SECURITES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549
----------------------------------------------------

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

For the quarterly period ended January 30, 2000

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

For the transition period from ___________ to ___________

Commission File No. 0-22598

ORTEL CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 95-3494360
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)

2015 West Chestnut Street, Alhambra, California 91803-1542
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (626) 281-3636

not applicable
---------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)

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
----- ------

As of January 30, 2000 there were 12,789,394 shares of the registrant's $.001
par value Common Stock outstanding.

Page 1 of 21 Pages
Exhibit Index on Page 19

ORTEL CORPORATION

INDEX

PART I FINANCIAL INFORMATION Page(s)
-------

Item 1. Financial Statements

Condensed Consolidated Balance Sheets as of January 30, 2000 and
April 30, 1999.................................................................. 3

Condensed Consolidated Statements of Operations for the fiscal quarter and
nine months ended January 30, 2000 and January 31, 1999......................... 4

Condensed Consolidated Statements of Cash Flows for the nine months ended
January 30, 2000 and January 31, 1999........................................... 5

Notes to Condensed Consolidated Financial Statements............................ 6

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 10

Item 3. Quantitative and Qualitative Disclosures About Market Risk.......................... 17

PART II OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K..................................................... 17

Signatures.................................................................................... 18

Index to Exhibits............................................................................. 19

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

ORTEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

January 30, April 30,
2000 1999(1)
ASSETS (unaudited) (unaudited)
----------- -----------

Current assets:
Cash and equivalents.................................................................... $ 19,965 $13,115
Short term investments.................................................................. 7,041 11,066
Total receivables less allowance for doubtful accounts of $1,093 and $973 at
January 30, 2000 and April 30, 1999, respectively................................... 12,807 13,404
Inventories............................................................................. 15,272 9,716
Income taxes receivable................................................................. 9,756 2,900
Deferred tax assets..................................................................... 2,080 2,080
Prepaid expenses and other current assets............................................... 1,410 990
Current assets of discontinued operations............................................... --- 5,692
-------- -------
Total current assets............................................................... 68,331 58,963

Property, equipment and improvements (net)................................................... 17,627 17,704
Intangible assets, net....................................................................... 862 1,352
Other assets................................................................................. 13,593 9,717
Long-term assets of discontinued operations.................................................. --- 1,492
-------- -------
Total assets....................................................................... $100,413 $89,228
======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................................ $ 8,344 $ 6,800
Accrued payroll and related costs....................................................... 5,924 1,824
Accrued liabilities..................................................................... 2,760 1,794
Liabilities related to discontinued operations.......................................... 1,133 2,356
Income taxes payable.................................................................... 36 188
-------- -------
Total current liabilities.......................................................... 18,197 12,962
Deferred income taxes........................................................................ 497 512
Long-term liabilities related to discontinued operations..................................... --- 305
-------- -------
Total liabilities.................................................................. 18,694 13,779

Minority interest in subsidiaries............................................................ --- 261

Stockholders' equity......................................................................... 81,719 75,188
-------- -------

Total liabilities and stockholders' equity......................................... $100,413 $89,228
======== =======

(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.

See accompanying notes to condensed consolidated financial statements.

PART I FINANCIAL INFORMATION
Item 1. Financial Statements

ORTEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

Three Months Ended Nine Months Ended
---------------------------- ---------------------------
January 30, January 31, January 30, January 31,
2000 1999 (1) 2000 1999 (1)
(unaudited) (unaudited) (unaudited) (unaudited)
------------- ------------ ----------- ------------

Revenues............................................................ $21,409 $15,149 $58,494 $49,333
Cost of revenues.................................................... 12,299 10,143 34,967 29,696
------- ------- ------- -------
Gross profit.................................................... 9,110 5,006 23,527 19,637
Operating expenses:
Research and development........................................ 3,743 2,617 10,972 7,681
Sales and marketing............................................. 2,985 2,246 8,695 7,445
General and administrative...................................... 1,657 1,066 6,796 3,810
Write-off facility architectural fees........................... --- --- 745 ---
------- ------- ------- -------
Total operating expenses...................................... 8,385 5,929 27,208 18,936
------- ------- ------- -------
Operating income (loss)......................................... 725 (923) (3,681) 701
Interest and other income, net...................................... 222 299 680 1,161
------- ------- ------- -------
Income (loss) from continuing operations before income taxes........ 947 (624) (3,001) 1,862
Provision (credit) for income taxes................................. 246 (132) (741) 372
------- ------- ------- -------
Income (loss) from continuing operations before cumulative effect
of accounting change............................................ 701 (492) (2,260) 1,490
Cumulative effect of accounting change (Note 8)..................... --- --- (989) ---
------- ------- ------- -------
Income (loss) from continuing operations............................ 701 (492) (3,249) 1,490
Discontinued operations (Note 7):
Loss from discontinued operations, net of tax benefit of $157 in
quarter ended 1999, $70 in nine months ended 2000 and $417
in nine months ended 1999....................................... --- (628) (558) (3,113)
Gain (loss) from disposal of discontinued operations, net of taxes
of $256 in quarter ended 2000, net of tax benefit of $837 in
nine months ended 2000 and $980 in nine months ended 1999....... 769 --- (2,511) (3,919)
------- ------- ------- --------
Net income (loss)................................................... $ 1,470 $(1,120) $(6,318) $(5,542)
======= ======= ======= ======
Income (loss) per common share - Basic
Income (loss ) from continuing operations....................... $ .06 $ (.04) $ (.19) $ .12
Cumulative effect of accounting change.......................... --- --- (.08) ----
Discontinued operations......................................... .06 (.05) (.26) (.59)
------- ------- ------- --------
Net income (loss) per share - Basic............................. $ .12 $ (.09) $ (.53) $ (.47)
======= ======= ======= ========
Income (loss) per common share - Diluted (2) (3)
Income (loss ) from continuing operations....................... $ .05 $ (.04) $ (.19) $ .12
Cumulative effect of accounting change.......................... --- --- (.08) ---
Discontinued operations......................................... .05 (.05) (.26) (.56)
------- ------- ------- -------
Net income (loss) per share - Diluted........................... $ .10 $ (.09) $ (.53) $ (.44)
======= ======= ======= =======
Shares used in per share computation:
Basic........................................................... 11,776 11,920 11,883 11,844
Diluted......................................................... 15,204 11,920 11,883 12,562

