performance.
    Furthermore, some network equipment is located outdoors in
    non-temperature controlled environments where transceiver
    modules need to operate reliably up to an operating case
    temperature of
    +85oC.
    Therefore, customers are demanding optical modules that can
    operate at wider temperature ranges, especially incorporating
    uncooled lasers that do not require costly and inefficient
    thermoelectric coolers. 4




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##### Table of Contents




    The Size Challenge.  The system throughput,
    data rate of each port and the overall chassis dimensions of the
    system define the bandwidth capacity of that system. Network
    service providers and enterprises have limited space in which to
    house their optical network equipment within an office or
    equipment room. Expanding the capacity of that system requires
    increasing the number of ports and the data rate of those ports.
    To meet these higher speed and density requirements, industry
    leaders have defined smaller 10Gbps transceiver packages. As the
    size of these packages decrease, so does their ability to
    dissipate heat making it virtually impossible to support cooled
    laser technology. Therefore, lower power consumption uncooled
    laser technology with higher temperature tolerance and improved
    efficiency is required to meet the thermal capacity of these
    smaller packages.    Our Key
    Advantages
    Technology Leadership.
  Broad Product Line.
  Superior Performance.
 5




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o
  Continuous Innovation. o
  MSA Leadership.
  Strategy
    Focus on High Growth Product and Market
    Opportunities.
  Grow Revenues Within Existing Customer Base and Selectively
    Add New Customers.
 6




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Continue to Invest in Technology.
  Engage our Customers Early in their Product Planning
    Cycle.
  Continue to Improve Our Manufacturing
    Process.
  Explore Strategic Acquisitions.
  Technology
    and Research and Development
    Semiconductor Laser Design &
    Manufacturing.
 7




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Optical Semiconductor Materials.
  Subassembly Design.
  Module Design.
    Products
   8




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Product LineProduct Types

Equipment

Application

Speed

Reach

Shipping300 pin

Transport & Routers

Telecom & Datacom

40Gbps

2km

Since 2004300 pin

Transport, MSS, Routers & AM*

Telecom & Datacom

10Gbps

600m, 2km, 12km, 20km, 40km, 80km,
    DWDM & Tunable

Since 2000XENPAK

Switches & Routers

Datacom

10Gbps

300m, 10km, 40km, 80km & DWDM

Since 2002X2

Switches & Routers

Datacom

10Gbps

300m, 10km, 40km, 80km

Since 2004XPAK

Servers, Switches

Datacom

10Gbps

300m, 10km

Since 2005XFP

Transport, MSS, Switches, Routers
    & AM, Servers

Datacom

10Gbps

300m, 600m, 2km, 12km, 20km, 40km,
    80km, DWDM & Tunable

Since 2004SFP+

Servers, Switches,  Storage

Datacom

8-10Gbps

75m, 300m, 80km

Since 2007XMD TOSA & ROSA

Transceiver Vendors

Telecom & Datacom

10Gbps

10km, 40km, 80km

Since 2005LDM/PDM

Transport & MSS

Telecom

10Gbps

40km, 80km, DWDM

Since 2000SFP

Transport, MSS, Routers & AM

Telecom

155Mbps, 622Mbps, 2.5Gbps

2km, 15km, 40km, 80km, DWDM

Since 2003SFP

Hubs & Switches

Datacom

1.25Gbps

500m, 10km, 80km

Since 2004     *
    
    MSS refers to multi-service switches and AM refers to access
    multiplexers.   9




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Customers
      Competition
    
    product performance including size, speed, operating temperature
    range, power consumption and reliability;
    price to performance characteristics;
    delivery performance and lead times;
    ability to introduce new products in a timely manner that meet
    customers design-in schedules and requirements;
    breadth of product solutions;
    sales, technical and post-sales service and support;
    sales channels; and
    ability to comply with new industry MSAs and requirements. 10




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
    product performance including power output, wavelength, power
    consumption, operating temperature range, and reliability;
    price to performance characteristics;
    delivery performance and lead times;
    breadth of product solutions;
    sales, technical, and post-sales service and support; and
    sales channels.    Manufacturing
           11




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Sales,
    Marketing and Technical Support
          Patents
    and Other Intellectual Property Rights
       12




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Employees
    Item 1A.
    Risk
    Factors  Risks
    Relating To Our Business and Industry
  Uncertainty
    in customer forecasts of their demands and other factors may
    lead to delays and disruptions in manufacturing, which could
    result in delays in product shipments to customers and could
    adversely affect our business.
    If our
    customers do not qualify our products or if their customers do
    not qualify their products, our results of operations may
    suffer.
     13




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We do
    not have long-term volume purchase contracts with our customers,
    so our customers may increase, decrease, cancel or delay their
    buying levels at any time with minimal advance notice to us,
    which may significantly harm our business.
    We may
    experience low manufacturing yields or higher than expected
    costs.
    There
    is a limited number of potential suppliers for certain
    components. In addition, we depend on a limited number of
    suppliers whose components have been qualified into our products
    and who could disrupt our business if they stop, decrease or
    delay shipments or if the components they ship have quality or
    consistency issues. We may also face component shortages if we
    experience increased demand for modules and components beyond
    what our qualified suppliers can deliver.
   14




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We
    rely substantially upon a limited number of contract
    manufacturing partners and, if these contract manufacturers fail
    to meet our short and long-term needs and contractual
    obligations, our business may be negatively
    impacted.
    We
    face increasing competition from other providers of competing
    products, which could negatively impact our results of
    operations and market share.
      If
    demand for optical systems, particularly for 10Gbps network
    systems, does not continue to expand as expected, our business
    will suffer.
   15




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Our
    products may contain defects that may cause us to incur
    significant costs, divert our attention from product development
    efforts, result in a loss of customers and may possibly result
    in product liability claims.
  and/or
      Our
    market is subject to rapid technological change and, to compete
    effectively, we must continually introduce new products that
    achieve market acceptance or our business may be significantly
    harmed.
    
    changing product specifications and customer requirements;
    unanticipated engineering complexities; 16




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
    delays in or denials of membership in future MSAs that become
    successful, or membership in and product development for MSAs
    that do not become successful;
    difficulties in hiring and retaining necessary technical
    personnel;
    difficulties in reallocating engineering resources and
    overcoming resource limitations; and
    changing market or competitive product requirements.    Our
    products are complex and may take longer to develop and qualify
    than anticipated and we may not recognize revenues from new
    products until after long customer qualification
    periods.
        If we
    fail to obtain the right to use others intellectual
    property rights necessary to operate our business, our ability
    to succeed will be adversely affected.
   17




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
    cease the manufacture, use or sale of the infringing products,
    processes or technology;
    pay substantial damages for past, present and future use of the
    infringing technology;
    expend significant resources to develop non-infringing
    technology;
    pay substantial damages to our customers or end users to
    discontinue use or replace infringing technology with
    non-infringing technology; or    We
    license our intellectual property to Hitachi and its
    wholly-owned subsidiaries without restriction. In addition,
    Hitachi is free to license certain of Hitachis
    intellectual property which we use in our business to any
    third-party, including our competitors, which could harm our
    business and operating results.
      We may
    not be successful in establishing a brand identity, which may
    adversely affect our business, financial condition and results
    of operations.
    We may
    experience increased costs resulting from a decrease in the
    purchasing power we had while we operated as a controlled
    subsidiary of Hitachi.
   18




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Our
    future operating results may be subject to volatility as a
    result of exposure to foreign currency exchange
    risks.
    We may
    lose rights to key third-party intellectual property
    arrangements given that we are no longer majority-owned by
    Hitachi.
      Our
    failure to protect our intellectual property may significantly
    harm our business.
    Pursuing
    infringers of our intellectual property rights can be
    costly.
   19




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Third
    parties may claim we are infringing their intellectual property
    rights, and we could be prevented from selling our products, or
    suffer significant litigation expense, even if these claims have
    no merit.
    Our
    financial results may vary significantly from quarter-to-quarter
    due to a number of factors, which may lead to volatility in our
    stock price.
    
