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Optical/IP

JDS Rumors Fly (and Crash)

Well, that was fun while it lasted. Shares of JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) and Alcatel SA (NYSE: ALA; Paris: CGEP:PA) closed down today after being chased up by yesterday's rumors of a merger -- rumors that analysts dismissed as ridiculous.

Tales of Alcatel wanting to acquire JDSU sent the component giant's shares up 11 percent yesterday. But today, the fire went out -- JDSU shares fell 35 cents to $5.38, while Alcatel shares dropped 23 cents to $16.90.

Still, this isn't the first or last rumor about JDSU that's made the circuit this year -- the year being only three weeks old. It seems something's up.

Earlier whispers had JDSU acquiring transceiver star Finisar Corp. (Nasdaq: FNSR). And a new rumor today had Avanex Corp. (Nasdaq: AVNX) losing some Nortel Networks Corp. (NYSE/Toronto: NT) business to JDSU. (Avanex did not immediately return a call for comment; a JDSU spokesman wouldn't comment on any of the rumors.)

"Something's happening at JDSU, which you'd expect with them having a new CEO [former Cisco exec Kevin Kennedy] wanting to do something and show 'em who's boss," says John Harmon, analyst with Needham & Co.. "And they also just raised $400 million [in zero-interest notes], which they've got to do something with." (See Kevin Kennedy Gets His Dream Job and JDS Prices $400M in Notes.)

JDSU had more than $1 billion in cash and short-term investments before raising the extra $400 million in October, so it's understandable that observers would be expecting something big to go down.

The Alcatel rumor, which appears to have made the rounds after being published by Reuters, sent JDSU shares up 56 cents per share, or 11 percent, to $5.73 yesterday. JDSU's trading volume yesterday was 183 million shares, compared to the stock's recent average volume of 37.6 million shares. The stock has exceeded volume of 80 million six times since Jan. 1.

The rumor didn't have legs, however -- maybe because it was just plain nuts. Think about it: Alcatel just went through a lot of trouble to drop its components division, Alcatel Optronics, by selling it to Avanex -- for small change -- in May 2003. Alcatel picked up 28 percent ownership in Avanex but also gave Avanex $110 million cash to help with restructuring costs, leading some to half-jokingly say Avanex was paid off to complete the deal. Understandably, Alcatel shares fell 18 cents to $17.13 on Nasdaq yesterday.

(The Alcatel sale was part of the same deal that saw Corning Inc. sell most of its photonics division to Avanex -- see Avanex to Buy Alcatel, Corning Units.)

Rumors aside, JDSU's stock is benefitting from the newfound optimism in telecom (see Chips on Their Shoulders). The stock is up 60 percent since Christmas Eve, when it closed at $3.36.

— Craig Matsumoto, Senior Editor, Light Reading
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lastmile 12/5/2012 | 2:38:55 AM
re: JDS Rumors Fly (and Crash) Your article is very well written.
The analysis of JDS rumors is always difficult to summarize but you have done a fabulous job.
These rumors will continue for a while and we will need your help in the near future.
whyiswhy 12/5/2012 | 2:38:51 AM
re: JDS Rumors Fly (and Crash) The big four: JDSU, AVNX, BKHM, FUWAF are killing each other in components. There is room for two and maybe a wannabe. Just like they taught you in school.

Alcatel took quite a chunk of AVNX in the sale. So did Corning. 28 and 17 percent respectfully. So its not like they got out of the game, they just are not running it day to day.

Given that there is an over supply problem in components, it would make one HELL of a lot of sense to do a big merger, if the SEC would buy it (probably would rubber stamp anything these days). ALA/JDSU/GLW/AVNX...essentially.


Nahhhhh!!!!!


-Why
technonerd 12/5/2012 | 2:38:48 AM
re: JDS Rumors Fly (and Crash) Given that there is an over supply problem in components, it would make one HELL of a lot of sense to do a big merger, if the SEC would buy it (probably would rubber stamp anything these days). ALA/JDSU/GLW/AVNX...essentially.
Hey genius, it's not the S.E.C.'s job to evaluate mergers.
BobbyMax 12/5/2012 | 2:38:41 AM
re: JDS Rumors Fly (and Crash) During the hey days of high=tech bubble, the officials of JDS and SDL sqeezed the company to death. They literally stole the shareholders money. It was larceny in great traditions of the US.

