JDSU Says EDFAs Fixed

JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) officials today said that problems associated with their Erbium Doped-Fiber Amplifiers (EDFAs) have been fixed.

"We understand the problem and it is behind us," says JDSU spokesman Jeff Wild. While refusing to give specifics, he acknowledges there was trouble with a component that JDSU became aware of at roughly the time of the Marconi recall. He says the problem only surfaced in specific designs and applications and that once JDSU became aware of it, customers who would have been affected were notified and provided with retrofitted parts, as well as help.

As reported here at Light Reading last night, Marconi PLC last year recalled amplifiers containing the parts made by JDSU. The news was partially responsible for a sell-off in JDSU shares early this morning and elicited a mixture of responses from financial analysts, vendors, and JDSU itself. But shares of the company recovered and finished the day nearly flat, down $0.01 (-0.14%) at $6.99.

Wild says the problem was solved in 2001, although he won't say how or when. "We see this as in the past. When you push the state of the art of optics, some problems can occur. The key was our responsiveness," he says.

One lingering question, however, may be whether there are still any faulty components left in the field. JDSU has likely sold thousands of EDFAs and related components to dozens of telecom equipment suppliers over the years.

Although JDSU officials confirmed the case of the recall at Marconi, the company would not give details about the specifics of which components failed and why, nor would it list which companies had bought the components.

Light Reading has learned that at least one other vendor, Nortel Networks Corp. (NYSE/Toronto: NT), is "aware of the problem," though it downplayed its seriousness. Nortel today issued this statement:

We are aware of the problems with some JDSU EDFAs. And, no, there has been no impact to our OPTera Metro 5000 platforms. We also checked and there has been no impact with our OPTera 1600 and 4000 long haul platforms. We are working with our suppliers to ensure there is no impact to our customers going forward.

The Nortel spokespeople characterized the situation as "not a big issue." They did not respond to additional queries asking for the particular timeframe in which the problems arose.

Lucent Technologies Inc. (NYSE: LU), also contacted for this story, says that it chooses not to respond at this time.

Reaction on Wall Street was widespread, as analysts tried to assess the severity of the problem.

James Jungjohann and colleagues at CIBC World Markets sized up the situation as a market overreaction: "We note this is relatively old news, and the company fixed the problem last year. The market had a knee-jerk reaction to the story."

In a note issued this morning by the technology group of Credit Suisse First Boston, analysts wrote: "JDSU was trading down to $6.50 today on a recent story of recall by Marconi on some JDSU amplifiers deployed by Telecom Italia. We believe that the supposed cause of failure (epoxy breakdown in the coupler filter) is unlikely, since generally epoxy is not used in the single path of amplifiers. Even if some parts were recalled, we believe that the number involved is limited and does not extend to JDSU EDFAs at other OEM customers." Credit Suisse upgraded JDSU from Buy to Strong Buy.

In a note titled "Some Smoke, No Fire," UBS Warburg analyst Joseph Wolf stated: "While any product defects should be an area of investor concern, we believe that this particular incident can primarily be characterized as a customer relationship issue that JDS has already addressed." The firm maintains its Buy rating on JDSU shares and even indicates that the firm "would be buyers of the stock on weakness due to the article."

Wolf indicated that the story may have been doing the rounds prior to this publication's article: "We believe that speculation regarding the described incident was partly responsible for JDS' weakness prior to the release of its F2Q02 results," Wolf states in his note.

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com