"We are significantly improving the cost structure and competitiveness of JDS Uniphase," CEO Jozef Straus told analysts in this morning's conference call. He said the company was thinking of its employees in making the announcement early, hoping to avoid a suddenly depressing weekend between the news and the start of layoffs and closures.
Straus and CFO Anthony R. Muller first outlined the quarterly results for the period ending March 31, 2001, including pro forma earnings per share (EPS) of 14 cents on pro forma net income of $160 million and sales of $920 million.
All figures have been normalized, the execs said, to account for the completion of JDSU's merger with SDL Inc. (Nasdaq: SDLI) and the sale of its key plant in Zurich, Switzerland, to Nortel Networks Corp. (NYSE/Toronto: NT) earlier this year (see JDSU: Less from More and Nortel Buys JDSU Plant for $2.5B). Further, Muller explained that the potential "startling" $40 billion adjustment to the accounting of goodwill involved in the SDL merger will not affect JDSU's results for this quarter nor forecasts for the next.
Executives said this quarter's sales were about 8 percent lower sequentially, which JDSU attributes to the economic slowdown in carrier capital spending, resulting in reduced orders from equipment makers. Indeed, the company's book-to-bill ratio was "less than 1," Muller said.
But he emphatically stressed that JDSU hasn't lost any customers this quarter. Instead, higher inventories have resulted from existing customers stalling or refusing parts of their orders.
Straus and Muller insisted the core business of JDSU is strong. Of total sales, amplification and transmission (A&T) components accounted for 47 percent; while WDM (wavelength-division multiplexing), switching, and thin-film products accounted for 53 percent. The A&T group grew by 57 percent sequentially, while the second group grew 26 percent.
Muller also pointed out that JDSU's customer base is getting "more diversified." The company's top ten customers contributed 60 percent to revenues this quarter, compared to 70 percent last quarter. And only Alcatel SA (NYSE: ALA; Paris: CGEP:PA) now accounts for more than 10 percent of sales.
Still, Straus says changes need to be made to enable JDSU to "respond aggressively to difficult times." The changes include:
- Layoff of 5,000 employees worldwide. The layoffs, representing about 20 percent of JDSU's total workforce, will be divided about 50/50 between those engaged in creating passive optical components and those making active ones, JDSU says. However, Straus noted this morning that since there are more employees in the passive component side of the house, the actual number in that group would wind up higher. The layoffs are expected to start now and continue through September, in JDSU's first fiscal quarter of 2002. Also, according to Muller, "Some senior management people will be leaving the company."
In an interesting footnote, Straus noted that senior VP of strategy and integration, Zita M. Cobb, will be taking a "leave of absence" for at least one year, in part to go sailing on her boat. Straus made light of the sabbatical, which is apparently the second time Cobb's taken an extended leave during her career at the company. "Maybe I'll join her on her boat," he quipped.
- Elimination of overlapping product development. JDSU will consolidate product development at three sites: Ottawa will take on WDM and optical switching; San Jose, Calif., will take passive components for fiber amplifiers; and Victoria, British Columbia, will take on packaging of pump lasers.
- Movement of high-volume passive component manufacturing to China. JDSU has picked China as the locus of a high level of optical expertise along with a "favorable cost and tax environment." As a result, it will migrate as much manufacturing as possible there.
- Closure of 25 buildings worldwide. As a result of all this organizational reshuffing, JDSU will close facilities around the world. But execs insist these won't affect the company's major manufacturing sites.
Other measures. The company also will take a one-week shutdown in plants worldwide during the coming fourth quarter. Also, other "ongoing cost control measures" will be taken over time.
JDSU now expects fourth-quarter EPS to be roughly 5 cents on projected sales of $700 million -- a reduction of roughly 24 percent in sequential sales and 64 percent in EPS.
"Have we reached the bottom of the downturn? We're not sure," said Muller. He's not venturing any guidance for 2002.
Analysts generally laud JDSU's announced changes. "This needed to be done desperately," says Charles Willhoit of J.P. Morgan & Co. (Nasdaq: JPM). Up to now, he says, the company's fast growth has kept it from addressing the need to rationalize the cost structure, pull together the product lines in the wake of the SDL acquisition, and shift manufacturing to cheaper venues.
If anything, Willhoit's concerned most with the leave of absence of Zita Cobb. "I guess we'll have to see whether this is really temporary," he says. "She's been a very important part of the team, particularly behind the scenes. We'd be sad to see her go."
Indeed, there are signs that Cobb's vacation may not be temporary. This year alone, she's cashed in more than 200,000 shares of her stock, representing a payout of over $9 million, according to figures logged by Yahoo's online financial service. And Muller and Straus said the company is seeking within its executive ranks for someone to fill Cobb's shoes in her absence.
At midmorning, shares of JDSU were trading at 22.10, down 2.17 (8.97%).
- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com