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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)

OPLINK COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

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  x    No  ¨

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.   ¨

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of September 19, 2003, was approximately $176,447,001 based upon the closing price for shares of the registrant’s common stock as reported by the Nasdaq National Market on September 19, 2003. Excludes an aggregate of 73,606,862 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 September 19, 2003, approximately 143,904,472 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 2003 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the Registrant’s fiscal year ended June 30, 2003.

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OPLINK COMMUNICATIONS, INC.

Form 10-K

June 30, 2003

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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 design, manufacture and market fiber optic subsystems, integrated modules and components that expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance and redirect light signals within an optical network. We offer a broad line of products that increase the performance of optical networks and enable service providers and 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. We also offer an Optical Manufacturing Service (OMS) for the production and packaging of highly integrated optical subsystems and turnkey solutions based upon a customer’s specific product design and specification. We market our products worldwide to telecommunications equipment providers. Our bandwidth creation products increase the performance and capacity of fiber optic networks. Our bandwidth management products provide communications service providers with the ability to monitor and manage optical signals to enhance network performance. We produce fiber optic subsystems, integrated modules, and components for next-generation, all-optical dense wavelength division multiplexing (DWDM), optical amplification, switching and routing, and monitoring and conditioning applications.

Through internal research and development we have developed over 120 standard products that are sold or integrated into custom solutions. We provide customers with high quality optical subsystems, integrated modules, 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, integrated modules 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 (Bellcore) 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

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http://www.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 such internet address into this Annual Report on Form 10-K.

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, integrated modules and components designed to satisfy the needs of communications equipment suppliers. We categorize our products by the functionalities provided within a network, of 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.

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:

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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 the EDFA and Raman amplification products including EDFA fiber amplifiers and the components used in EDFA and Raman amplifier designs.

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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 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.

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.

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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 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.

Customers

We sell our products worldwide to communications equipment suppliers. 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, 2003, we sold our products to over 240 companies worldwide.

Our top ten customers, although not the same ten customers for each period, together accounted for 72%, 73% and 83% of our revenues in the fiscal years ended June 30, 2003, 2002 and 2001, respectively. Nortel Networks Corporation, Adva AG Optical Networking and Marubun Corporation each accounted for greater than 10% of our total revenues for the fiscal year ended June 30, 2003, and Siemens AG and Marubun Corporation each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2002. Agere Systems, Inc., Lucent Technologies, Nortel Networks Corporation and Sycamore Networks each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2001. We expect that the majority of our revenues will continue to depend on sales to a relatively small set 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, 2003, 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.

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Marketing, Sales and Customer Support

We market and sell our products through both direct sales and distribution channels, including five domestic and ten international sales representatives and distributors. Our sales representatives and distributors are independent organizations within North America, Europe and Asia. As of June 30, 2003, we employed 19 people in sales, marketing and customer service and support in the U.S. and 6 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 September 19, 2003, we had 14 engineers, 5 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 product development center is located in Zhuhai, China. Our research and development expense, including non-cash compensation expense, was $8.5 million, $14.8 million and $22.0 million for the fiscal years ended June 30, 2003, 2002 and 2001, 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, integrated modules 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, integrated modules 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 Zhuhai, China.

Our facility in Zhuhai 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 also lease a facility located in Shanghai, China, which is used for administration, manufacturing and research and development. In July 2003, we announced the plan to sell our Shanghai facility and that the results of our Shanghai operation would be disclosed separately as loss from discontinued operation.

In accordance with our restructuring plans announced on July 2, 2001, our facilities in Beijing, Chengdu and Fuzhou were closed during fiscal 2002. We leased 230,000 square feet of our facilities in the Zhuhai Free Trade Zone to third parties and will attempt to lease to third parties the remaining facilities that are in excess of our current requirements.

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

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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.

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:

We believe that our principal competitors are the major manufacturers of optical subsystems, integrated modules and components, including both vendors selling to third parties and business divisions within communications equipment suppliers. Our principal competitors in the fiber optic subsystems, integrated modules and components market include Avanex Corporation (including the photonic technologies business of Corning Incorporated), 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.

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 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 increased, and will likely continue to increase competition.

Intellectual Property

To date, we have been granted 43 issued patents, have 6 allowed applications awaiting issuance and have 27 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

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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 28 pending patent applications in the People’s Republic of China, 14 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.

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, integrated modules 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, in June 2000, Chorum Technologies, Inc. filed a lawsuit against us and our wholly-owned subsidiary, Telelight Communication Inc., in the United States District Court for the Northern District of Texas alleging, among other things, infringement of two U.S. patents allegedly owned by Chorum relating to fiber optic interleaving, based on our manufacture of and offer to sell various fiber optic interleaver products. On May 7, 2001, we filed a lawsuit in the United States District Court for the District of Delaware, 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 and its affiliates 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.