(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.
(2) Options to purchase 554,927 shares at or below the average price of the
common shares were outstanding at January 31, 1999 but were excluded from
the computation of diluted earnings per share as the Company reported a
loss from continuing operations and the effect would be anti-dilutive.
(3) Options to purchase 2,936,699 at or below the average price of the common
shares were outstanding at January 30, 2000 but were excluded from the
computation of diluted earnings per share for the nine months then ended as
the Company reported a loss from continuing operations and the effect would
be anti-dilutive.

See accompanying notes to condensed consolidated financial statements.

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

ORTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

Nine Months Ended
--------------------------
January 30, January 31,
2000 1999(1)
(unaudited) (unaudited)
----------- -----------

Cash flows from operating activities:
Net income (loss)........................................................................ $(6,318) $(5,542)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Loss from discontinued operations..................................................... 744 ---
Loss from disposal of discontinued operations......................................... 3,349 6,697
Income tax related to discontinued operations......................................... (1,023) (1,339)
Stock-based compensation.............................................................. 379 80
Depreciation and amortization......................................................... 4,623 4,349
Increase (decrease) in minority interest in subsidiaries.............................. (261) (38)
Write-off of architectural fees....................................................... 745 ---
Cumulative effect of accounting change for start-up costs............................. 989 ---
Other................................................................................. (737) 120
Change in assets and liabilities:
Receivables and billed contract costs and fees........................................ 598 62
Inventories........................................................................... (5,557) (2,211)
Income tax receivable................................................................. (5,575) (789)
Deferred tax asset.................................................................... --- (70)
Prepaid expenses and other assets..................................................... (308) (832)
Accounts payable...................................................................... 1,544 1,226
Accrued payroll and related costs..................................................... 4,130 (273)
Accrued liabilities................................................................... 936 67
Liabilities related to discontinued operations........................................ (513) 1,896
Net of assets and liabilities of discontinued operations.............................. --- 669
Income taxes payable.................................................................. (165) (172)
Deferred income taxes................................................................. (2) (1,300)
------- -------
Net cash (used in) provided by continuing operating activities.................... (2,422) 2,600
Net cash used in discontinued operating activities................................ (1,358) (3,412)
------- -------
Net cash used in operating activities................................................... (3,780) (812)
Cash flows from investing activities:
Capital expenditures...................................................................... (4,995) (3,277)
Investment in subsidiaries and affiliates (net of cash acquired).......................... (1,609) ---
Short term investments.................................................................... 4,025 (606)
------- -------
Net cash used in investing activities................................................... (2,579) (3,883)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............................................... 11,301 1,688
Proceeds from repayment of shareholder loans.............................................. 1,964 755
------- -------
Net cash provided by financing activities............................................... 13,265 2,443

Effect of exchange rate changes on cash and cash equivalents.............................. (56) (151)
------- -------
Net increase (decrease) in cash and equivalents......................................... 6,850 (2,403)
Cash and equivalents at beginning of period............................................... 13,115 12,591
------- -------
Cash and equivalents at end of period..................................................... $19,965 $10,188
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period by continuing operations for:
Interest................................................................................ $ 8 $ 4
Income taxes (refunded), net............................................................ $ (84) $ 636
Supplemental disclosure of non-cash financing activities:
Loans to related parties for stock option exercises....................................... $ 900 $ 17

(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.

See accompanying notes to condensed consolidated financial statements.

