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Optical/IP

Next Sore Spot: JDSU?

With earnings season approaching, the telecom and optical networking markets look to be facing another round of bad news. And evidence points to another weak quarter for JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU).

JDSU has not updated its earnings forecast since the close of its second fiscal quarter at the end of the December. But many remain skeptical that the company will meet its target of about $250 million in revenue in the quarter ending March 31, which it will report on April 25. Here’s why:

  • In the past, JDSU’s two largest customers have Nortel Networks Corp. (NYSE/Toronto: NT) and Lucent Technologies Inc. (NYSE: LU), though those company no longer account for more than 10 percent of net sales, according to the last 10-Q form filed by the company. Lucent recently warned of lower-than-anticipated revenues in the current quarter (see Lucent Weighs on the World), and good things are not expected from Nortel (see Nortel: Dark Rumblings From Ottawa).

  • ONI Systems Inc. (Nasdaq: ONIS), which also does business with JDSU, has warned as well (see ONI's Facing a Drought).

  • In general, industry fundamentals have deteriorated further, as witnessed by the recent earnings shortfalls and financial problems at leading telecom carriers (see Carrier Crisis: Who's Most at Risk?).

  • JDSU is the leading components player in the optical market, which shows signs that it has still not hit bottom. Analysts point to continuing weakness in the sector, which makes it difficult for any companies to reach their quarterly forecasts.

”There’s not much good happening in the end market -- and OFC was not encouraging,” says Conrad Leifur, an analyst with U.S. Bancorp Piper Jaffray, commenting on the general telecom environment. “The question is still: Are we in a freefall, or have we started to bounce along the bottom? I’m not getting the sense we’re seeing the same rate of decline.”

Leifur, who declined comment on whether JDSU would hit its number, has JDSU ranked as a Market Perform.

Elsewhere, sources point to talk that JDSU revenues may dip as low as $200 million by the time the cycle has bottomed. “They are still so closely tied to Nortel, and I’ve only heard bad things about that,” says one hedge-fund manager who asked not to be named. He predicted that JDSU would fall short of estimates this quarter.

The company said at the end of the second fiscal quarter, in December, that it expects third-quarter sales to be approximately ten percent to fifteen percent lower than those of the second quarter, when the company reported revenues of $286 million. Such a decline would put them in the $243 million to $256 million range.

The company had not responded to calls on this article by press time.

— R. Scott Raynovich, US Editor, Light Reading
http://www.lightreading.com
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