I do not see much hope for JDS regardless of the scenarios contribed by the current management.
Qazxsw21 12/5/2012 | 2:38:38 AM
re: JDS Rumors Fly (and Crash) Oh, I forgot to say, just before Christmas Alcatel announced that they definitely had no intention of divesting the optical business, which a cynical person might interpret as an indication that they will soon!
Qazxsw21 12/5/2012 | 2:38:38 AM
re: JDS Rumors Fly (and Crash) Since JDSU are sitting on that big pile of money, maybe they are planning on moving further up the food chain and acquiring Alcatel's Optical Networks Division?

Perhaps not as far fetched as it initially sounds - OND is currently the major loss-making part of Alcatel and is dragging its profits down. Alcatel is working hard at the moment to recast itself as a more service-orientated "solutions provider" rather than a pure equipment/systems vendor, with ever-increasing outsourcing of both manufacturing and R&D, so divesting the optical equipment making business wouldn't necessarily be contrary to their overall corporate strategy, would solve some job-cutting headaches and improve the bottom line.

From JDSU's point of view it is perhaps the next logical step as they progress along the path of components, modules, subsystems, smart amplifiers, linecards... They have already gained a lot of experience developing a low cost manufacturing base in the far east which would help with competitive pricing against the like of Huawei etc. The main question mark would be how other customers would feel about having a competitor for a supplier, I guess, but it has happened in the past. Alternatively they could set themselves up as a fully fledged OEM optical network equipment supplier with a basic product range which could be customised to meet the specific requirements of all those equipment vendors who have cut their optical R&D departments to the bone.

In the highly unlikely event of my turning out to be right, can I have a megabucks analyst job, please?
waverunner 12/5/2012 | 2:38:30 AM
re: JDS Rumors Fly (and Crash) There is always some truth in rumors, for what it's worth I can confirm this one: JDSU will take about 80% of the Nortel business away from Oplink and Avanex (old Corning) business in the next 12 months.

Why? Cause Avanex and Oplink's regional sales staff suck!

W

dalascby 12/5/2012 | 2:38:25 AM
re: JDS Rumors Fly (and Crash) I agree with LightReading...something is up. The new CEO is from CISCO...I anticipate some sort of JDS-CISCO relationship to develop. JDS may also be eyeing an acquisition...the time is right to start using some of that cash.
BlueWater66 12/5/2012 | 2:38:19 AM
re: JDS Rumors Fly (and Crash) I've constantly heard the JDSU-Finisar rumor. The Investment Banks have been buzzing with this for quite a while.

Also been hearing rumor's about Chinese aquisitions. If you look at the total number of optical component companies, there is a huge hidden wave coming from China. Heard that JDSU is watching this very closly. They already have a position there, but might be expanding.

I track some of this .... my Palm list of Chinese optical component companies is getting huge. My list below (let me know if I'm missing any major ones)... anyone heard which ones are being reviewed?

Accelink (www.accelink.com, Wuhan, FiberHome div?)
Acore Optronics
ADF Fibercom Ltd.
Advanced Fiber Resources
Aryxx
Ascending Optical Components
Associated Opto-electronics
Browave
Comcore
Dare (Shanghai Dare Optoelectronics, 980nm pumps, www.sdo.com.cn)
Fiberxon Technology
FOCI
Genuine Optics
Hangzhou Flying Optical
Hi-Optel
Hi-Tech Optoelectronics Co., Ltd.
Hopecom
Koncent (www.koncent.com, Fuzhou, WDM Filters)
O-Net Communications
Oplink (www.oplink.com, Zhuhai, WDM Filters)
Optiwork
Shenzhen Photon
Synet Optics
TianWei
Wuhan Telecom Device
Wuxi ZTE (WDMs, EDFA)
Ritek (www.ritek.com, WDM Filters)
Delta (SWL Modules, www.delta.com.tw/products/fibe...
whyiswhy 12/5/2012 | 2:38:05 AM
re: JDS Rumors Fly (and Crash) Wha?

Yes, Virginia, it is the SEC's job to approve mergers and acquisitions. If you don't like it, change the law.

The SEC's fancy wanes political. These days it might actually approve a big merger in the telecom/optical equipment space.

And I agree with the hints here: it is very common to see publicly traded companies put people on the board they do business with. Cisco is now well represented on JDSU BOD, and I expect this means there is or will be big things happening in that direction.

ALA/JDS/CSCO/...now that would be VERY interesting, if it could only happen at the BOD level for awhile.

That would leave AVNX sucking wind.

JMHO

-Why
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