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements

1. Basis of Presentation
---------------------

The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company without audit (except for the balance sheet
information as of April 30, 1999, which was derived from audited consolidated
financial statements) and, in the opinion of management, contain all adjustments
necessary to present fairly the condensed consolidated financial position at
January 30, 2000, and the condensed consolidated results of operations for the
three and nine months ended January 30, 2000 and 1999 and the condensed
consolidated cash flows for the nine months ended January 30, 2000 and 1999 in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in financial statements have been
condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission, although the Company believes that the disclosures in the
condensed consolidated financial statements are adequate to ensure the
information presented is not misleading.

The Company changed its fiscal quarter to a thirteen-week period ending on
the Sunday nearest to the end of each quarter. The Company's fiscal year end
will remain April 30. This change did not have a significant impact on the
comparability of the Company's operating results between periods.

The accompanying unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such
adjustments are of a normal recurring nature, other than those disclosed in the
notes to condensed consolidated financial statements and management's discussion
and analysis.

The results of operations for the quarter and nine months ended January 30,
2000, are not necessarily indicative of the results to be expected for the
entire fiscal year and should be read in conjunction with a discussion of risk
factors in the Company's annual report for the fiscal year ended April 30, 1999.

2. Per Share Information
---------------------

Net income (loss) per share is based on the weighted average common and
common equivalent shares outstanding for each period including common shares
issuable upon the exercise of stock options. Common equivalent shares are
excluded from the computation if the effect is antidilutive. (in thousands)

Three Months Ended Nine Months Ended
January 30, January 31, January 30, January 31,
2000 1999(1) 2000(2) 1999
------------------------------ ------------------------------

Weighted average shares outstanding................... 11,776 11,920 11,883 11,844
Effect of dilutive securities - stock options (1)..... 3,428 -- -- 718
------ ------ ------ ------
Shares used for diluted per share computations........ 15,204 11,920 11,883 12,562
====== ====== ====== ======

(1) Options to purchase 554,927 shares at or below the average price of the
common shares were outstanding at January 31, 1999, but were excluded from
the computation of diluted earnings per share as the Company reported a
loss from continuing operations and the effect would be anti-dilutive.
(2) Options to purchase 2,926,699 shares at or below the average price of the
common shares were outstanding at January 30, 2000, but were excluded from
the computation of diluted earnings per share as the Company reported a
loss from continuing operations and the effect would be anti-dilutive.

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)

3. Income Taxes
------------

Income taxes for the respective periods were computed using the effective
tax rate estimated to be applicable for the fiscal year, which is subject to
ongoing review and evaluation by management.

4. Inventories
-----------

Inventories are stated at the lower of cost (first-in, first-out method) or
market and for continuing operations are summarized below. Prior years amounts
have been reclassified to conform to current year presentation. (in thousands)

January 30, 2000 April 30, 1999
-------------------- ------------------
(unaudited) (audited)

Raw materials...................... $ 9,335 $5,275
Work-in-process.................... 4,258 3,141
Finished goods..................... 1,679 1,300
------- ------
Total inventories............. $15,272 $9,716
======= ======

5. Cash Equivalents
----------------

Cash equivalents (defined as marketable securities with original maturities
of 90 days or less which can be liquidated in a manner that is equivalent to
cash) were $17.2 million and $10.3 million as of January 30, 2000, and April 30,
1999, respectively. Short-term investments (marketable securities with
maturities of more than 90 days) were $7.0 million and $11.1 million as of
January 30, 2000 and April 30, 1999, respectively.

Short-term investments consist of interest bearing securities with
maturities greater than 90 days. Under SFAS 115, the Company has
classified its short-term investments as available-for-sale. At January
30, 2000, the Company's marketable investment securities consisted principally
of highly liquid investments in tax-free municipal obligations with various
maturity dates through June 1, 2001. The difference between market value and
cost of these securities at January 30, 2000 was immaterial.

6. Other Comprehensive Income
--------------------------

In fiscal 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. Accumulated other comprehensive income of the Company consists of net
unrealized gains (losses) on available for sale investments and the cumulative
effect of foreign currency translation. Total comprehensive income for the three
and nine months ended January 30, 2000 was $75,000 and $389,000, respectively.
The nine month change in the components of other accumulated comprehensive
income (loss) before and after tax is shown below. (in thousands)

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)

6. Other Comprehensive Income (continued)
--------------------------------------

Unrealized Gain Cumulative Effect Accumulated Other Accumulated Other
(Loss) on of Foreign Currency Comprehensive Comprehensive
Available for Translation Gain Income/(Loss) Income/(Loss)
Sale Investments (Loss) Before Tax Net of Tax
------------------- ---------------------- ---------------------- ----------------

Balance at April 30, 1999....... $(37) $(566) $(603) $(453)
Activity for the Nine Months
Ended January 30, 2000......... (16) 405 389 292
---- ----- ----- -----
Balance at January 30, 2000..... $(53) $(161) $(214) $(161)
==== ===== ===== =====

7. Discontinued Operations
-----------------------

During the first quarter of fiscal year 2000, the Company implemented its
plan to sell the U.S. and international wireless operations which detracted from
the Company's focus on fiberoptic markets. In addition to the operating losses
incurred during the first quarter, the Company expected to incur sale
transaction costs as well as losses on the sale of the businesses at prices
potentially below net book value. In the first quarter of fiscal 2000, the
Company recorded a loss of $4.4 million, before income tax benefit of $1.1
million, from the disposal of assets related to the discontinued wireless
businesses. Significant costs related to the sale of the businesses included
brokers fees, severance and expected product warranty costs.