    fluctuations in demand for our products;
    the timing, size and product mix of sales of our products;
    our ability to manufacture and deliver products to our customers
    in a timely and cost-effective manner;
    quality control problems in our manufacturing operations;
    fluctuations in our manufacturing yields;
    length and variability of the sales cycles of our products;
    new product introductions and enhancements by our competitors
    and ourselves;
    changes in our pricing and sales policies or the pricing and
    sales policies of our competitors;
    our ability to develop, introduce and ship new products and
    product enhancements that meet customer requirements in a timely
    manner;
    unanticipated increase in costs and expenses; and
    fluctuations in foreign currency exchange rates.   20




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We may
    not be able to obtain capital when desired on favorable terms,
    if at all, or without dilution to our
    stockholders.
    
    acquire complementary businesses or technologies;
    enhance our operating infrastructure;
    hire additional technical and other personnel; or
    otherwise pursue our strategic plans and respond to competitive
    pressures.    If we
    fail to retain our senior management and other key personnel or
    if we fail to attract additional qualified personnel, we may not
    be able to achieve our anticipated level of growth and our
    business could suffer.
    Potential
    future acquisitions may not generate the results expected, could
    be difficult to integrate, divert the attention of key
    personnel, disrupt our business, dilute stockholder value and
    impair our financial results.
   21




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##### Table of Contents




    difficulties in integrating the manufacturing, operations,
    technologies, products, existing contracts, accounting and
    personnel of the target company and realizing the anticipated
    synergies of the combined businesses;
    difficulties in supporting and transitioning customers, if any,
    of the target company;
    diversion of financial and management resources from existing
    operations;
    the price we pay or other resources that we devote may exceed
    the value we realize, or the value we could have realized if we
    had allocated the purchase price or other resources to another
    opportunity or for our existing operations;
    risks of entering new markets in which we have limited or no
    experience;
    potential loss of key employees, customers and strategic
    alliances from either our current business or the target
    companys business;
    assumption of unanticipated problems or latent liabilities, such
    as problems with the quality of the target companys
    products;
    inability to generate sufficient revenue and profitability to
    offset acquisition costs;
    equity based acquisitions may have a dilutive effect on our
    stock; and
    inability to successfully consummate transactions with
    identified acquisition candidates.    We
    depend on Hitachi for a number of services necessary for the
    operation of our business. Any failure of Hitachi to provide
    these services could have a material adverse effect on our
    business.
     22




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##### Table of Contents



Hitachi
    and Clarity collectively control the outcome of shareholder
    actions in our company.
      Business
    disruptions resulting from international uncertainties could
    negatively impact our profitability.
    
    different technical standards or requirements, such as country
    or region-specific requirements to eliminate the use of lead;
    difficulties in staffing, managing and supporting operations in
    more than one country;
    difficulties in enforcing agreements and collecting receivables
    through foreign legal systems;
    fewer legal protections for intellectual property;
    fluctuations in foreign economies;
    fluctuations in the value of foreign currencies and interest
    rates;
    domestic and international economic or political changes,
    hostilities and other disruptions in regions where we currently
    operate or may operate in the future; and
    different and changing legal and regulatory requirements in the
    jurisdictions in which we currently operate or may operate in
    the future.    Our
    business and future operating results may be adversely affected
    by events outside of our control.
   23




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##### Table of Contents



Environmental
    laws and regulations may subject us to significant costs and
    liabilities.
    If
    equity research analysts do not continue to publish research or
    reports about our business or if they issue unfavorable
    commentary or downgrade our common stock, the price of our
    common stock could decline.
    The
    price of our common stock may be volatile and may fluctuate
    substantially which could result in substantial losses for our
    investors.
    
    actual or anticipated fluctuations in our results of operations;
    variance in our financial performance from the expectations of
    market analysts;
    conditions and trends in the markets we serve;
    announcements of significant new products by us or our
    competitors;
    changes in our pricing policies or the pricing policies of our
    competitors;
    legislation or regulatory policies, practices, or actions;
    the commencement or outcome of litigation;
    our sale of common stock or other securities in the future, or
    sales of our common stock by our principal stockholders;
    changes in market valuation or earnings of our competitors;
    the trading volume of our common stock;
    changes in the estimation of the future size and growth rate of
    our markets; and
    general economic conditions.   24




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Future
    sales of our common stock may depress our share
    price.
  lock-up lock-up
  Certain
    provisions of our corporate governing documents and Delaware Law
    could make an acquisition of our company more
    difficult.
    
    authorize the issuance of preferred stock that can be created
    and issued by our board of directors without prior stockholder
    approval, commonly referred to as blank check
    preferred stock, with rights senior to those of our common stock;
    limit the persons who can call special stockholder meetings;
    provide that a supermajority vote of our stockholders is
    required to amend some portions of our amended and restated
    certificate of incorporation and amended and restated bylaws;
    establish advance notice requirements to nominate persons for
    election to our board of directors or to propose matters that
    can be acted on by stockholders at stockholder meetings;
    do not provide for cumulative voting in the election of
    directors; and
    provide for the filling of vacancies on our board of directors
    by action of a majority of the directors and not by the
    stockholders.      The
    requirements of being a public company may strain our resources
    and distract management.
   25




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.      Location

Approximate Square Feet

Function

Lease Expiration DateUnited StatesEatontown, New Jersey

26,285 (of which 8,695 are
    subleased to two third parties)

Administration, Sales, Marketing

August 23, 2011 (for the master
    lease; April 30, 2008 and February 28, 2009, respectively, for
    the two subleases)Fremont, California

18,160

Sales, Manufacturing, Research and
    Development

July 31, 2008Orange City, Florida

710

Sales

November 30, 2007InternationalTotsuka, Japan

112,893 (10,488 square meters)

Manufacturing, Research and
    Development

September 30, 2011 (with automatic
    1-year extensions unless notice given by either party)Komoro, Japan

34,542 (3,209 square meters)

Manufacturing, Research and
    Development

March 31, 2011 (5-year automatic
    extensions unless notice given by either party)Chiyoda-ku, Japan

2,330 (216 square meters)

Sales

June 11, 2008 (with unlimited
    automatic
    2-year extensions)Munich, Germany

2,153 (200 square meters)

Sales

September 30,2007Shanghai, China

560 (52 square meters)

Market Research

March 31, 2009   Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.   26




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities    High


LowFiscal 2007 Quarter Ended:February 15, 2007 to
    March 31, 2007


18.71



14.79     Stock
    Performance Graph
      
  2/15/2007


2/28/2007


3/31/2007Opnext, Inc.



100.00




96.84




85.00Nasdaq Composite Index



100.00




96.76




96.98Nasdaq Telecommunications Index



100.00




96.43




96.50Amex Networking Index



100.00




96.82




95.74  27




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##### Table of Contents



Use of
    IPO Proceeds
    Dividend
    Policy
    Stock-based
    Incentive Plan Information
    Opnext Options