We are also currently subject to a lawsuit filed by Oz Optics Limited et al. alleging trade secret misappropriation and other related claims. The plaintiffs seek actual damages against four individuals, including our former Vice President of Product Line Management, Zeynep Hakimoglu, and three other unrelated 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 their preliminary injunction motion against us. We answered the complaint on January 22, 2002, denying plaintiffs’ claims. The case is in the early stages of discovery and no trial date has been set. We believe that the claims against us are without merit and we intend to defend ourselves against such claims vigorously.

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, 2003, we had 78 full-time employees located in the United States and 598 full-time employees located in China. None of our employees in the United States are represented by a labor union. All of

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

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

Executive Officers and Directors

The following table sets forth certain information regarding our executive officers as of September 10, 2003:

Joseph Y. Liu is 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

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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. Horn has 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 Gong has 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.

Xinglong Wang has served as our Vice President of Operations since July 2003. From September 2001 to July 2003, Mr. Wang was Director of New Product Introduction Components, and from August 1999 to September 2001 he was Director of Manufacturing Operations, of JDS Uniphase Corporation, a fiber optics company. From September 1996 to August 1999, Mr. Wang was Manager of Operations of Kaifa Technology (now JDS Uniphase). Mr. Wang received his Ph.D., M.S. and B.S. in Optical Engineering from Tianjin University in China.

Herbert Chang has 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 Chang has 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.

Allen Hsu has been a member of our Board of Directors since September 2002. Since May 1998, Mr. Hsu has served as chairman of Paclink Management Corporation, a venture capital management firm. Since 1990, Mr. Hsu has been a Deputy Managing Director of Yulon Group, an industrial conglomerate based in Taiwan. Mr. Hsu serves on the boards of directors of Taiwan Mask Corporation, Altek Corporation, Myson-Century Inc., Programmable Microelectronics (Taiwan) Corporation, Antek Semiconductors Corporation and Anachip Corporation. Mr. Hsu received his B.S. in Management Science from National Chiao-Tung University and an M.B.A. from National Cheng-Chi University.

Jesse W. Jack has 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

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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. LeBlanc has 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. and since February 2001 has been 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.

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 $36.8 million, $68.4 million and $80.4 million for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. We have not achieved profitability on a quarterly or annual basis since inception. As of June 30, 2003, we had an accumulated deficit of $218.0 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 ten customers, although not the same ten customers for each period, together accounted for 72%, 73% and 83% of our revenues in the fiscal years ended June 30, 2003, 2002 and 2001, respectively. Nortel Networks Corporation, Adva AG Optical Networking and Marubun Corporation each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2003, and Siemens AG and Marubun Corporation each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2002. Agere Systems, Inc., Lucent Technologies, Nortel Networks Corporation and Sycamore Networks each accounted for greater than 10% of our revenues for the fiscal year ended June 30, 2001. 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

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choose to purchase products from other vendors. Furthermore, the businesses of our existing customers are experiencing a 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 subsystems, integrated modules and components 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, expenses and operating results have varied significantly from quarter to quarter in the past and may continue to fluctuate significantly in the future. The factors, many of which are more fully discussed in other risk factors, that are likely to cause these variations include, among others:

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.

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

We depend on the continued growth and success of the communications industry, including the continued growth of the Internet as a widely-used medium for commerce and communication and the continuing demand

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for increased bandwidth over communications networks. As a result of 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.

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. For example, during the four quarters ended June 30, 2003, we did not experienced growth as compared to the same period in fiscal 2002. In the first, second, third and fourth quarters of each of fiscal 2002 and fiscal 2003, our net loss was $45.0 million, $6.7 million, $8.4 million, $8.2 million, $8.7 million, $14.4 million, $3.0 million and $10.7 million, respectively.

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 FURTHER, WHICH WOULD HARM OUR OPERATING RESULTS.

The market for fiber optic subsystems, integrated modules and components is intensely competitive. We believe that our principal competitors are the major manufacturers of optical subsystems, integrated modules and components, including vendors selling to third parties and business divisions within communications equipment suppliers. Our principal competitors in the fiber optic subsystems, integrated modules and components market include Avanex Corporation (including the photonic technologies business of Corning Incorporated), 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. Competitors in any portion of our business may also rapidly become competitors in other portions of our business. In addition, our industry has recently experienced significant consolidation, and we anticipate that further consolidation will occur. This consolidation has further increased competition.

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

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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 module 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 FAIL TO EFFECTIVELY MANAGE OUR MANUFACTURING CAPABILITY IN CHINA, WE MAY NOT BE ABLE TO DELIVER SUFFICIENT QUANTITIES OF PRODUCTS TO OUR CUSTOMERS IN A TIMELY MANNER, WHICH WOULD HARM OUR OPERATING RESULTS.

As a result of the closure of other facilities in connection with our recent restructuring efforts, we manufacture substantially all of our products in our facilities in Zhuhai, China. These restructuring efforts also included transferring expertise and resources relating to manufacturing, such as production control, logistics, planning and management and quality control, from our United States facilities to our facilities in Zhuhai, 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 transferred from the United States to China. Additional risks associated with improving our manufacturing processes and capability in China include:

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.

