JDSU Weighs on Optical Sector
Recovery in sight in the optical sector? Not quite, according to some disappointing results -- and guidance -- from optical components giant JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU).
JDSU last night reported a pro forma loss of $260 million or $0.20 per share on sales of $329 million for its first fiscal quarter 2002 (see JDSU Slides Out of Q1). And execs are guiding Wall Street to expect sales to fall another 10 to 15 percent next quarter, as the industry downturn continues.
The latest sales results are 45 percent lower than last quarter's figure (see Sizing Up JDSU's Massive Loss).
There wasn't much new insight into the decline, other than the ongoing slowdown in capital spending by telecom carriers.
"Our industry continues to be affected by declining carrier capital spending," said CEO Jozef Straus in a prepared statement. And in last night's conference call with analysts, he said he doesn't expect to hit bottom of the present trend until the third quarter, ending March 2002.
Still, Straus and other JDSU execs point to a strong cash position and say they're pressing on with an aggressive restructuring program and a slew of new product offerings in anticipation of a rebound in demand for optical components next year.
"We have remained cash-flow positive despite a significant sales decline," asserted CFO Anthony Muller on last night's call. "And more importantly, our operating leverage has improved."
JDSU says it closed the quarter with $1.6 billion in cash, money market, and "other highly liquid securities," and it generated $66 million in quarterly cash flow from operations.
Now, the company's strategy is to forge ahead with the restructuring program while ramping up plans for new integrated optical components. Execs say they're focusing on a new set of demands from OEMs for products that are faster and cheaper and will help build carrier gear that squeezes more mileage out of telecom networks.
So far, JDSU says it has spent $778 million on restructuring, closing 17 of 41 plants worldwide and putting the remaining facilities on one shift per day. It's also slashed more than half of its workforce, cutting 16,000 employees to reduce a population of 29,000 to roughly 13,000.
JDSU isn't averse to cutting even more, execs say. And it plans to keep ahead of the curve by continuing to use contract manufacturing and lower-cost international labor as much as possible. For instance, the company is relying on plants in China for 10 percent to 15 percent of its manufacturing. And in last night's call, execs said that level could double by the fourth quarter 2002.
JDSU says these measures already have reduced its annual expense rate by $600 million and are aimed at allowing the company to achieve operating income at a breakeven level of $350 million in quarterly sales. But Straus says JDSU won't start showing the benefits until its fourth quarter next spring.
JDSU says it's not leaving its future hanging while it waits for better days. It's realigned R&D along two key product groups: transmission and network components, which accounted for 74 percent of this quarter's revenues; and thin film products and instrumentation, which accounted for 26 percent.
The company says it plans to spend 15 percent of sales through yearend 2002 to launch new products such as 10- and 40-Gbit/s transmitters and modulators, tunable components, smaller-footprint and lower-power lithium niobate modulators, more sensitive transmitters and receivers, and higher-powered and uncooled pump lasers.
Analysts say JDSU's hanging tough, and they generally applaud the company's restructuring efforts so far. Still, they're not predicting a major shift upward in the company's fortunes in the near future.
"JDS Uniphase's management is doing a terrific job of resizing the company and maintaining its strong cash position," says David Jackson of Morgan Stanley Dean Witter & Co. He says the company's prediction of lower sales only disappoints those investors who've unrealistically expected recovery in this market too soon (see Morgan Warns Against Early Optimism).
Gauging by today's market performance, investors were disappointed indeed: By late morning, JDSU shares were trading down $0.95 (9.54%) to $9.01.
— Mary Jander, Senior Editor, Light Reading