Pine Options

Total Stock Options

SARsWeighted



Weighted



Weighted



WeightedAverage



Average



Average



AverageExercise



Exercise



Exercise



ExerciseShares

Price

Shares

Price

Shares

Price

Shares

PriceStock-based incentive plans
    approved by our stockholders


4,411


$
15.00



60


$
1.22



4,471


$
14.81



664


$
15.00Stock-based incentive plans not
    approved by our stockholders


0


$
0.00



0


$
0.00



0


$
0.00



0


$
0.00   Repurchases
    of Equity
  Form 10-K.
 28




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##### Table of Contents



Item 6.
    Selected
    Financial Data  The following consolidated statements of operations data for
    the years ended March 31, 2007, 2006 and 2005 and the
    consolidated balance sheet data as of March 31, 2007 and
    2006 have been derived from our audited financial statements and
    related notes which are included elsewhere in this document. The
    consolidated balance sheet data as of March 31, 2005 and
    2004 and the statement of operations data for the year ended
    March 31, 2004, have been derived from our audited
    financial statements and related notes that do not appear in
    this document. The consolidated statements of operations data
    for the year ended March 31, 2003 and the consolidated
    balance sheet data as of March 31, 2003 have been derived
    from our unaudited financial statements that do not appear in
    this document. In the opinion of management, the unaudited
    consolidated financial statements have been prepared on the same
    basis as the audited financial statements and include all
    adjustments necessary for the fair presentation of our financial
    position and results of operations for the period and as of the
    date indicated. The consolidated selected financial data set
    forth below should be read in conjunction with our consolidated
    financial statements, the related notes and
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations included elsewhere in
    this document. The historical results are not necessarily
    indicative of the results to be expected for any future
    period.
  Historical
    Financial Data
  Year Ended March 31,2007


2006


2005


2004


2003(In thousands, except per share data)(Unaudited)Consolidated statements of
    operations data:Sales

$
222,859


$
151,691


$
138,432


$
79,390


$
79,915Cost of sales


146,684



119,626



107,694



73,144



74,250Gross margin


76,175



32,065



30,738



6,246



5,66534.2
%


21.1
%


22.2
%


7.9
%


7.1
%Research and development expenses


35,615



33,669



33,251



30,921



35,960Selling, general, and
    administrative expenses


40,231



33,116



33,629



33,164



36,159Loss on disposal of property,
    plant and equipment


311



1,065



50



5,886



1,667Asset impairment














19,150



Other operating expenses






399



17



247



2,909Other income (expense)


18



(36,184
)


(36,209
)


(83,122
)


(71,030
)Interest income, net


3,298



4,102



2,138



2,374



3,426Operating income (loss)


(874
)


1,886



52



258



71Income (loss) before income taxes


2,442



(30,196
)


(34,019
)


(80,490
)


(67,533
)Income tax (expense) benefit






(278
)


1,275







Net income (loss)

$
2,442


$
(30,474
)

$
(32,744
)

$
(80,490
)

$
(67,533
)Net income (loss) per share:Basic

$
0.05


$
(0.59
)

$
(0.63
)

$
(1.57
)

$
(1.35
)Diluted

$
0.05


$
(0.59
)

$
(0.63
)

$
(1.57
)

$
(1.35
)Weighted average number of shares:Basic


53,432



51,945



51,873



51,383



50,000Diluted


53,486



51,945



51,873



51,383



50,000   29




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##### Table of Contents



March 31,2007


2006


2005


2004


2003(In thousands)(Unaudited)Consolidated balance sheet
    data:Total assets

$
370,610


$
216,826


$
291,912


$
322,540


$
365,961Long-term liabilities


17,271



7,716



2,245



20,774



22,339Total shareholders equity


293,422



119,663



148,176



177,901



251,405   Selected
    Quarterly Financial Information (Unaudited)
  The following table shows our unaudited consolidated
    quarterly statements of operations data for each of the quarters
    in the years ended March 31, 2007 and 2006. This
    information has been derived from our unaudited financial
    information, which, in the opinion of management, has been
    prepared on the same basis as our audited financial statements
    and include all adjustments necessary for the fair presentation
    of the financial information for the quarters presented. This
    information should be read in conjunction with the audited
    financial statements and related notes included elsewhere in
    this document.
  Three Months EndedMarch 31,


Dec. 31,


Sept. 30,


June 30,2007


2006


2006


2006(In thousands except per share data)Sales

$
65,376


$
61,736


$
55,323


$
40,424Gross margin


22,797



21,663



18,454



13,261Net income (loss)*


1,517



3,225



1,174



(3,474
)Net income (loss) per share:Basic


0.03



0.06



0.02



(0.07
)Diluted


0.03



0.06



0.02



(0.07
)Weighted average shares
    outstanding:Basic


57,803



52,008



52,008



51,989Diluted


58,027



52,061



52,059



51,989   Three Months EndedMarch 31,


Dec. 31,


Sept. 30,


June 30,2006


2005


2005


2005(In thousands except per share data)Sales

$
46,208


$
38,609


$
35,504


$
31,370Gross margin


13,289



10,684



4,517



3,575Net loss


(2,779
)


(4,089
)


(12,090
)


(11,516
)Net loss per share:Basic


(0.05
)


(0.08
)


(0.23
)


(0.22
)Diluted


(0.05
)


(0.08
)


(0.23
)


(0.22
)Weighted average shares
    outstanding:Basic


51,949



51,945



51,943



51,941Diluted


51,949



51,945



51,943



51,941     *
    
    Net income for the three months ended March 31, 2007
    includes $3.5 million of stock-based compensation expense. 30




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  The following discussion includes forward-looking statements
    that involve risks and uncertainties. Our actual results could
    differ substantially from those anticipated as a result of many
    factors including those set forth in Risk Factors,
    included elsewhere in the document. The following discussion
    should be read together with our financial statements, the
    related notes thereto and the other financial information
    included elsewhere in the document.
  OVERVIEW
             31




---



##### Table of Contents



Sales
        IP-TV,
     32




---



##### Table of Contents



Cost
    of Sales and Gross Margin
        Research
    and Development Costs
    Selling,
    General and Administrative Expenses
   33




---



##### Table of Contents



Significant
    Accounting Policies
  Revenue
    Recognition, Warranties and Allowances
        Inventory
    Valuation
  first-in,
  Income
    Taxes
       34




---



##### Table of Contents



Impairment
    of Long-Lived Assets
  Accounting for Impairment of
    Long-Lived Assets
    Stock-Based
    Incentive Plans
  Share-Based Payment
    
    The time period our stock-based awards are expected to remain
    outstanding has been determined based on the average of the
    original award period and the remaining vesting period in
    accordance with the SECs Staff Accounting
    Bulletin 107 simplified method. Our expected term
    assumption for awards issued during the year ended
    March 31, 2007 was 6.25 years. As additional evidence
    develops from our stocks trading history, the expected
    term assumption will be refined to capture the relevant trends.
    The future volatility of our stock has been estimated based on
    the median calculated value of the historical volatility of
    companies we believe should have similar market performance
    characteristics as those of our Company. Use of comparable
    companies is necessary since we do not possess a sufficient
    stock price history. Our expected volatility assumption for
    awards issued during the year ended March 31, 2007 was
    99.3%. As additional evidence develops, the future volatility
    estimate will be refined to capture the relevant trends. 35




---



##### Table of Contents




    A dividend yield of zero has been assumed for awards issued
    during the year ended March 31, 2007 based on our actual
    past experience and the fact that we do not anticipate paying a
    dividend on our shares in the near future.
    We have based our risk-free interest rate assumption for awards
    issued during the year ended March 31, 2007 on the implied
    weighted-average yield of 4.8% available on U.S. Treasury
    zero-coupon issues with an equivalent expected term.
    Forfeiture rates for awards issued during these same periods
    have been estimated based on the Companys actual
    historical forfeiture trends of approximately 10%.  Accounting for Stock-Based Compensation
  Pending
    Adoption of New Accounting Standards
  Accounting for Uncertainty in Income Taxes, an interpretation
    of FASB Statement 109 (FIN 48).
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115
 36




---



##### Table of Contents



Results
    of Operations for the Years Ended March 31, 2007, 2006 and
    2005
    Year Ended March 31,


Year Ended March 31,2007


2006


2005


2007


2006


2005(In thousands)


(As percentage of sales)Sales

$
222,859


$
151,691


$
138,432



100.0
%


100.0
%


100.0
%Cost of sales


146,684



119,626



107,694



65.8
%


78.9
%


77.8
%Gross margin


76,175



32,065



30,738



34.2
%


21.1
%


22.2
%Research and development expenses


35,615



33,669



33,251



16.0
%


22.2
%


24.0
%Selling, general and
    administrative expenses


40,231



33,116



33,629



18.1
%


21.8
%


24.3
%Other operating expenses


311



1,464



67



0.0
%


1.0
%


0.0
%Operating income (loss)