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 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

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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 will continue to place, a significant strain on our management systems and resources. Reductions in our workforce, including reductions in research and development and manufacturing personnel, may weaken our research and development efforts or cause us to have difficulty responding to sudden increases in customer orders. 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.

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

Because we experience long lead times for raw materials and are often required to purchase significant amounts of raw materials far in advance of product shipments, we may not effectively control our inventory levels, which could harm our operating results. If we underestimate our requirements, we may have inadequate inventory, which could result in delays in shipments and loss of customers. 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 revenue was also favorably impacted by the unexpected utilization of fully reserved inventory of $619,000, $469,000, $530,000 and $480,000 in the fourth quarter of fiscal 2003, the third quarter of fiscal 2003, the second quarter of fiscal 2003 and the fourth quarter of fiscal 2002, respectively. Any difficulty managing our inventory levels may cause us to poorly utilize our manufacturing capacity and further harm our operating efficiency.

We have implemented an automated manufacturing management system to replace our previous system that tracked most of our data, including some inventory levels, manually. The conversion from our previous systems used in Zhuhai, China occurred in the fourth quarter of fiscal 2001, and the conversion at our Zhuhai Free Trade Zone facility occurred in the second quarter of fiscal 2003. Failure to effectively and properly utilize the new management systems in China could harm our results and increase the risk that we may fail to effectively manage our inventory.

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

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. 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 out of our control in China, 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

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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.

BECAUSE WE DEPEND ON THIRD PARTIES TO SUPPLY SOME OF OUR RAW MATERIALS AND EQUIPMENT, WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT QUANTITIES OF THESE MATERIALS AND EQUIPMENT, WHICH COULD LIMIT OUR ABILITY TO FILL CUSTOMER ORDERS AND HARM OUR OPERATING RESULTS.

Difficulties in obtaining raw materials in the future may limit our product shipments. 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.

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

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

DISRUPTION TO COMMERCIAL ACTIVITIES IN THE UNITED STATES OR IN OTHER COUNTRIES 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:

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

The recent outbreak of severe acute respiratory syndrome, or SARS, that began in China, Hong Kong, Singapore and Vietnam seems to have subsided but may reappear and then may have a negative impact on our operations and financial results. Risks related to the outbreak of SARS, include, but are not limited to, temporary closure of one or more of our facilities in China which, in turn, would reduce our manufacturing capability; disruption to our research and development efforts located at our China facilities; and 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.

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 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.

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

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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/or a 50% reduction in national income tax rate for the following three years. If our Chinese subsidiaries are unable to extend their tax benefits, our financial condition and results of operations may be adversely impacted. The tax holiday for one of our subsidiaries expired December 31, 2001, and we are in the second year of a 50% reduction in the national income tax rate. However, operations in such subsidiary have been substantially moved to our Zhuhai Free Trade Zone facility. In addition, local enterprise income tax is often waived or reduced during this tax holiday/incentive period. 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%. We have substantially moved all of our manufacturing operations to our Zhuhai Free Trade Zone facility. If such consolidation causes adverse tax treatment, 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, 2003, 2002 and 2001. These products include, among others, dense wavelength division multiplexers, or DWDMs. These products accounted for 67%, 66% and 57% of our revenues in the fiscal years ended June 30, 2003, 2002 and 2001, 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

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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.

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

Because manufacturing our products involves complex and precise processes and the majority of our manufacturing costs are relatively fixed, manufacturing yields are critical to our results of operations. Lower than expected manufacturing yields could delay product shipments and harm our operating results. Factors that affect our manufacturing yields include the quality of raw materials used to make our products, quality of workmanship and our manufacturing processes. Our or our suppliers’ inadvertent use of defective materials could significantly reduce our manufacturing yields.

Furthermore, because of the large labor component in and complexity of the manufacturing process, quality of workmanship is critical to achieving acceptable yields. We cannot assure you that we will be able to hire and train a sufficient number of qualified personnel to cost-effectively produce our products with the quality and in the quantities required by our customers.

Changes in our manufacturing processes or those of our suppliers could also impact our yields. In some cases, existing manufacturing techniques, which involve substantial manual labor, may not allow us to cost-effectively meet our manufacturing yield goals so that we maintain acceptable gross margins while meeting the cost targets of our customers. We will need to develop new manufacturing processes and techniques that will involve higher levels of automation in order to increase our gross margins and help achieve the targeted cost levels of our customers. We may not achieve manufacturing cost levels that will allow us to achieve acceptable gross margins or fully satisfy customer demands. Additionally, our competitors are automating their manufacturing processes. If we are unable to achieve higher levels of automation and our competitors are successful, it will harm our gross margins.

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:

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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. To date, we hold 43 issued patents, have 6 allowed applications awaiting issuance and 27 pending patent applications in the United States. In addition, we currently have 28 pending patent applications in the People’s Republic of China, 14 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 subsystems, integrated modules and components markets in which we sell our products have experienced frequent litigation regarding patent and other intellectual property rights. Numerous patents in these industries are held by others, including our competitors and academic institutions. We have no means of knowing that a patent application has been filed in the United States until the patent is issued. Optical component suppliers may seek to gain a competitive advantage or other third parties may seek an economic return on their intellectual property portfolios by making infringement claims against us.