By August 30, 1999, the wireless businesses were sold in two separate
transactions. Losses on the sales and costs associated with the
transactions were commensurate with the estimated loss of $4.4 million.
Domestic wireless operations were sold for cash to an unrelated party. The
Company agreed to provide certain services on a temporary basis to facilitate
the operation of the business by the new owner, CI Wireless, Incorporated,
of Fort Worth, Texas. These services include subletting a portion of a building
at the Company's Alhambra facility and agreeing to sell certain key components
which incorporate technology not included in the sale of the business. The
Company's stock in Avitec AB, the wireless operations headquartered in Sweden,
was sold to one of Avitec's founders. The Company has no continuing obligations
with regard to the Avitec wireless operations but may continue to sell to Avitec
certain of the Company's products, which have been incorporated into Avitec
systems designs.

These wireless operations have been separately reported as discontinued
operations in the accompanying condensed consolidated financial statements for
all periods presented. Summarized results of operations of the discontinued
wireless businesses (excluding losses on disposal) are shown below. All
activity occurred during the first quarter of fiscal year 2000. (in thousands)

Nine Months Ended
January 30, 1999
---------------------

Revenues........................... $1,109
======
Loss before income taxes.......... (744)
Income tax benefit................ (186)
------
Loss after tax benefit............ $ (558)
======

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)

7. Discontinued Operations (continued)
-----------------------------------

During the second quarter of fiscal year 1999, the Company implemented a
plan to dispose of the 980nm pump laser operations. Fifteen months after the
discontinuance of these operations, the Company did not incur a substantial
portion of the warranty and sales returns it expected. In the third quarter of
fiscal 2000 the Company released approximately $1.1 million (before tax) of
amounts previously reserved, thereby reducing the total loss on the pump laser
discontinuance to $3.2 million after taxes.

At January 30, 2000, liabilities related to both the recently discontinued
wireless operations and the 980nm pump laser operations are summarized below.
See Management's Discussion and Analysis for disclosure of payments made for the
nine months ended January 30, 2000. (in thousands)

Warranty................................................ $ 680
Severance............................................... 132
Professional fees....................................... 174
All other............................................... 147
------
Total liabilities related to discontinued operations..... $1,133
======

8. Change in Accounting for Start-up Costs
---------------------------------------

The Company adopted Statement of Position No. 98-5, Reporting on the Costs
of Start-up Activities, effective May 1, 1999. SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as incurred.
The Company recognized a charge to results of operations of $989,000 ($.08 per
basic share), as the cumulative effect of a change in accounting in the first
quarter of fiscal year 2000. For tax purposes, this item is non-deductible.

9. Buy-out of Minority Interests of Foreign Subsidiaries
-----------------------------------------------------

The Company previously owned 90% of Ortel SARL and 75% of Ortel Vertriebs
GmbH. During the second quarter of fiscal year 2000, the Company purchased the
minority interests of both of its European subsidiaries for cash values of
approximately $95,000 for Ortel SARL and $185,000 for Ortel Vertriebs. Minority
shareholders were compensated based on values determined at April 30, 1999.
There was no goodwill in either transaction.

PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the unaudited condensed consolidated
financial statements included herein. The discussion in this section contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in the Company's annual report for the year ended April 30,
1999.

Recent Developments

On February 7, 2000, the Company entered into an Agreement and Plan of
Merger with Lucent Technologies, Inc. Under the terms of the definitive merger
agreement between Lucent and Ortel, each share of Ortel will be converted into
3.135 shares of Lucent upon the closing of the merger transaction. Based on
Lucent's closing stock price of $57 on February 4, the acquisition would be
valued at approximately $2.95 billion, or $177.125 per Ortel share, on a fully
diluted basis. The merger is expected to be consummated before June 30, 2000.

Results of Operations

Overview

The Company is in the process of refocusing its resources in order that it
may leverage the strengths of its core fiberoptic technology in niche broadband,
data and telecommunications markets. As part of this strategy, the Company sold
its wireless businesses in August 1999. The Company recorded a special charge
of $9.3 million, or approximately $7.3 million after tax, in its first fiscal
quarter ended August 1, 1999. Included in this charge were amounts related to
the sale of the Company's wireless businesses, recent management changes and
required accounting policy changes. These costs are discussed in the "Year-to-
Date" section of Management Discussion and Analysis.

Continuing Operations

Three months ended January 30, 2000

The discussion that follows is based on continuing operations using the
reclassified Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Operations presented in this report.

