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JDSU: There's No Industry Slowdown

Light Reading
News Analysis
Light Reading
10/26/2000

There’s no doubt about it: Nervous investors were looking for good news from JDS Uniphase Inc.’s (Nasdaq: JDSU) first-quarter earnings call for the fiscal year 2001 on Thursday.

It looks like they got it. On the company’s earnings call, JDSU executives maintained that the optical components industry is in good health. “We do not see and cannot find any evidence of an industry slowdown,” said JDSU president and chief operating officer Charles Abbe.

JDSU reported earnings of $0.18 per share, beating Wall Street’s expectations by two cents. The company reported pro forma net income for the quarter was $177 million, or 18 cents a share, on revenues of $786 million. Those figures marked a 171 percent jump from JDSU’s year-ago earnings of $65 million, or 8 cents a share, on sales of $290 million.

On the strength of its sales, JDSU raised its forecast for its second quarter net earnings from 17 cents a share to 19 or 20 cents a share.

All day long, investors weren’t sure what to do with their JDSU holdings, and the stock was a focus of the market as a whole. JDSU was the single most active stock on the Nasdaq Thursday, trading at more than four times its normal volume. The solid earnings report looks to bring some welcome relief to the optical sector. JDSU shares were trading up nearly $8, to $82.50, in after-hours trading on the Island ECN.

After plummeting more than 20 percent on Wednesday, JDSU shares traded up $3.44 to $74.44 on Thursday. JDSU shares have risen more than 107 percent since their year-ago price, but they’ve also lost more than 45 percent of their value in the past three months.

Investors were clearly worried after hearing Nortel Networks Corp. (NYSE/Toronto: NT) say on Tuesday that its third-quarter revenues didn’t meet Wall Street's expectations (see Nortel's Fright Night). This came right after Lucent Technologies Inc. (NYSE: LU) announced its fourth consecutive earnings shortfall, which led to the ouster of its CEO Rich McGinn (see McGinn: McGone and McGinn Backed Lucent Competitor).

JDSU, whose optical components and modules are the basic building blocks of fiber optic networks, both competes with and supplies products to Nortel and Lucent. Each accounted for more than 10 percent of JDSU’s net sales for its quarter ended June 30, 2000.

During its earnings call, JDSU said that in addition to Nortel and Lucent, Alcatel SA (NYSE: ALA), also made up at least 10 percent of its sales for the first quarter 2001.

The company maintained that, during its most recent quarter, its lead times for shipping products were not getting longer and its gross margins weren’t slipping. But now’s no time to rest, they say. “Our biggest challenge is expanding [manufacturing] capacity fast enough to meet the needs of our customers,” Abbe said.

As of June 30, 2000, JDSU’s backlog (purchased products that haven’t been shipped) was approximately $931 million, compared to a backlog of approximately $156 million a year ago.

-- Phil Harvey, senior editor, Light Reading http://www.lightreading.com



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