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., in the United States District Court for the Northern District of Texas alleging, among other things, infringement of two U.S. patents allegedly owned by Chorum relating to fiber optical interleaving, based on our manufacture of and offer to sell various fiber optic interleaver products. On May 7, 2001, we filed a lawsuit in the United States District Court for the District of Delaware, 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 LP and its affiliates to dismiss the patent infringement litigation between the companies without prejudice. 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.

We are also currently subject to a lawsuit filed by Oz Optics Limited et al. alleging trade secret misappropriation and other related claims. The plaintiffs seek actual damages against four individuals, including our former Vice President of Product Line Management, Zeynep Hakimoglu, and three other unrelated 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 their preliminary injunction motion against us. We answered the complaint on January 22, 2002, denying plaintiffs’ claims. The case is in the early stages of discovery and no trial date has been set. Although we believe that the claims against us are without merit and we intend to defend ourselves against such claims vigorously, we cannot assure you that this litigation will be

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resolved in our favor or without substantial cost or diversion of the attention of our management and key technical personnel.

Both prosecuting or 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:

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.

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, or Issuers, that went public in the late 1990s, 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 that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and their officers and directors in the IPO Lawsuits. 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 will be entitled to recover the difference between the actual recovery and $1 billion from the insurers for the Issuers. Although we have approved this settlement proposal in principle, it remains subject to a number of procedural conditions, as well as formal approval by the Court.

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

The communications industry is characterized by rapid technological changes, frequent new product introductions, changes in customer requirements and evolving industry standards. As a result, our products could quickly become obsolete as new technologies are introduced and incorporated into new and improved products. Our future success depends on our ability to anticipate market needs and to develop products that address those needs.

Our failure to predict market needs accurately or to develop new products or product enhancements in a timely manner will harm market acceptance and sales of our products. In this regard, we are currently developing bandwidth creation products as well as bandwidth management products. If the development of these products or any other future products takes longer than we anticipate, or if we are unable to develop and introduce these products to market, our revenues could suffer and we may not gain market share. Even if we are able to develop and commercially introduce these new products, the new products may not achieve widespread market acceptance. 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 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.

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

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

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

- are free to purchase products from our competitors;

- are not required to make minimum purchases; and

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

Sales to any single customer may 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.

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

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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.

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

Our customers typically expend significant efforts in evaluating and qualifying our products and manufacturing process prior to placing an order. This evaluation and qualification process frequently results in a lengthy sales cycle, typically ranging from nine to twelve months and sometimes longer. While our customers are evaluating our products and before they place an order with us, we may incur substantial sales, marketing, research and development expenses, expend significant management efforts, increase manufacturing capacity and order long lead-time supplies. Even after this evaluation process, it is possible that a potential customer will not purchase our products.

In addition, product purchases are frequently subject to unplanned processing and other delays, particularly with respect to larger customers for which our products represent a very small percentage of their overall purchase activity. Long sales cycles may cause our revenues and operating results to vary significantly and unexpectedly from quarter to quarter, which could cause volatility in our stock price.

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, especially in the San Francisco Bay area. We may not be successful in attracting, assimilating or retaining qualified personnel to fulfill our current or future needs. In addition, our management team has experienced significant personnel changes over the past year and may continue to experience changes in the future. A number of members of our management team, including Frederick R. Fromm, formerly Chief Executive Officer and President, Weiming Li, formerly Vice President and General Manager, Oplink Zhuhai, Weizhong Li, formerly Chief Technology Officer, Jingyu Xu, formerly Senior Vice President, Engineering, Christian A. Lepiane, formerly Vice President, Worldwide Sales, Zeynep Hakimoglu, formerly Vice President, Product Line Management, and Linda Reddick, formerly Vice President and Controller, have recently resigned or been terminated in connection with our restructuring efforts. Joseph Y. Liu has recently resumed the position of President and Chief Executive Officer and several other members of our team have assumed expanded roles. If our management team continues to experience high attrition or 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.

A majority of our revenues are derived from sales through our domestic and international sales representatives and distributors. Our sales representatives and distributors are independent organizations that

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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 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 has 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 the Company 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.

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

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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.

BECAUSE THE FIBER OPTIC SUBSYSTEMS, INTEGRATED MODULES AND COMPONENTS INDUSTRY IS CAPITAL INTENSIVE, OUR BUSINESS MAY BE HARMED IF WE ARE UNABLE TO RAISE ANY NEEDED ADDITIONAL CAPITAL.

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

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

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

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.

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RISKS RELATED TO 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 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:

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.

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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, 2003, approximately 26% of our outstanding shares. As a result, these persons and/or entities acting together will be able to substantially influence the outcome of all matters requiring approval by our stockholders, including the election of directors and approval of significant corporate transactions. This ability may have the effect of delaying a change in control, which may be favored by our other stockholders.