18



(36,184
)


(36,209
)


0.0
%


(23.9
)%


(26.2
)%Interest income, net


3,298



4,102



2,138



1.5
%


2.7
%


1.5
%Other income, net


(874
)


1,886



52



(0.4
)%


1.2
%


0.0
%Income (loss) before income taxes


2,442



(30,196
)


(34,019
)


1.1
%


(19.9
)%


(24.6
)%Income tax (expense) benefit






(278
)


1,275



0.0
%


(0.2
)%


0.9
%Net income (loss)

$
2,442


$
(30,474
)

$
(32,744
)


1.1
%


(20.1
)%


(23.7
)%   Comparison
    of the Years Ended March 31, 2007 and 2006
  Sales.
    Gross Margin.
   37




---



##### Table of Contents



Research and Development Expenses.
  Selling, General and Administrative
    Expenses.
  Other Operating Expenses.
  Interest Income, Net.
  Other (Expense) Income, Net.
  Income Taxes.
   38




---



##### Table of Contents



Comparison
    of the Years Ended March 31, 2006 and 2005
  Sales. 50 150
    Gross Margin.
    Research and Development Expenses.
  Selling, General and Administrative
    Expenses.
 39




---



##### Table of Contents



Other Operating Expenses.
  Interest Income, Net.
  Other Income, Net.
  Income Taxes.
    Liquidity
    and Capital Resources
     40




---



##### Table of Contents



Contractual
    Obligations
    Less than








More thanTotal


1 Year


1-3 Years


3-5 Years


5 YearsCapital lease obligations

$
17.1


$
4.6


$
9.0


$
3.5


$
Operating lease obligations


5.2



2.6



1.6



1.0



Purchase obligations


57.3



57.3











Total

$
79.6


$
64.5


$
1 0.6


$
4.5


$
     Off-Balance
    Sheet Arrangements
   41




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures about Market Risk.             42




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data.  OPNEXT,
    INC.
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of
    Independent Registered Public Accounting Firm


44Consolidated
    Balance Sheets at March 31, 2007 and March 31,
    2006


45Consolidated
    Statements of Operations for the years ended March 31,
    2007, 2006 and 2005


46Consolidated
    Statements of Shareholders Equity and Comprehensive Income
    (Loss) for the years ended March 31, 2007, 2006 and
    2005


47Consolidated
    Statements of Cash Flows for the years ended March 31,
    2007, 2006 and 2005


48Notes to
    Consolidated Financial Statements


49  43




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm             
    44




---



##### Table of Contents



Opnext,
    Inc.
  Consolidated
    Balance Sheets
  March 31,2007


2006(In thousands, except share and per share amounts)ASSETSCurrent assets:Cash and cash equivalents,
    including $0 and $8,745 due from related parties at
    March 31, 2007 and 2006, respectively

$
199,786


$
89,358Trade receivables, net, including
    $3,000 and $6,820 due from related parties at March 31,
    2007 and 2006, respectively


53,974



33,608Inventories, net


65,321



45,865Prepaid expenses and other current
    assets


3,221



2,144Total current assets


322,302



170,975Property, plant, and equipment, net


42,396



39,926Goodwill


5,698



5,698Other assets


214



227Total assets

$
370,610


$
216,826LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Trade payables, including $9,264
    and $7,063 due to related parties at March 31, 2007 and
    2006, respectively

$
41,581


$
26,127Accrued expenses


14,201



10,333Short-term debt






50,942Capital lease obligations


4,135



2,045Total current liabilities


59,917



89,447Capital lease obligations


11,858



6,392Other long-term liabilities


5,413



1,324Total liabilities


77,188



97,163Commitments and contingenciesShareholders equity:Preferred stock, par value $0.01
    per share: 15,000,000 authorized, no shares issued and
    outstanding






Class A common stock, par
    value $0.01 per share: no shares authorized, issued or
    outstanding at March 31, 2007; authorized 150,000,000,
    issued and outstanding 49,999,999 shares at March 31,
    2006






500Class B common stock, par
    value $0.01 per share: no shares authorized, issued or
    outstanding at March 31, 2007, authorized
    178,300,000 shares, issued and outstanding 1,985,457 at
    March 31, 2006






20Common stock, par value $0.01 per
    share: authorized 150,000,000 shares, issued and
    outstanding 64,549,100 at March 31, 2007, no shares
    authorized, issued and outstanding at March 31, 2006


645



Additional paid-in capital


577,257



406,124Unearned compensation






(1
)Accumulated deficit


(279,343
)


(281,785
)Accumulated other comprehensive
    loss


(5,137
)


(5,195
)Total shareholders equity


293,422



119,663Total liabilities and
    shareholders equity

$
370,610


$
216,826    45




---



##### Table of Contents



Opnext,
    Inc.
  Consolidated
    Statements of Operations
  Year Ended March 31,2007


2006


2005(In thousands, except per share amounts)Sales, including $9,671, $24,090
    and $30,331 to related parties for the years ended
    March 31, 2007, 2006 and 2005, respectively

$
222,859


$
151,691


$
138,432Cost of sales


146,684



119,626



107,694Gross margin


76,175



32,065



30,738Research and development expenses,
    including $4,403, $4,171 and $3,389 from related parties for the
    years ended March 31, 2007, 2006 and 2005, respectively


35,615



33,669



33,251Selling, general and
    administrative expenses, including $4,557, $4,136 and $3,754
    from related parties for the years ended March 31, 2007,
    2006 and 2005, respectively


40,231



33,116



33,629Other operating expenses


311



1,464



67Operating income (loss)


18



(36,184
)


(36,209
)Interest income, net, including
    $42, $2,835, and $1,682 of interest income from related parties
    for the years ended March 31, 2007, 2006 and 2005,
    respectively


3,298



4,102



2,138Other (expense) income, net


(874
)


1,886



52Income (loss) before income taxes


2,442



(30,196
)


(34,019
)Income tax (expense) benefit






(278
)


1,275Net income (loss)

$
2,442


$
(30,474
)

$
(32,744
)Net income (loss) per share:Basic

$
0.05


$
(0.59
)

$
(0.63
)Diluted

$
0.05


$
(0.59
)

$
(0.63
)Weighted average number of shares
    used in computing net income (loss) per shareBasic


53,432



51,942



51,873Diluted


53,486



51,942



51,873    46




---



##### Table of Contents



Opnext,
    Inc.
  Consolidated
    Statements of Shareholders Equity and Comprehensive Income
    (Loss)
 Years
    ended March 31, 2007, 2006 and 2005
  Class A


Class B














Retained


AccumulatedCommon Stock


Common Stock


Common Stock





Additional


Earnings


OtherNumber


Par


Number


Par


Number


Par


Unearned


Paid-In


(Accumulated


Comprehensive


Shareholders


Comprehensiveof Shares


Value


of Shares


Value


of Shares


Value


Compensation


Capital


Deficit)


Loss


Equity


Income (Loss)(Dollars in thousands, except share amounts)Balance at March 31, 2004


49,999,999


$
500



1,695,951



17











(49
)


404,121



(218,567
)


(8,121
)


177,901Issuance of restricted stock










216,661



2















(2
)Compensation expense


























36















36Stock options exercised










28,831



















25











25Non-employee stock option expense
    to related parties






























1,945











1,945Net loss


































(32,744
)






(32,744
)

$
(32,744
)Foreign currency translation
    adjustment






































1,013



1,013



1,013Total comprehensive loss













































$
(31,731
)Balance at March 31, 2005


49,999,999



500



1,941,443



19











(13
)


406,089



(251,311
)


(7,108
)


148,176Compensation expense


























12















12Stock options exercised










44,014



1















35











36Net loss


































(30,474
)






(30,474
)

