JDS Woes Kick Up More Intel Talk
Last night, for the quarter ended Sept. 30, JDS reported losses of $521 million on sales of $193 million, compared with losses of $1.2 billion on sales of $329 million for the year-ago quarter (see JDSU Sales Fall in 1Q).
Analysts were particularly disappointed that non-telecom products, now representing about half of JDS's revenues, fell slightly from the previous quarter. "We thought that was a nicely growing business, and it showed some volatility," says James Jungjohann, an analyst with CIBC World Markets.
Moreover, JDS official said they would have to cut additional jobs, not specifying numbers. JDS's employment rolls are down to 8,000, from 20,000 at midyear 2001.
As JDS continues to sink like a Taco float at the World Series, maybe it's time to revisit the Intel theory -- one that analysts have kicked around for some time. It's a minefield of what-ifs, but if Intel wanted to become a broad optics supplier, JDS would be a one-stop shop.
Intel's definitely interested in optical networking, particularly the transceiver market (see Intel's 10-Gig Shopping Spree), but hasn't indicated interest in a JDS-sized acquisition.
Some analysts ask why Intel has been bothering with all the startups it's been buying, when it could instantly buy the market leader.
"It would be the smart move, instead of buying up all these B-grade companies," Jungjohann says (see Intel Scoops Up New Focus Laser Unit and LightLogic Bulks Up Under Intel).
"They have spent considerable dollars, in absolute terms, thinking about optical," says Joseph Wolf, analyst with UBS Warburg. "The question is timing. Intel can take a long view on this."
Jungjohann agrees. "They know time is on their side. They would wait for JDS to get its businesses lean and mean."
In a sense, JDS is lucky that Intel hasn't dived into the fray already. In a note regarding TriQuint Semiconductor Inc.'s (Nasdaq: TQNT) purchase of Agere Systems' (NYSE: AGR) optical division (see TriQuint to Acquire Agere's Optics), Jungjohann points out that "very recent speculation was that Intel would look to purchase the Opto unit -- putting it in direct competition with JDSU and potentially building a much larger opto franchise.
"Selling to a tier 2 player like TriQuint should keep investors interested in JDSU's long-term [dominant] industry position."
JDS's size is the lynchpin of investors' hopes. "While competitors will always remain, we believe that JDS’s long-standing footprint, combined with a balance sheet that implies staying power, could extend its leadership position within the industry as both larger and small players continue to exit," analyst Jeremy Bunting of Thomas Weisel Partners says in a note.
Still, investors might be overdoing it, having driven JDS's stock price up 50 percent in the past month, to $2.20 a share.
As for restructuring efforts, analysts could offer little solace. The company's current slim-down plan is aggressive but probably not enough.
"Keep cutting and cutting," Jungjohann says. "It's a tough, tough company to reorganize because of all the acquisitions they made. You've got to unwind them. They're going to be down to eight to 10 facilities, and you still have to figure out if that's the right number."
Sadly, most of JDS's recovery prospects hinge on the timing of the telecom recovery, and there's precious little the firm can do to accelerate that. "Their place in the food chain is their place in the food chain, and that's part of the risk in investing in this part of the industry," Wolf says. "There' s not much that can be done from the components end to stimulate demand."
Maybe JDS and its investors can take heart from the knowledge that design activity continues out in the world -- it just isn't turning into big orders yet.
"When you look at these businesses as stocks, you say there's not much going on," Wolf says. "But decisions are being made by designers daily, and innovation is taking place."
— Craig Matsumoto, Senior Editor, Light Reading