BECAUSE OF THE EARLY STAGE OF OUR BUSINESS AND THE RAPID CHANGES TAKING PLACE IN THE FIBER OPTICS INDUSTRY, WE EXPECT TO EXPERIENCE SIGNIFICANT VOLATILITY IN OUR STOCK PRICE, WHICH COULD CAUSE YOU TO LOSE ALL OR PART OF YOUR INVESTMENT.

Because of the early stage of our business and the rapid changes taking place in the fiber optics industry, we expect the market price of our common stock to fluctuate significantly. 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, 2003. These fluctuations may occur in response to a number of factors, some of which are beyond our control, including:

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:

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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.

Item 2.    Properties

In the United States, we lease a total of approximately 118,000 square feet in three buildings located in San Jose, California. Of the 118,000 square feet:

In China, we own facilities in the Zhuhai Free Trade Zone totaling approximately 667,000 square feet. Our facilities in the Zhuhai Free Trade Zone are used for administration, manufacturing, research and development and employee living quarters. We currently lease 230,000 square feet of our facilities in the Zhuhai Free Trade Zone to third parties and will attempt to lease the remaining facilities 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. We are currently consolidating our manufacturing operations and intend to sell our Shanghai facility as it is no longer strategic to our operations. Additionally, in accordance with our restructuring plans announced on July 2, 2001, our facilities in Beijing, Chengdu and Fuzhou were closed during fiscal 2002.

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, or Issuers, that went public in the late 1990s, 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

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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 that would, among other things, result in the dismissal with prejudice of all claims against the Issuers and their officers and directors in the IPO Lawsuits. 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 will be entitled to recover the difference between the actual recovery and $1 billion from the insurers for the Issuers. Although we have approved this settlement proposal in principle, it remains subject to a number of procedural conditions, as well as formal approval by the Court.

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 their preliminary injunction motion against us. We answered the complaint on January 22, 2002, denying plaintiffs’ claims. The case is in the early stages of discovery and no trial date has been set. We believe that the claims against us are without merit and intend to defend ourselves against such claims vigorously.

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.

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Part II

Item 5.    Market for Registrant’s Common Stock and Related Stockholder Matters

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 prices for our common stock for each period indicated:

As of September 17, 2003 there were approximately 246 stockholders of record and the price per share of our common stock was $1.89. 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 the Company after total expenses were $261.0 million.

As of June 30, 2003, we had $188.1 million in cash, cash equivalents and short-term investments. All remaining proceeds are invested in cash, cash equivalents, or short-term investments consisting of highly liquid money market funds, commercial paper, government/federal notes and bonds and certificates of deposit. 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, 2003, 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.

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Item 6.    Selected Consolidated 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, 2003, 2002 and 2001 and the selected consolidated balance sheet data as of June 30, 2003 and 2002 are derived from, and qualified by reference to, the audited consolidated financial statements included elsewhere in this Form 10-K. The selected consolidated statement of operations data for the fiscal year ended June 30, 2000 and 1999 and the selected consolidated balance sheet data as of June 30, 2001, 2000 and 1999 are derived from audited financial statements not included in this Form 10-K.

The table below has been restated to account for the Shanghai operation as a discontinued operation.

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Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

This report on Form 10-K, including our discussion in this Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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 Consolidated Financial Data” and our consolidated financial statements and related notes thereto.

Our consolidated financial statements for all periods presented account for the Shanghai operation as a discontinued operation under generally accepted accounting principles (“GAAP”) as a result of our decision to sell the business, which we announced in July 2003. Our Consolidated Statements of Operations and of Cash Flows have been reformatted for all years presented to separate the results of the discontinued operation from the results of our continuing operations. This presentation is required by GAAP and facilitates historical and future trend analysis of our continuing operations. As discussed in Note 5 of the Notes to Consolidated Financial Statements, all fiscal 2003 and prior periods presented have been restated to reflect results of the Shanghai operation as a discontinued operation. Unless otherwise indicated, the following discussion relates to our continuing operations.

Overview

We design, manufacture and market fiber optic subsystems, integrated modules and components that expand optical bandwidth, amplify optical signals, monitor and protect wavelength performance and redirect light signals within an optical network. Our product portfolio includes solutions for next-generation, all-optical Dense Wavelength Division Multiplexing, or DWDM, optical amplification, switching and routing, and monitoring and conditioning applications. We also offer our customers expert Optical Manufacturing Services (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. We market our products and services to telecommunications equipment manufacturers worldwide.

We generate substantially all of our revenues from the sale of fiber optic subsystems, integrated modules and components. To date, we have developed over 120 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.

The fiber optics industry has been in a significant period of consolidation following a dramatic slowdown in capital spending since late 2001 by carriers faced with substantial excess bandwidth capacity and high levels of

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corporate debt. Beginning in late 2001, as the industry entered its downturn and consolidation phase, various customers canceled existing orders. We incurred substantial costs associated with excess and obsolete inventory, workforce reduction, canceled orders, excess fixed assets, excess facilities and other charges.