$
(30,474
)Foreign currency translation
    adjustment






































1,913



1,913



1,913Total comprehensive loss













































$
(28,561
)Balance at March 31, 2006


49,999,999



500



1,985,457



20






$



$
(1
)

$
406,124


$
(281,785
)

$
(5,195
)

$
119,663Conversion of Common Stock


(49,999,999
)


(500
)


(1,985,457
)


(20
)


51,985,456



520



















Compensation Expense


























1



229











230Stock options Exercised


















27,238











46











46Net proceeds from initial public
    offering


















12,536,406



125







170,858











170,983Net income


































2,442







2,442



2,442Foreign currency translation
    adjustment






































58



58



58Total comprehensive income













































$
2,500Balance at March 31, 2007





$







$




64,549,100


$
645


$



$
577,257


$
(279,343
)

$
(5,137
)

$
293,422    47




---



##### Table of Contents



Opnext,
    Inc.
  Consolidated
    Statements of Cash Flows
  Year Ended March 31,2007


2006


2005(Dollars in thousands)Cash flows from operating
    activitiesNet income (loss)

$
2,442


$
(30,474
)

$
(32,744
)Adjustments to reconcile net
    income (loss) to net cash used in operating activities:Depreciation and amortization


10,305



12,579



12,567Compensation expense


3,552



12



36Loss on disposal of property,
    plant and equipment


311



1,065



50Non-employee stock option expense
    to related parties










1,945Changes in assets and liabilities:Trade receivables, net


(17,155
)


(11,116
)


(2,051
)Inventories, net


(19,459
)


(5,661
)


(9,927
)Prepaid expenses and other current
    assets


(1,184
)


(615
)


1,264Other assets


(12
)


433



12Trade payables


15,400



2,037



14,860Accrued expenses and other
    liabilities


1,760



1,567



(13,359
)Net cash used in operating
    activities


(4,040
)


(30,173
)


(27,347
)Cash flows from investing
    activitiesCapital expenditures


(3,142
)


(3,115
)


(4,438
)Net cash used in investing
    activities


(3,142
)


(3,115
)


(4,438
)Cash flows from financing
    activitiesShort-term debt payments, net


(50,892
)


(25,313
)


(1,305
)Payments on capital lease
    obligations


(2,464
)


(1,265
)


(681
)Payment to Hitachi, Ltd.






(20,000
)


Exercise of stock options


46



36



25Net proceeds from initial public
    offering


170,983







Net cash provided by (used in)
    financing activities


117,673



(46,542
)


(1,961
)Effect of foreign currency
    exchange rates on cash and cash equivalents


(63
)


(316
)


35Increase (decrease) in cash and
    cash equivalents


110,428



(80,146
)


(33,711
)Cash and cash equivalents at
    beginning of year


89,358



169,504



203,215Cash and cash equivalents at end
    of year

$
199,786


$
89,358


$
169,504Supplemental cash flow
    informationCash paid during the year for:Interest

$
531


$
535


$
477Income taxes






278



Non-cash financing
    activitiesCapital lease obligations incurred

$
(10,265
)

$
(7,882
)

$
(2,188
)    48




---



##### Table of Contents



Opnext,
    Inc.



Notes to
    Consolidated Financial Statements

(In thousands, except per share amounts) 1.
    Background
    and Basis of Presentation                Current assets

$
1,428Non-current tangible assets


3,325Goodwill


5,698Unearned compensation


109Current liabilities


(3,646
)Non-current liabilities


(1,721
)$
5,193      49




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
      2.
    Summary
    of Significant Accounting Policies  Principles
    of Consolidation
    Use of
    Estimates
    Revenue
    Recognition
    Warranties
    Research
    and Development Costs
   50




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  Shipping
    and Handling Costs
    Foreign
    Currency Transactions and Translation
      Accounting for Derivative Instruments and Hedging Activities,
    as amended by SFAS No. 149, Amendment of Statement 133
    on Derivative Instruments and Hedging Activities.
    Net
    Income (Loss) per Common Share
  Earnings Per Share
  Cash
    and Cash Equivalents
   51




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  Trade
    Receivables
    Inventories
  first-in,
  Property,
    Plant, and Equipment and Internal Use Software
      98-1, Accounting for the Costs of Computer Software Developed or
    Obtained for Internal Use
  Impairment
    of Long-Lived Assets
  Accounting for
    Impairment of Long-Lived Assets
 52




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
    Goodwill
    and Business Combinations
  Business Combinations Goodwill and Other Intangible Assets
  Income
    Taxes
      Fair
    Value of Financial Instruments
    Stock-Based
    Incentive Plans
  Share-Based Payment
    
    The time period that stock based awards are expected to remain
    outstanding has been determined based on the average of the
    original award period and the remaining vesting period in
    accordance with the SECs 53




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  short-cut approach pursuant to SAB No. 107,
    Disclosure About Fair Value of Financial Statements. The
    expected term assumption for awards issued during the
    twelve-month period ended March 31, 2007 was
    6.25 years. As additional evidence develops from the
    Companys stock trading history, the expected term
    assumption will be refined to capture the relevant trends.  
    The future volatility of the Companys stock has been
    estimated based on the median calculated value of the historical
    volatility of companies believed to have similar market
    performance characteristics as those of the Company. Use of
    comparable companies is necessary since the Company does not
    possess a sufficient stock price history. The expected
    volatility assumption for awards issued during the twelve-month
    period ending March 31, 2007 was 99.3%. As additional
    evidence develops, the future volatility estimate will be
    refined to capture the relevant trends.
    A dividend yield of zero has been assumed for awards issued
    during the twelve-month period ended March 31, 2007 based
    on the Companys actual past experience and the fact that
    Company does not anticipate paying a dividend on its shares in
    the near future.
    The Company has based its risk-free interest rate assumption for
    awards issued during the twelve-month period ended
    March 31, 2007 on the implied yield available on
    U.S. Treasury zero-coupon issues with an equivalent
    expected term, which was 4.8% during the period.
    The forfeiture rate for awards issued during the twelve-month
    period ended March 31, 2007 was approximately 10% and was
    based on the Companys actual historical forfeiture trend.  Accounting for Stock-Based
    Compensation, Valuation of Privately-Held Company Equity
    Securities Issued as Compensation
    Year Ended March 31,2006


2005Dividend yield


0.00
%


0.00
%Expected volatility


1.00
%


1.00
%Risk free interest rate


5.10
%


4.18
%Expected holding period (in years)


5



5    54




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
    Year Ended March 31,2006


2005Net loss as reported

$
(30,474
)

$
(32,744
)Compensation expense included in
    net loss


12



36Pro forma compensation income
    (expense)


60



(323
)Pro forma net loss

$
(30,402
)

$
(33,031
)Pro forma net loss per share basic
    and diluted

$
(0.59
)

$
(0.64
)Weighted average number of shares
    used in computing pro forma net loss per share, basic and diluted


51,945



51,873   96-18 Accounting for Equity Instruments That Are Issued to Other
    Than Employees for Acquiring, or in Conjunction with Selling
    Goods or Services
  Pending
    Adoption of New Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes, an interpretation
    of FASB Statement 109 (FIN 48).
  Fair Value Measurements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an amendment of FASB Statement
    No. 115
 55




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  3.
    Inventories    March 31,2007


2006Raw materials

$
34,484


$
23,053Work in process


15,481



14,045Finished goods


15,356



8,767Inventories, net

$
65,321


$
45,865     4.
    Property,
    Plant, and Equipment    March 31,2007


2006Machinery, electronic, and other
    equipment

$
166,512


$
166,845Computer software


10,045



9,724Building improvements


4,877



4,541Construction in progress


7,767



496Total property, plant, and
    equipment


189,201



181,606Less accumulated depreciation and
    amortization


(146,805
)


(141,680
)Property, plant, and equipment, net

$
42,396


$
39,926     5.
    Income
    Taxes    Year Ended March 31,2007


2006


2005United States

$
(7,850
)