Revenues

Total revenues for the third quarter ended January 30, 2000 were $21.4
million, a 41% increase over revenues of $15.1 million in the third quarter last
year, primarily due to strong revenue growth from broadband business,
particularly in sales of photo diodes, 1310nm transmitters, AWDM modules and
transmitters and analog DWDM 1550nm laser transmitters. Sales to
international customers totaled $6.4 million, or 30% of revenues, in the third
quarter of fiscal 2000, compared to $5.5 million, or 36% of revenues, in the
same period last year. The 17% increase in sales to international customers
when compared to last year was primarily due to stronger market conditions in
Europe.

PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Gross Profit

Gross profit of $9.1 million in the quarter ended January 30, 2000 was 43%
of revenues compared to $5 million and 33% in the prior year period. The
Company continued to focus on its core competencies and elected in the first
quarter of fiscal year 2000 to discontinue the sale of certain low-volume, low-
margin models that are not strategically important to the Company's future.
Overall, margins were higher year-to-year due partly to the discontinuance of
certain low-margin models and from improved manufacturing processes, cycle times
and productivity gains, offset by some price erosion on certain of the Company's
key products beginning in late fiscal 1999.

Research and Development

R&D expense increased from $2.6 million, or 17% of revenues, in the third
quarter last year, to $3.7 million, or 17% of revenues, in the quarter ended
January 30, 2000, an increase of 43%. The increase reflects the Company's
ongoing commitment to maintain its leadership position in broadband
communications and to aggressively pursue emerging opportunities in data and
telecommunications.

Sales and Marketing

Sales and Marketing expense of $3 million, or 14% revenues, in the
quarter ended January 30, 2000 increased from $2.2 million, or 15% of
revenues, in the same quarter last year. The increase is due primarily to the
addition of marketing personnel in the U.S. and sales personnel in the U.S. and
Asia.

General and Administrative

General and Administrative expense was $1.7 million in the quarter ended
January 30, 2000, compared to $1.1 million in the same quarter last year. As a
percentage of revenues, General and Administrative expense increased from 7% in
the third quarter last year to 8% in the current quarter ended January 30, 2000.

Operating Income

Operating Income in the quarter ended January 30, 2000, was $725,000
compared to an Operating Loss of $923,000 in the same quarter last year.

Interest and Other Income

Interest and Other Income in the third fiscal quarter of 2000 was $222,000
compared to $299,000 in the same period last year. In the three months ended
January 30, 2000, no income from Photon Technology Co., Ltd. was recognized
whereas in the three months ended January 31, 1999, the Company recognized
$127,000 of such income. Additionally, lower cash investment balances in fiscal
year 2000 have resulted in lower interest income.

PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Income From Continuing Operations After Cumulative Effect of Accounting Change

Income from continuing operations in the quarter ended January 30, 2000 was
$701,000 compared to net loss of $492,000 in the same quarter last year.

Loss from Disposal of Discontinued Operations, Net of Taxes
During the second quarter of fiscal year 1999, the Company implemented a
plan to dispose of the 980nm pump laser operations. Fifteen months after the
discontinuance of these operations, the Company did not incur a substantial
portion of the warranty and sales returns it expected. In the third quarter of
fiscal 2000 the Company released $769,000 (after taxes) of amounts previously
reserved, thereby reducing the total loss on the pump laser discontinuance to
$3.2 million.

First Quarter Special Charges

During the first quarter of fiscal 2000, the Company recorded special
charges of $9.3 million, or $7.3 million after tax. Included in this charge are
amounts related to the sale of the Company's wireless businesses, management
changes and required accounting policy changes. These costs are summarized as
follows: (in thousands)

Quarter Ended Costs Paid
August 1, 1999 Through
Estimated February 27,
Special Charge Cost Classification Charge 2000
- ---------------------------------------------------- ------------------------------- -------------- ----------

Loss from disposal of discontinued
Operations Discontinued operations $4,374 $4,028

Changes in management and severance Cost of Sales 71 70
Research Development 341 141
Sales & Marketing 124 103
General & Administrative 2,129 1,480
------ ------
Total Mgmt Changes 2,665 1,794

Inventory Write-off, Model Phase-Out Cost of Sales 500 500

Write-off Architectural Fees Other Operating Expense 745 745

Change in accounting for start-up costs Cumulative Effect of
Accounting Change 989 989
------ ------

Total Special Charges $9,273 $8,056
====== ======

The Company completed the sale of the assets of its U.S. wireless business
to CI Wireless, Inc., a Fort Worth, Texas company, on August 16, 1999. In this
transaction, CI Wireless purchased inventory and fixed assets and assumed
contractual and other liabilities. The Company completed the sale of the stock
of its European wireless subsidiary, Avitec AB, to one of the original founders,
Hakan Samuelsson, on August 30, 1999. The total charge related to this
discontinuance was approximately $4.4 million. The majority of the charge
related to losses from the sale of the wireless businesses and, secondarily, the
estimated operating losses incurred from the beginning of the second quarter
through the completion dates for each sale.

PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

First Quarter Special Charges (continued)

There were a number of management changes at the Company in the first
fiscal quarter ended August 1, 1999. Wim Selders, President and Chief Executive
Officer, retired from the Company in June and Steve Rizzone joined the Company
as its new Chairman, Chief Executive Officer and President. Additionally George
Pontiakos joined the Company in June as Senior Vice President Operations and
Sandra Caraveo joined as Vice President Human Resources in July. The aggregate
charge for these management changes is approximately $2.7 million consisting
principally of severance and stock options charges.