During the fiscal year ended June 30, 2003, we reduced our headcount by 679 people, or 52%, completed the move of our manufacturing operations to China, transitioned our research and development to China and further reduced our cost structure to respond to the significantly lower revenues than previously anticipated by the Company. In addition, in July 2003, we announced the planned future sale of our Shanghai facility and reflect the results of our Shanghai operation as a discontinued operation. We expect to continue to implement programs to improve manufacturing yields and reduce costs though the magnitude of the expected benefits will be smaller than those realized in the prior two fiscal years. There is no certainty that these programs will be successful. Our visibility continues to be limited with respect to telecommunications equipment providers. We will continue to evaluate our business on an ongoing basis in light of current and future revenue trends and adjust our cost structure accordingly.

During the fiscal year ended June 30, 2002, we reduced our headcount by 1,318 people, or 50%, initiated the move of our manufacturing operations to China and further reduced our cost structure to respond to the significantly lower revenues than previously anticipated by the Company.

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, production yield, costs incurred in improving manufacturing processes, mix of products sold, provisions for excess and obsolete inventories and mix of products manufactured in China or the United States.

RESEARCH AND DEVELOPMENT EXPENSES.    Our research and development expenses consist primarily of salaries 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, 2003, we recorded aggregate deferred stock compensation, net of cancellations, of approximately $59.1 million of which $1.9 million, $4.7 million and $26.6 million was expensed during the fiscal years ended June 30, 2003, 2002 and 2001, respectively. While this expense has increased our net loss, it has had no impact on our cash flows. With respect to employee stock-based compensation, we are amortizing the deferred compensation expense over the vesting period, as set forth in the Financial Accounting Standards Board (“FASB”) Interpretation No. 28, or FIN 28. Under the FIN 28 method, each vested tranche of options is accounted for as a separate option grant awarded for services. The compensation expenses are recognized over the period during which the services are

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provided. Accordingly, this method results in higher compensation expenses being recognized in the earlier vesting periods of an option. Non-employee grants are accounted for in accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and Emerging Issues Task Force 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (“EITF 96-18”) and valued using the Black-Scholes model. The deferred compensation expense related to non-employees’ stock option grants are also amortized over the vesting period as set forth in FIN 28. The remaining balance at June 30, 2003 of $1.5 million will be expensed over future remaining vesting periods. We estimate that our future stock compensation expense from options and shares granted or issued from July 1998 through June 30, 2003 will be $1.3 million, $121,000, $36,000 and $3,000 for the years ending June 30, 2004, 2005, 2006 and 2007, assuming no cancellations or additional stock option grants with exercise prices below the fair value of our common stock.

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

ACQUISITION OF AURORA. In June 2001, we acquired Aurora Associates and Aurora Photonics, Inc. (“Aurora”) in a transaction accounted for as a purchase business combination. Aurora is a developer of acoustic-optic (“AO”) devices and systems. These advanced AO devices and systems are classified as spatial (AO deflectors and Bragg cells), temporal (AO modulators and frequency shifters) and spectral (AO tunable filter) modulations. The purchase price comprised $1.0 million cash, 150,000 shares of common stock valued at $448,000, $60,000 of transaction costs and $20,000 in assumed liabilities. The total purchase price aggregated $1.5 million and was allocated to tangible assets acquired of $68,000, identifiable intangible assets acquired of $499,000, goodwill of $168,000 and in-process research and development of $793,000.

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. 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, revenue from product sales is recognized upon shipment of the product or customer acceptance, which ever is later, provided that persuasive

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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. 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 revenue is recognized 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, specific warranty accruals may be made 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. Alternatively, if our estimates are determined to be greater than the actual amounts necessary, we may reverse a portion of such provisions in future periods.

Risk Evaluation

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. Substantially all of our cash, cash equivalents and short-term investments are managed or held by three financial institutions. Such deposits are in excess of the amount of the insurance provided by the federal government on such deposits. To date, we have not experienced any losses on such deposits.

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. An allowance for doubtful accounts for estimated losses is maintained 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 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, and 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. Alternatively, if our estimates are determined to be greater than the actual amounts necessary, we may reverse a portion of such allowance in future periods based on actual collection experience.

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, 2003 and 2002. In recent periods we have recorded significant charges related to excess and obsolete inventory. See “Restructuring Costs and Other Charges” below.

Property, Plant and Equipment

We evaluate the carrying value of property, plant and equipment, whenever certain events or changes in circumstances indicate that the carrying amount may not be recoverable. Such events or circumstances include,

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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 property, plant and equipment, we 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. In the years ended June 30, 2003, 2002 and 2001, we had no such write down. Fair value is generally determined by calculating the discounted future cash flows using a discount rate based upon our weighted average cost of capital. 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 property, plant and equipment, thereby requiring us to write down the assets. In recent periods we have recorded significant charges related to excess property and equipment and facilities. See “Restructuring Costs and Other Charges” below.