$
(10,252
)

$
(16,199
)Foreign


10,292



(19,944
)


(17,820
)Income (loss) before income taxes

$
2,442


$
(30,196
)

$
(34,019
)  56




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
    Year Ended March 31,2007


2006


2005U.S. Federal statutory income tax
    rate


35.0
%


(35.0
)%


(35.0
)%State and local income taxes, net
    of Federal income tax effect


(14.9
)


(1.8
)


(2.5
)Foreign earnings taxed at
    different rates


24.5



(3.7
)


(3.0
)Change in valuation allowance


(106.2
)


48.9



41.3Long-term investment foreign
    currency transaction losses






(7.3
)


Income tax reserve adjustment










(3.7
)Stock based compensation


53.8







Other


7.8



(0.2
)


(0.8
)Effective income tax rate


0.0
%


0.9
%


(3.7
)%     March 31,2007


2006Net deferred income tax assets:Net operating loss, capital loss
    and credit carryforwards

$
165,714


$
157,852Intellectual property and goodwill


19,313



32,124Inventory and other reserves


16,260



15,209Non-employee stock option expense
    to related parties


9,387



9,387Capital leases and property,
    plant, and equipment


(2,065
)


(3,154
)Other


(1,237
)


950Valuation allowance


(207,372
)


(212,368
)Total net deferred tax assets

$



$
      57




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
      6.
    Stockholders
    Equity      7.
    Net
    Income (Loss) Per Share      Year Ended March 31,2007


2006


2005Numerator:Net income (loss), basic and
    diluted

$
2,442


$
(30,474
)

$
(32,744
)Denominator:Weighted average shares
    outstanding  basic


53,432



51,945



51,873Effect of potentially dilutive
    options


54







Weighted average shares
    outstanding  diluted


53,486



51,945



51,873Basic net income (loss) per share

$
0.05


$
(0.59
)

$
(0.63
)Diluted net income (loss) per share

$
0.05


$
(0.59
)

$
(0.63
)  58




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
    Year Ended March 31,2007


2006


2005Stock options


4,387



4,437



4,551Stock appreciation rights


664



669



567Total options and stock
    appreciation rights


5,051



5,106



5,118   8.
    Comprehensive
    Income (Loss)    Year Ended March 31,2007


2006


2005Net income (loss)

$
2,442


$
(30,474
)

$
(32,744
)Foreign currency translation
    adjustment


58



1,913



1,013Comprehensive income (loss)

$
2,500


$
(28,561
)

$
(31,731
)     9.
    Employee
    Benefits      10.
    Stock-Based
    Incentive Plans   59




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  Restricted
    Stock
    Stock
    Options
  10-year EITF 96-18
        Options Outstanding


Options ExercisableWeighted





WeightedAverage





AverageNumber


Remaining


Number


RemainingExercise Price

Outstanding


Life


Exercisable


Life(In years)





(In years)$0.78


47



4.6



47



4.6$2.73


13



6.2



13



6.2$15.00


4,411



4.4



4,219



4.3$14.81


4,471







4,279  60




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  Stock
    Appreciation Rights (SARs) Plan
  10-year
      Opnext Options


Pine Options


Total Stock Options


SARsWeighted





Weighted





Weighted





WeightedAverage





Average





Average





AverageExercise





Exercise





Exercise





ExerciseShares


Price


Shares


Price


Shares


Price


Shares


PriceBalance at March 31, 2004


4,157


$
15.00



199


$
1.10



4,356


$
14.37



294


$
15.00Granted


260



15.00











260



15.00



295



15.00Forfeited


(15
)


15.00



(21
)


1.58



(36
)


7.18



(22
)


15.00Exercised










(29
)


0.91



(29
)


0.91







Balance at March 31, 2005


4,402



15.00



149



1.07



4,551



14.54



567



15.00Granted


17



15.00











17



15.00



154



15.00Forfeited


(75
)


15.00



(12
)


1.20



(87
)


13.12



(52
)


15.00Exercised










(44
)


0.84



(44
)


0.84







Balance at March 31, 2006


4,344



15.00



93



1.16



4,437



14.71



669



15.00Granted


90



15.00











90



15.00



52



15.00Forfeited


(22
)


15.00



(7
)


1.45



(29
)


11.67



(54
)


15.00Exercised


(1
)






(26
)


0.96



(27
)


1.64



(3
)


15.00Balance at March 31, 2007


4,411


$
15.00



60


$
1.22



4,471


$
14.81



664


$
15.00   11.
    Short-Term
    Debt   61




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  12.
    Concentrations
    of Risk      13.
    Commitments
    and Contingencies    Capital


OperatingLeases


LeasesYear ending March 31:2008

$
4,542


$
2,5752009


4,405



8272010


4,553



7862011


3,546



7862012






262Total minimum lease payments


17,046


$
5,236Less amount representing interest


(1,053
)Present value of capitalized
    payments


15,993Less current portion


4,135Long-term portion

$
11,858    62




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
    Year Ended March 31,2007


2006


2005Beginning balance

$
551


$
834


$
891Claims paid


(525
)


(737
)


(631
)Warranty expense


592



521



597Foreign currency translation and
    other


(8
)


(67
)


(23
)Ending balance

$
610


$
551


$
834   14.
    Other
    Operating Expenses    Year Ended March 31,2007


2006


2005Loss on disposal of property,
    plant, and equipment

$
311


$
1,065


$
50Severance






53



17Subsidiary stock registration fee






346



$
311


$
1,464


$
67   15.
    Related
    Party Transactions       63




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  Opnext
    Japan, Inc. Related Party Agreements
    Sales
    Transition Agreement
    Intellectual
    Property License Agreements
  paid-up, paid-up,
  paid-up, paid-up,
  Opnext
    Japan Research and Development Agreement
  paid-up, paid-up,
  Opnext
    Research and Development Agreement
  and/or
  paid-up, paid-up,
 64




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
    Preferred
    Provider and Procurement Agreements
    Raw
    Materials Supply Agreement
    Outsourcing
    Agreement
    Secondment
    Agreements
    Lease
    Agreements
   65




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
    Trademark
    Indication Agreements
    OPD
    Related Party Agreements
    Intellectual
    Property License Agreement
  paid-up, paid-up,
  Secondment
    Agreements
    Lease
    Agreement
   66




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  16.
    Operating
    Segments and Geographic Information  Operating
    Segments
    Geographic
    Information
  Year Ended March 31,2007


2006


2005Sales:United States

$
123,026


$
72,700


$
61,045Europe


58,183



34,240



31,966Japan


30,222



38,930



43,511Asia Pacific


11,428



5,821



1,910Total

$
222,859


$
151,691


$
138,432     March 31,2007


2006Assets:United States

$
240,985


$
111,730Japan


109,641



92,531Europe


19,984



12,565Total

$
370,610


$
216,826     17.
    Valuation
    and Qualifying Accounts  Allowance
    for Doubtful Accounts
  Year Ended March 31,2007


2006


2005Beginning balance

$
293


$
291


$
282Deduction and write offs


(48
)


14



(2
)Charge to expense


213







Foreign currency translation and
    other


33



(12
)


11Ending balance

$
491


$
293


$
291  67




---



##### Table of Contents



Opnext,
    Inc.
  Notes to
    Consolidated Financial
    Statements  (Continued)
 (In
    thousands, except per share amounts)
  Tax
    Valuation Allowance
  Year Ended March 31,2007


2006


2005Beginning balance

$
212,368


$
214,204


$
204,554Changes in valuation allowance


(4,925
)


13,729



14,417Foreign currency translation


(71
)


(15,565
)


(4,767
)Ending balance

$
207,372


$
212,368


$
214,204   18.
    Subsequent
    Events       68




---



##### Table of Contents



ITEM 9
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    ITEM 9A
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures.
  Rules 13a-15(e) 15d-15(e)) Rules 13(a)-15 15d-15.
    Changes
    in internal controls over financial reporting
  Rule 13a-15(f)
  ITEM 9B
    Other   69




---



##### Table of Contents



PART III  Item 10.
    Executive
    Officers, Directors, Director Independence and Corporate
    Governance    Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners, Management and Related
    Stockholders Matters    Item 13.
    Certain
    Relationships, Related Transactions, and Director
    Independence    Item 14.
    Principal
    Accountant Fees and Services    PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules.  All financial statements. Form 10-K.
  Financial statement schedules. Form 10-K.
  Exhibits.
  ExhibitNo.