The Company booked a $500,000 inventory reserve related to the phase out of
certain low sales volume and low-margin models that it has identified in its
fiber optics product offering.

In accordance with the adoption of a new accounting pronouncement, the
Company expensed the remaining $989,000 of unamortized startup costs relating
primarily to its joint venture with Photon Technology Co., Ltd.

The Company owns land in Alhambra, California that it had planned for its
new headquarters facility. The Company recently determined that it will not
build on this site and accordingly wrote off $745,000 in architectural fees and
plans previously capitalized.

Nine Months Ended January 30, 2000

Revenues

For the nine months ended January 30, 2000, revenues of $58.5 million were
19% higher than restated revenues of $49.3 million in first nine months of last
fiscal year, primarily due to strong revenue growth from broadband business,
particularly in sales of photo diodes, 1310nm transmitters and analog DWDM
1550nm laser transmitters. Sales to international customers totaled $16.1
million, or 28% of revenues, in the first nine months of fiscal 2000, compared
to $15.3 million, or 31% of revenues, in the same period last year. Sales in
Asia increased by 25% in the nine months ended January 30, 2000 compared to the
same period last year while sales in Europe were flat.

Gross Profit

Gross profit of $23.5 million in the nine months ended January 30, 2000 was
40% of revenues compared to $19.6 million, or 40% of revenues, in the prior year
period. Excluding first quarter special charges of $571,000, primarily related
to the write down of certain inventory that is being phased out, the gross
margin in the first nine months of fiscal 2000 would have been 41%. The Company
continued to focus on its core competencies and elected in the first fiscal
quarter of fiscal year 2000 to discontinue the sale of certain low-volume, low-
margin models that are not strategically important to the Company's future.

PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Research and Development

R&D expense increased from $7.7 million, or 16% of revenues, in the first
nine months of last fiscal year, to $11 million, or 19% of revenues, in the nine
months ended January 30, 2000, an increase of 43%. The increase reflects
Ortel's ongoing commitment to maintain it's leadership position in broadband
communications and to aggressively pursue emerging opportunities in data and
telecommunications. Included in this increase is a first quarter special charge
of $341,000 related to management changes.

Sales and Marketing

Sales and Marketing expense of $8.7 million for the nine months ended
January 30, 2000, increased from $7.4 million, in the same period last year but
remained approximately 15% of revenues. The increase is due primarily to the
addition of marketing personnel in the U.S. and sales personnel in the U.S. and
Asia.

General and Administrative

General and Administrative expense was $6.8 million, or 12% of revenues, in
the nine months ended January 30, 2000, compared to $3.8 million, or 8% of
revenues, in the same period last year. General and Administrative expense in
the first nine months of fiscal 2000 includes first quarter special charges of
$2.1 million related to certain management changes. Excluding the special
charge, General and Administrative expense would have been 8% of revenues in the
nine months ended January 3, 2000.

Write-off of Facility Architectural Fees

The results of operations for the nine months ended January 30, 2000,
included a special charge of $745,000 related to the Company's decision not to
build a new headquarters facility on land that it owns in Alhambra. The charge
relates to the write off of previously capitalized architectural fees and was
recorded in the first quarter of fiscal 2000.

Operating Income (Loss)

Operating Loss in the nine months ended January 30, 2000, was $3.7 million
compared to an Operating Income of $701,000 in the same period last year.
Excluding first quarter special charges of $3.9 million, the Company recorded
operating income of approximately $230,000 in the nine months ended fiscal 2000.

Interest and Other Income

Interest and Other Income in the nine months ended January 30, 2000, was
$680,000 compared to $1.2 million in the same period last year. The majority of
the difference is related to lower interest income on reduced cash investment
balances in fiscal year 2000. Additionally, in the first nine months of fiscal
1999, the Company recorded $245,000 of income related to its investment in
Photon Technology Co., Ltd. while no comparable income was recorded in the first
nine months of fiscal 2000.

PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Income (Loss) From Continuing Operations Before Cumulative Effect of Accounting
Change

Loss from Continuing Operations Before Cumulative Effect of Accounting
Change for the nine months ended January 30, 2000 was $2.3 million compared to
net income of $1.5 million in the same period last year. Excluding first quarter
after-tax special charges of $2.9 million, the net income from continuing
operations in the nine months ended fiscal 2000 was approximately $675,000.

Cumulative Effect of Accounting Change

Income (Loss) From Continuing Operations After Cumulative Effect of Accounting
Change

Loss from Continuing Operations After Cumulative Effect of Accounting Change
for the nine months ended January 30, 2000 was $3.2 million compared to net
income of $1.5 million in the same period last year. Excluding first quarter
after-tax special charges of $3.9 million, the net loss from continuing
operations in first nine months of fiscal 2000 was approximately $675,000.