Goodwill and Other Identifiable Intangibles

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” on July 1, 2002 we ceased to amortize goodwill arising from acquisitions completed prior to July 1, 2001. In lieu of amortization, we performed an initial impairment review of our goodwill in fiscal 2002 and an annual impairment review in fiscal 2003. We did not record any impairment charge due to the adoption of SFAS No. 142 or our annual impairment review.

In addition to the annual impairment review, we assess the impairment of goodwill and other identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Some factors we consider important which could trigger an impairment review include significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends.

Prior to the adoption of SFAS No. 142, when we determined that the carrying value of goodwill and other identified intangibles was not recoverable based upon the existence of one or more of the above indicators of impairment, we measured any impairment based on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. We recorded a charge of $301,000 during the fiscal year ended June 30, 2003 related to the abandonment of one of our technologies. Additionally, 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 the Telelight acquisition during the fiscal year ended June 30, 2001.

Results of Operations

For Each of the Years Ended June 30, 2003, 2002 and 2001

REVENUES.    Revenues decreased $15.3 million, or 40%, to $22.6 million for the fiscal year ended June 30, 2003 from $37.9 million for the fiscal year ended June 30, 2002. This decrease was substantially due to decreased shipments of all our products including our wavelength expansion products, optical amplification products and optical switching products to our customers. 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. Though further declines in average selling prices are anticipated through the fiscal year ending June 30, 2004, shipment volume is expected to increase to offset the decrease in average selling prices. 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 estimate revenue in the first quarter of fiscal 2004 to be $6.8 million to $7.0 million and though visibility remains difficult we also anticipate a sequential increase in revenue in the second quarter of fiscal 2004 compared to the first quarter of fiscal 2004.

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Revenues decreased $93.9 million, or 71%, to $37.9 million for the fiscal year ended June 30, 2002 from $131.8 million for the fiscal year ended June 30, 2001. This decrease was substantially due to decreased shipments of all our products including our wavelength expansion products, optical amplification products and optical switching products to our customers. The decreases in shipments were primarily due to the slowdown in telecommunications equipment spending. Additionally, in fiscal 2002 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, 2002 and 2001, is $2.5 million and $4.5 million, respectively, for contract cancellation fees from certain customers.

GROSS PROFIT (LOSS).    Gross profit increased $11.4 million, or 110%, to a gross profit of $1.1 million for the fiscal year ended June 30, 2003 from a gross loss of $10.4 million for the fiscal year ended June 30, 2002. This resulted in an increase in gross margin from (27.3%) for the fiscal year ended June 30, 2002 to 4.7% for the fiscal year ended June 30, 2003. Our gross margin 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 margin for the fiscal year ended June 30, 2002, was negatively impacted by the $10.4 million excess inventory charge and $342,000 non-cash compensation expense, partially offset 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. In addition, our gross margin increased 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 higher manufacturing costs relative to our production volume, manufacturing inefficiencies associated with the transfer of our manufacturing capacity to China and lower yields in our manufacturing facilities in China due to the rapid manufacturing transfer. The excess inventory charge in the fiscal year ended June 30, 2002 reflects the significant downturn in customer demand. In response to this downturn, we focused on completing the transition of substantially all of our manufacturing to China. We are continuing to implement programs to further improve production yields of our products. We cannot assure you, however, that these programs will be successful in increasing our gross margin. We anticipate that we will see a slight sequential improvement in gross margin in the first quarter of fiscal 2004 from the fourth quarter of fiscal 2003 and further anticipate we will achieve a slight sequential improvement in our gross margin in the second quarter of fiscal 2004 compared to the first quarter of fiscal 2004. However, this is dependent on the anticipated increases in revenues, achieving improvements in our production yields and meeting our cost management initiatives.

Gross profit decreased $16.5 million, or 269%, to a gross loss of $10.4 million for the fiscal year ended June 30, 2002 from a gross profit of $6.1 million for the fiscal year ended June 30, 2001. This resulted in a decrease in gross margin from 4.7% for the fiscal year ended June 30, 2001 to (27.3%) for the fiscal year ended June 30, 2002. Our gross margin for the fiscal year ended June 30, 2002, was negatively impacted by the $10.4 million excess inventory charge and $342,000 non-cash compensation expense, partially offset 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. Our gross margin for the fiscal year ended June 30, 2001, was negatively impacted by the $30.6 million excess inventory charge and $4.8 million non-cash compensation expense partially offset by the $4.5 million in revenues for cancellation fees from significant customers. The excess inventory charges reflect the significant downturn in customer demand. In response to this downturn, we focused on the transition of substantially all of our manufacturing to China. Our gross margin also decreased due to higher manufacturing costs relative to our production volume, manufacturing inefficiencies associated with the transfer of our manufacturing capacity to China and lower yields in our manufacturing facilities in China due to the rapid manufacturing transfer partially offset by cost savings associated with the worldwide workforce reduction and the consolidation of excess facilities and the cost benefits of operating in China.