Description of Document3
.1



Form of Amended and Restated
    Certificate of Incorporation of Opnext, Inc.(1)3
.2



Form of Amended and Restated
    Bylaws of Opnext, Inc.(1)3
.3



Specimen of stock certificate for
    common stock.(1)4
.1



Pine Stockholder Agreement, dated
    as of June 4, 2003, by and among Opnext, Inc. and the
    Stockholders of Pine Photonics Communications, Inc.(1)4
.2



Registration Rights Agreement,
    entered into as of July 31, 2001, by and among
    Opnext, Inc., Clarity Partners, L.P., Clarity Opnext
    Holdings I, LLC, Clarity Opnext
    Holdings II, LLC, and Hitachi, Ltd.(1)4
.3



Stockholders Agreement,
    dated as of July 31, 2001, between Opnext, Inc. and
    each of Hitachi, Ltd., Clarity Partners, L.P., Clarity
    Opnext Holdings I, LLC and Clarity Opnext
    Holdings II, LLC, as amended.(1)10
.1+



Pine Photonics
    Communications, Inc. 2000 Stock Plan.(1)10
.2+



Form of Pine Photonics
    Communications, Inc. 2000 Stock Plan: Stock Option
    Agreement.(1)10
.3+



Opnext, Inc.
    2001 Long-Term Stock Incentive Plan.(1) 70




---



##### Table of Contents



ExhibitNo.



Description of Document10
.4+



Form of Opnext, Inc. 2001
    Long-Term Stock Incentive Plan, Nonqualified Stock Option
    Agreement.(1)10
.4a+



Form of Opnext, Inc. 2001
    Long-Term Stock Incentive Plan, Nonqualified Stock Option
    Agreement for Senior Executives.(1)10
.4b+



Opnext, Inc. Nonqualified Stock
    Option Agreement dated as of November 1, 2004, between
    Opnext, Inc. and Harry L. Bosco
    (Participant).(1)10
.4c+



Form of Opnext, Inc. 2001
    Long-Term Stock Incentive Plan, Stock Appreciation Right
    Agreement.(1)10
.4d+*



Form of Amendment to Stock
    Appreciation Right Agreement.10
.5



Form of Hitachi, Ltd. and
    Clarity Management, L.P. Nonqualified Stock Option
    Agreement.(1)10
.6+



Opnext, Inc. Amended and
    Restated 2001 Long-Term Stock Incentive Plan.(1)10
.7+



Employment Agreement, entered into
    as of July 31, 2001, by and between Opnext, Inc. and
    Harry L. Bosco, as amended.(1)10
.8+



Employment Agreement, entered into
    as of August 24, 2001, by and between Opnext, Inc. and
    Michael C. Chan, as amended.(1)10
.9+



Employment Agreement, entered into
    as of August 24, 2001, by and between Opnext, Inc. and
    Chi-Ho
    Christopher Lin, as amended.(1)10
.10+



Employment Agreement, dated
    March 5, 2001, by and between Opnext, Inc. and
    Robert J. Nobile.(1)10
.11+



Form of Opnext, Inc.
    Restricted Stock Agreement.(1)10
.12



Research and Development
    Agreement, dated as of July 31, 2001, by and among
    Hitachi, Ltd., Opnext Japan, Inc. and Opto
    Device, Ltd. as amended.(1)10
.13



Research and Development
    Agreement, dated as of July 31, 2002, by and between
    Hitachi, Ltd. and Opnext, Inc., as amended.(1)10
.14



Outsourcing Agreement, made and
    entered into as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1)10
.15



Preferred Provider Agreement, made
    and entered into as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext, Inc., as amended.(1)10
.16



Procurement Agreement, made and
    entered into as of July 31, 2001, by and between Opnext
    Japan, Inc. and Hitachi, Ltd., as amended.(1)10
.17



Raw Materials Supply Agreement,
    made and entered into as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext, Inc., as amended.(1)10
.18



Intellectual Property License
    Agreement, dated as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1)10
.19



Intellectual Property License
    Agreement, dated as of October 1, 2002, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1)10
.20



Intellectual Property License
    Agreement, effective as of October 1, 2002, by and between
    Hitachi Communication Technologies, Ltd. and Opnext
    Japan, Inc.(1)10
.21



Trademark Indication Agreement,
    dated as of October 1, 2002, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1)10
.22



Trademark Indication Agreement,
    dated as of July 31, 2001, by and between
    Hitachi, Ltd., Opnext, Inc. and Opnext Japan, Inc., as
    amended.(1)10
.23



Lease Agreement, made as of
    July 31, 2001, between Hitachi Communication
    Technologies, Ltd. and Opnext Japan, Inc., as
    amended.(1)10
.24



Lease Agreement, made as of
    October 1, 2002, between Renesas Technology Corp. and
    Opnext Japan, Inc., as amended.(1)10
.25



Business Park Net Lease Agreement,
    dated as of June 30, 2000, by and between Bedford Property
    Investors, Inc. and Opnext, Inc., as amended.(1)10
.26



Agreement on Bank Transactions
    between Opnext Japan, Inc. and The Bank of
    Tokyo-Mitsubishi UFJ, Ltd., as amended.(1) 71




---



##### Table of Contents



ExhibitNo.



Description of Document10
.27



Software User License Agreement,
    dated as of October 20, 2003, by and between Renesas
    Technology Corp. and Opnext Japan, Inc.(1)10
.28



Logistics Agreement, effective as
    of April 1, 2002, between Opnext, Inc. and Hitachi
    Transport System, Ltd.(1)10
.29



Distribution Agreement, dated
    April 1, 2001, between Hitachi Electronic Devices
    Sales, Inc. and Opnext Japan, Inc.(1)10
.30



Distribution Agreement, dated
    April 1, 2003, between Opnext Japan, Inc. and Renesas
    Technology Sale Co., Ltd.(1)10
.31



Distribution Agreement, dated
    July 1, 2003, between Opnext Japan, Inc. and Hitachi
    High-Technologies Corp.(1)21




List of Subsidiaries.(1)23
.1*



Consent of
    Ernst & Young LLP, Independent Registered
    Public Accounting Firm.24




Power of Attorney (set forth on
    the signature page of this
    Form 10-K).31
.1*



Certification of Principal
    Executive Officer pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934, as adopted pursuant to
    Section 302 of the
    Sarbanes-Oxley
    Act of 2002.31
.2*



Certification of Principal
    Financial Officer pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934, as adopted pursuant to
    Section 302 of the
    Sarbanes-Oxley
    Act of 2002.32
.1**



Certification of Principal
    Executive Officer pursuant to 18 U.S.C. Section 350,
    as adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002.32
.2**



Certification of Principal
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002.     (1)
    
    Filed as an exhibit to the Form S-1 Registration Statement (No.
    333-138262) declared effective on February 14, 2007 and
    incorporated herein by reference.    **
    Furnished herewith and not filed for purposes of
    Section 18 of the Securities Exchange Act of 1934, as amended.   72




---



##### Table of Contents



SIGNATURES    OPNEXT, INC.
  By:
    /s/  Harry
    L. Bosco     By:
    /s/  Robert
    J. Nobile       POWER OF
    ATTORNEY
  Form 10-K
    Signature

Title/s/  Harry
    L. BoscoHarry
    L. Bosco

Director, President and Chief
    Executive Officer
    (principal executive officer)/s/  Robert
    J. NobileRobert
    J. Nobile

Chief Financial Officer and Senior
    Vice President, Finance (principal financial and accounting
    officer)/s/  Dr. Naoya
    TakahashiDr. Naoya
    Takahashi

Director and Chairman of the Board/s/  Dr. David
    LeeDr. David
    Lee

Director and Co-Chairman of the
    Board/s/  Ryuichi
    OtsukiRyuichi
    Otsuki

Director 73




---



##### Table of Contents



Signature

Title/s/  John
    F. Otto, Jr.John
    F. Otto, Jr.