Liquidity and Capital Resources

Cash and equivalents increased $6.9 million from $13.1 million at April 30,
1999 to $20 million at January 30, 2000. In the nine months ended January 30,
2000, the Company used $3.8 million of cash in its operating activities for both
its continuing and discontinued operations primarily as a result of increases in
inventory and income tax receivable offset by an reduction in accrued payroll
and accounts payable.

In the nine months ended January 30, 2000, the Company used $2.6 million in
investing activities. Approximately $4 million was transferred to cash and
equivalents from short-term investments that consist of interest-bearing
securities with maturities greater than 90 days. During this period $5 million
was invested in capital equipment purchases. The Company invested a further $4.8
million in Tellium, Inc., comprised of $3.8 million in cash plus the conversion
of a $960,000 loan, made to Tellium in June, 1999, in exchange for shares of
Tellium Series D preferred stock. The Company now has a total investment of
$11.3 million in Series A through D preferred stock of Tellium, Inc. These
investments were offset by $3.2 million of net cash received from the sale of
its wireless businesses.

The exercise of stock options and repayment of employee stockholder
loans generated $13.3 million in cash in the nine months ended of fiscal 2000.

As of January 30, 2000, the Company's principal sources of liquidity
included cash and short-term investments of $27 million. The Company believes
that cash, short-term investments and funds generated from operations will be
sufficient to satisfy its projected working capital and capital expenditure
requirements during this fiscal year.

The Company had a credit facility for $5 million consisting of an unsecured
revolving line of credit that expired on September 30, 1998. Periodically the
Company reviews opportunities to establish a new credit facility. No such
credit facility is in place at this time.

PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

Year 2000

State of Readiness

The Company established a Year 2000 project committee to focus on potential
Year 2000 issues and to coordinate various programs established to address these
issues. In response to the risks posed by the Year 2000 problem, the Company
instituted initiatives focusing on four primary areas of potential impact: (1)
internal information technology systems;.(2) internal non-information technology
systems and processes, including services and embedded chips, known as
"controllers"; (3) the Company's products and services; and (4) the readiness of
significant third parties with whom the Company has material business
relationships.

The Company approached its Year 2000 readiness initiatives in four phases:
assessment, planning, preparation, and implementation.

All phases of the Company's Year 2000 readiness initiatives had been
completed by the target date of September 30, 1999. A simulation test of the
implementation phase of the contingency plan was conducted in December without
incident.

With respect to the Company's information technology systems and non-
information technology systems, the Company determined that its systems are Year
2000 compliant. With respect to its products, the Company determined that its
newly introduced products are Year 2000 compliant and most of the Company's
other products do not contain any reference to a date nor do they access or
manipulate a date. With respect to the readiness of significant third parties
with whom the Company has material business relationships, the Company received
formal responses from all of its critical suppliers.

Risks
The Company created a contingency plan, which addressed the most significant
impacts that the Year 2000 issue might have had on the Company's business.
These included contingencies related to a potential failure with the Company's
control, as well as failures which are outside the Company's control, including
such failures as utility interruption, telecommunication failures, and foreign
banking delays.

Contingency Plans

As part of the contingency plan, the Company shutdown all non-essential
systems just prior to January 1, 2000, and restored these systems on January 1,
2000. Once restored, these systems were tested and monitored throughout the
first week of January 2000. All systems performed properly in the first week
of January 2000 and continued to perform properly up to and after
February 29, 2000 .

Costs
The costs associated with the Company's readiness actions were a combination
of incremental external spending and use of existing internal resources. The
Company estimates that it spent approximately $400,000 in connection with its
Year 2000 initiatives.

PART I - FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Risk

The Company is exposed to the impact of interest rate changes and changes in the
market values of its investments. The Company's exposure to market rate risk
for changes in interest rates relates primarily to its investment portfolio.
The Company has not used derivative financial instruments in its investment
portfolio. The Company invests its excess cash in debt instruments of the
U.S.Government and its agencies, and in high-quality corporate issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company
protects and preserves its invested funds by limiting default, market and
reinvestment risk. Investments in both fixed rate and floating rate interest
earning instruments carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, the Company's future
investment income may fall short of expectations due to changes in interest
rates or the Company may suffer losses in principal if forced to sell securities
which have declined in market value due to changes in interest rates.

PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K

a. Exhibits.
Reference is hereby made to the Exhibit Index commencing on page 19.

b. A form 8-K was filed on February 4, 2000, documenting the merger
agreement between the Company and Lucent Technologies, Inc.