RESEARCH AND DEVELOPMENT.    Research and development expenses, including non-cash compensation expense decreased $6.3 million, or 42%, to $8.5 million for the fiscal year ended June 30, 2003 from $14.8 million for the fiscal year ended June 30, 2002. The decrease in research and development expenses was primarily due to cost savings associated with the worldwide workforce reductions, lower costs as a result of

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transitioning research and development to China, lower non-cash compensation expense, lower depreciation and facility costs due to restructurings and lower project material costs. Research and development expenses, including non-cash compensation expense, decreased $7.2 million, or 33%, to $14.8 million for the fiscal year ended June 30, 2002 from $22.0 million for the fiscal year ended June 30, 2001. The decrease in research and development expenses was due primarily to cost savings associated with the worldwide workforce reductions and lower non-cash compensation expense. We believe that developing customer solutions at the prototype stage is critical to our 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 in each of the first two quarters of fiscal 2004 to remain approximately equal to research and development expenses in the fourth quarter of fiscal 2003.

SALES AND MARKETING.    Sales and marketing expenses, including non-cash compensation recovery, decreased $3.3 million, or 43%, to $4.4 million for the fiscal year ended June 30, 2003 from $7.7 million for the fiscal year ended June 30, 2002. The decrease in sales and marketing expenses for the fiscal year ended June 30, 2003 as compared to the prior fiscal year 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.

Sales and marketing expenses, including the Cisco Systems $8.8 million conversion charge and non-cash compensation recovery, decreased $14.6 million, or 66%, to $7.7 million for the fiscal year ended June 30, 2002 from $22.3 million for the fiscal year ended June 30, 2001. The decrease in sales and marketing expenses for the fiscal year ended June 30, 2002 as compared to the prior fiscal year was primarily due to the Cisco Systems $8.8 million conversion charge in the fiscal year ended June 30, 2001 and no such charge in the fiscal year ended June 30, 2002, lower non-cash compensation expense, lower commissions paid to our internal and external sales representatives associated with decreased revenues and a decrease in tradeshow costs, advertising and other customer-related costs. The decrease was partially offset by an increase in sales and marketing personnel and personnel-related costs and occupancy costs. We expect our quarterly sales and marketing expenses to increase slightly on a sequential basis from the fourth quarter of fiscal 2003 through the second quarter of fiscal 2004 as a result of anticipated increasing product shipments.

GENERAL AND ADMINISTRATIVE.    General and administrative expenses, including non-cash compensation expense, decreased $2.0 million, or 18%, to $9.0 million for the fiscal year ended June 30, 2003 from $11.0 million for the fiscal year ended June 30, 2002. The decrease in general and administrative expenses was primarily due to lower non-cash compensation expense and cost savings associated with the worldwide workforce reduction.

General and administrative expenses, including non-cash compensation expense, decreased $17.6 million, or 62.0%, to $11.0 million for the fiscal year ended June 30, 2002 from $28.5 million for the fiscal year ended June 30, 2001. The decrease in general and administrative expenses 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 anticipate our quarterly general and administrative expenses to increase slightly in the first quarter of fiscal 2004 compared to the fourth quarter of fiscal 2003 and then to decrease in the second quarter of fiscal 2004 to the approximate level of the fourth quarter of fiscal 2003 general and administrative expenses.

NON-CASH COMPENSATION EXPENSE.    From July 1, 1998 through June 30, 2003, we had recorded an aggregate of $59.1 million in deferred non-cash compensation, net of cancellations. Non-cash compensation expense decreased $2.8 million, or 60%, to $1.9 million for the fiscal year ended June 30, 2003 from $4.7 million for the fiscal year ended June 30, 2002. The decrease in deferred non-cash compensation 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. Non-cash compensation expense decreased $21.9 million, or 82%, to $4.7 million for the fiscal year ended June 30, 2002 from $26.6 million for the fiscal year ended June 30, 2001.

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RESTRUCTURING COSTS AND OTHER CHARGES.    A summary of the restructuring charges accrued in fiscal 2001, 2002 and 2003 is as follows (in thousands):

We, like many of our peers in the telecommunications industry, continue to be affected by the slowdown in telecommunications equipment spending. Our revenues have been generally decreasing in sequential quarters from $43.2 million in the fiscal quarter ended December 31, 2000 to $36.0 million, $20.3 million, $10.0 million, $10.6 million, $9.6 million, $7.7 million, $6.0 million, $5.0 million, $5.6 million and ending with $6.0 million in the fiscal quarter ended June 30, 2003. Due to this decline in business conditions, we continued to restructure our business and realigned resources to focus on monitoring costs, preserving cash, completing the planned move of manufacturing operations and research and development to China and focused on core opportunities.

Restructuring costs and other charges incurred during the year ended June 30, 2003

For the year ended June 30, 2003, $12.2 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.

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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, 2003, the planned worldwide workforce reductions have been substantially completed.

Excess property and equipment, facilities and other charges

We recorded a restructuring charge of $8.9 million relating to excess property and equipment during the year ended June 30, 2003. Property and equipment disposed of or removed from operations of $5.3 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 was $1.1 million as of June 30, 2003, and 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 $1.5 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 through 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 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 the decline in current business conditions, we abandoned one of our technologies. 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, $28.1 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 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, 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

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