Consolidate big laser plants. Sources say JDSU needs to face a painful consolidation of laser-making facilities -- something the company has tried to avoid up to now. When customers learn that a laser was made in a new plant, they tend to rethink their contracts and call for product requalification. Some note that this has kept some JDSU semiconductor plants open, such as some 980nm pump laser facilities inherited with the SDL acquisition. JDSU must now decide how to regroup the plants to avoid customer disruption.

Integrate the manufacturing of passive components. Sources say demand and pricing for certain passive optical components, such as arrayed waveguides and optical mux/demux parts, have come down so drastically over the past year that any business banking on high volume sales in these areas is doomed. Not even increased demand for AWGs in areas like CATV equipment will bring the necessary relief. "Arrayed waveguides call for high-end clean rooms and sales are based on the premise that wavelength demand is exploding, and that hasn't happened. Growth in demand for more wavelengths hasn't progressed," says Craig Armiento, director of optical network engineering at Lightchip Inc., which competes with JDSU in optical mux/demux and monitoring components.

Stop acquiring. Some observers think JDSU's purchase of Scion Photonics (see JDSU Posts Loss, Buys Startup and Why JDSU Bought Scion) might help bring a needed focus to JDSU's AWG business. Then again, it could also complicate matters. "The company continues to make investments and production transitions to new technologies -- intrinsically a good philosophy, but there is risk of glitches in bringing new ... products to market," write Kevin Slocum and Dennis Gallagher of SoundView Technology Group in a note to investors today.

Focus on OEM and customer savings. Many think JDSU and other large optical component makers need to focus on making parts that will help save operational costs on telecom networks. Armiento of Lightchip, for instance, says his company has refocused attention on its optical monitoring component as opposed to its mux/demuxes. Armiento's going on the road to tout the cost savings involved in having parts track the health of optical networks and remotely report activity back to the network operations center, avoiding costly truck rolls. Products like these, he says, are more in line with carriers' goals right now.

Analysts have also cited the need for module integration, size reduction, and lower power consumption as key to attracting carrier spending (see Components Crunch Time).

Cut R&D spending. Some think JDSU has its head in the clouds to a certain extent. "To be spending R&D at a run rate of 22 percent of sales is tough to justify right now," says CSFB's Schuetz. The company might better be served by cranking out line card components for existing system OEMs and save some innovations for later, he says.

Some say the company needs to consider even its best ideas, such as making complex modules to order for specific customers, as ripe for change. "The company's vertical integration and formative module strategy is powerful, but may take several more quarters to prove out," writes James Jungjohann of CIBC World Markets in a note.