SIGNATURES

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

DATE: March 14, 2000 ORTEL CORPORATION
(Registrant)

By: /s/ Stephen R. Rizzone
----------------------------
Stephen R. Rizzone,
Chairman, President and
Chief Executive Officer

By: /s/ Roger Hay
----------------------------
Roger Hay,
Vice President, Finance and
Chief Financial Officer

EXHIBIT INDEX

Exhibit
- -------
No. Document Description Page No.
--- -------------------- -------

2.1 Agreement and Plan of Merger dated as of February 7, 2000, by and among Lucent (Note 13)
Technologies Inc., a Delaware corporation, Solara Acquisition Inc., a Delaware
corporation, and Ortel Corporation, a Delaware corporation.
3.1 Certificate of Incorporation. (Note 1)
3.2 Bylaws of Ortel Corporation. (Note 1)
4.1 Rights Agreement between Ortel Corporation and First Interstate Bank of (Note 2)
California dated March 3, 1995.
4.2 Amendment dated February 7, 2000, to the Rights Agreement dated March 3, 1995,
between Ortel Corporation and the American Stock Transfer and Trust Company.
10.1 Employment Agreement, dated September 14, 1990, between Ortel Corporation and (Note 1)
Nadav Bar-Chaim.
10.2 1990 Stock Option Plan of Ortel Corporation. (Note 1)
10.3 Form of Indemnification Agreement. (Note 1)
10.4 Key Shareholders Agreement, dated as of March 26, 1990, among Wim H.J. Selders, (Note 1)
Dr. Ury, Dr. Yariv, Dr. Bar-Chaim, Sumitomo Cement Co., Ltd., The Ury Family
Trust and Ortel Corporation.
10.5 Agreement Concerning Certain Financial and Business Arrangements, dated as of (Note 1)
March 26, 1990, between Sumitomo Cement Co., Ltd. and Ortel Corporation.
10.6 1994 Equity Participation Plan of Ortel Corporation. (Note 1)
10.7 Loan Agreement, dated June 2, 1995, between Ortel Corporation and Bank of (Note 4)
America.
10.8 Amendment No. 2 dated September 9, 1997, to Loan Agreement dated June 2, 1995, (Note 5)
between Ortel Corporation and Bank of America.
10.9 Amendment No. 3 dated August 20, 1998, to Loan Agreement dated June 2, 1995, (Note 8)
between Ortel Corporation and Bank of America NT & SA
10.10 Severance Agreement, dated November 9, 1998, between Ortel Corporation and (Note 8)
George B. Holmes.
10.11 Severance Agreement dated March 5, 1999, between Ortel Corporation and Roger Hay. (Note 9)
10.12 Amendment No. 1 dated September 19, 1997, and Amendment No. 2 to the 1994 Equity (Note 10)
Participation Plan of Ortel Corporation.
10.13 Severance Agreement dated March 2, 1999, between Ortel Corporation and Stephen (Note 10)
K. Workman.
10.14 Employment Agreement dated June 18, 1999, between Ortel Corporation and Stephen (Note 10)
R. Rizzone.
10.15 Severance Agreement dated June 19, 1999, between Ortel Corporation and George (Note 10)
Pontiakos.
10.16 Agreement dated June 25, 1999, between Ortel Corporation and Wim H. J. Selders. (Note 10)
10.17 Severance Agreement dated July 30, 1999, between Ortel Corporation and Lyle B. (Note 11)
Boarts.
10.18 Severance Agreement and General Release of All Claims dated September 14, 1999, (Note 12)
between Ortel Corporation and Douglas H. Morais.
10.19 Stephen R. Rizzone Non-Qualified Stock Option Agreement effective June 18, 1999.
10.20 Addendum dated December 30, 1999, to Agreement dated June 25, 1999, between
Ortel Corporation and Wim H. J. Selders.

EXHIBIT INDEX - Continued

10.21 Stock Option Agreement dated as of February 7, 2000, by and between Ortel (Note 13)
Corporation and Lucent Technologies Inc.
10.22 Letter Agreement among Steve Rizzone, Lucent Technologies, Inc. and Ortel
Corporation dated February 7, 2000.
21.1 Subsidiaries of Ortel Corporation. (Note 10)
23.1 Consent of KPMG LLP. (Note 10)
27.0 Financial Data Schedule.

EXHIBIT INDEX-Continued

Note 1 Previously filed by the Registrant in Registration No. 33-79188.
Note 2 Previously filed by the Registrant in its 10-Q filing for the quarter ended January 21, 1995.
Note 3 Previously filed by the Registrant in its 8K filing dated March 26, 1996.
Note 4 Previously filed by the Registrant in its 10-K filing for the year ended April 30, 1996.
Note 5 Previously filed by the Registrant in its 10-Q filing for the quarter ended October 31, 1997.
Note 6 Previously filed by the Registrant in its 10-Q filing for the quarter ended January 31, 1998.
Note 7 Previously filed by the Registrant in its 10-K filing for the year ended April 30, 1998.
Note 8 Previously filed by the Registrant in its 10-Q filing for the quarter ended October 31, 1998.
Note 9 Previously filed by the Registrant in its 10-Q filing for the quarter ended January 31, 1999.
Note 10 Previously filed by the Registrant in its 10-K filing for the year ended April 30, 1999.
Note 11 Previously filed by the Registrant in its 10-Q filing for the quarter ended August 1, 1999.
Note 12 Previously filed by the Registrant in its 10-Q filing for the quarter ended October 31, 1999.
Note 13 Previously filed by the Registrant in its 8-K filing dated February 7, 2000.