Director/s/  Kendall
    W. CowanKendall
    W. Cowan

Director/s/  Dr. Isamu
    KuruDr. Isamu
    Kuru

Director  74




---



##### Table of Contents



Exhibit
    Index
 ExhibitNo.



Description of Document3
.1



Form of Amended and Restated
    Certificate of Incorporation of Opnext, Inc.(1)3
.2



Form of Amended and Restated
    Bylaws of Opnext, Inc.(1)3
.3



Specimen of stock certificate for
    common stock.(1)4
.1



Pine Stockholder Agreement, dated
    as of June 4, 2003, by and among Opnext, Inc. and the
    Stockholders of Pine Photonics Communications, Inc.(1)4
.2



Registration Rights Agreement,
    entered into as of July 31, 2001, by and among
    Opnext, Inc., Clarity Partners, L.P., Clarity Opnext
    Holdings I, LLC, Clarity Opnext
    Holdings II, LLC, and Hitachi, Ltd.(1)4
.3



Stockholders Agreement,
    dated as of July 31, 2001, between Opnext, Inc. and
    each of Hitachi, Ltd., Clarity Partners, L.P., Clarity
    Opnext Holdings I, LLC and Clarity Opnext
    Holdings II, LLC, as amended.(1)10
.1+



Pine Photonics
    Communications, Inc. 2000 Stock Plan.(1)10
.2+



Form of Pine Photonics
    Communications, Inc. 2000 Stock Plan: Stock Option
    Agreement.(1)10
.3+



Opnext, Inc.
    2001 Long-Term Stock Incentive Plan.(1)10
.4+



Form of Opnext, Inc. 2001
    Long-Term Stock Incentive Plan, Nonqualified Stock Option
    Agreement.(1)10
.4a+



Form of Opnext, Inc. 2001
    Long-Term Stock Incentive Plan, Nonqualified Stock Option
    Agreement for Senior Executives.(1)10
.4b+



Opnext, Inc. Nonqualified Stock
    Option Agreement dated as of November 1, 2004, between
    Opnext, Inc. and Harry L. Bosco
    (Participant).(1)10
.4c+



Form of Opnext, Inc. 2001
    Long-Term Stock Incentive Plan, Stock Appreciation Right
    Agreement.(1)10
.4d+*



Form of Amendment to Stock
    Appreciation Right Agreement.10
.5



Form of Hitachi, Ltd. and
    Clarity Management, L.P. Nonqualified Stock Option
    Agreement.(1)10
.6+



Opnext, Inc. Amended and
    Restated 2001 Long-Term Stock Incentive Plan.(1)10
.7+



Employment Agreement, entered into
    as of July 31, 2001, by and between Opnext, Inc. and
    Harry L. Bosco, as amended.(1)10
.8+



Employment Agreement, entered into
    as of August 24, 2001, by and between Opnext, Inc. and
    Michael C. Chan, as amended.(1)10
.9+



Employment Agreement, entered into
    as of August 24, 2001, by and between Opnext, Inc. and
    Chi-Ho
    Christopher Lin, as amended.(1)10
.10+



Employment Agreement, dated
    March 5, 2001, by and between Opnext, Inc. and
    Robert J. Nobile.(1)10
.11+



Form of Opnext, Inc.
    Restricted Stock Agreement.(1)10
.12



Research and Development
    Agreement, dated as of July 31, 2001, by and among
    Hitachi, Ltd., Opnext Japan, Inc. and Opto
    Device, Ltd. as amended.(1)10
.13



Research and Development
    Agreement, dated as of July 31, 2002, by and between
    Hitachi, Ltd. and Opnext, Inc., as amended.(1)10
.14



Outsourcing Agreement, made and
    entered into as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1)10
.15



Preferred Provider Agreement, made
    and entered into as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext, Inc., as amended.(1)10
.16



Procurement Agreement, made and
    entered into as of July 31, 2001, by and between Opnext
    Japan, Inc. and Hitachi, Ltd., as amended.(1)10
.17



Raw Materials Supply Agreement,
    made and entered into as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext, Inc., as amended.(1)10
.18



Intellectual Property License
    Agreement, dated as of July 31, 2001, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1)10
.19



Intellectual Property License
    Agreement, dated as of October 1, 2002, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1) 75




---



##### Table of Contents



ExhibitNo.



Description of Document10
.20



Intellectual Property License
    Agreement, effective as of October 1, 2002, by and between
    Hitachi Communication Technologies, Ltd. and Opnext
    Japan, Inc.(1)10
.21



Trademark Indication Agreement,
    dated as of October 1, 2002, by and between
    Hitachi, Ltd. and Opnext Japan, Inc., as amended.(1)10
.22



Trademark Indication Agreement,
    dated as of July 31, 2001, by and between
    Hitachi, Ltd., Opnext, Inc. and Opnext Japan, Inc., as
    amended.(1)10
.23



Lease Agreement, made as of
    July 31, 2001, between Hitachi Communication
    Technologies, Ltd. and Opnext Japan, Inc., as
    amended.(1)10
.24



Lease Agreement, made as of
    October 1, 2002, between Renesas Technology Corp. and
    Opnext Japan, Inc., as amended.(1)10
.25



Business Park Net Lease Agreement,
    dated as of June 30, 2000, by and between Bedford Property
    Investors, Inc. and Opnext, Inc., as amended.(1)10
.26



Agreement on Bank Transactions
    between Opnext Japan, Inc. and The Bank of
    Tokyo-Mitsubishi UFJ, Ltd., as amended.(1)10
.27



Software User License Agreement,
    dated as of October 20, 2003, by and between Renesas
    Technology Corp. and Opnext Japan, Inc.(1)10
.28



Logistics Agreement, effective as
    of April 1, 2002, between Opnext, Inc. and Hitachi
    Transport System, Ltd.(1)10
.29



Distribution Agreement, dated
    April 1, 2001, between Hitachi Electronic Devices
    Sales, Inc. and Opnext Japan, Inc.(1)10
.30



Distribution Agreement, dated
    April 1, 2003, between Opnext Japan, Inc. and Renesas
    Technology Sale Co., Ltd.(1)10
.31



Distribution Agreement, dated
    July 1, 2003, between Opnext Japan, Inc. and Hitachi
    High-Technologies Corp.(1)21




List of Subsidiaries.(1)23
.1*



Consent of
    Ernst & Young LLP, Independent Registered
    Public Accounting Firm.24




Power of Attorney (set forth on
    the signature page of this
    Form 10-K).31
.1*



Certification of Principal
    Executive Officer pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934, as adopted pursuant to
    Section 302 of the
    Sarbanes-Oxley
    Act of 2002.31
.2*



Certification of Principal
    Financial Officer pursuant to
    Rule 13a-14
    of the Securities Exchange Act of 1934, as adopted pursuant to
    Section 302 of the
    Sarbanes-Oxley
    Act of 2002.32
.1**



Certification of Principal
    Executive Officer pursuant to 18 U.S.C. Section 350,
    as adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002.32
.2**



Certification of Principal
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the
    Sarbanes-Oxley
    Act of 2002.     (1)
    
    Filed as an exhibit to the Form S-1 Registration Statement (No.
    333-138262) declared effective on February 14, 2007 and
    incorporated herein by reference.    **
    Furnished herewith and not filed for purposes of
    Section 18 of the Securities Exchange Act of 1934, as amended.   76