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Test & Measurement

JDSU Buys Into Testy Market

Buying big once again, JDS Uniphase Corp. (Nasdaq: JDSU; Toronto: JDU) is launching a major test-and-measurement play with the $760 million acquisition of privately held Acterna Corp. (see JDSU to Acquire Acterna).

The deal, worth $450 million in cash and $310 million in stock, is expected to close in September. Acterna CEO John Peeler would remain with JDSU to head the "newly formed communication test and management product group," JDSU chief executive Kevin Kennedy told analysts on a conference call today.

Acterna's inclusion would give test a new status within JDSU. "That has been not a central sales focus for us and will be a central sales focus for John," Kennedy said.

Acterna is no small fish, with 1,770 employees and revenues of $440 million for the year ended March 2005, an 8 percent gain from the previous year.

JDSU's test-and-measurement plays so far have involved products sold to equipment vendors. Acterna, by contrast, sells directly to service providers including cable operators, opening some key new markets for JDSU. Moreover, Acterna would provide some diversification. JDSU's communications sales depend largely on the big equipment vendors, but Acterna gets 80 percent of its revenues from 250 customers, Kennedy said.

Given that Acterna is pro forma profitable with gross margins exceeding 50 percent, the acquisition also would speed JDSU's drive to profitability, Kennedy said.

Of course, big-ticket acquisitions got JDSU in trouble after the telecom crash. As the values of its purchases plummeted, JDSU was forced to write off tens of billions of dollars in goodwill and lay of tens of thousands of employees (see JDSU's Acquisition Hangover and JDSU Writes Off Billions More).

In slowly working its way back into the acquisition game, JDSU has played for smaller stakes, such as this year's $65 million buy of Lightwave Electronics (see JDSU Buys Lightwave Electronics and JDSU Grooms Tiny Acquisitions).

"We do not underestimate the challenge of integrating a company of this scale and breadth," Kennedy said, adding that JDSU will withhold details of the integration until the deal closes.

— Craig Matsumoto, Senior Editor, Light Reading

deauxfaux 12/5/2012 | 3:13:54 AM
re: JDSU Buys Into Testy Market I thought that those guys had some big debt problem hanging over their heads (a convert....that wouldn't) and had to go into CH11.

lastmile 12/5/2012 | 3:13:52 AM
re: JDSU Buys Into Testy Market To the best of my knowledge Acterna emerged from Ch. 11 Oct '03 and they have done wonders ever since.
deauxfaux 12/5/2012 | 3:13:52 AM
re: JDSU Buys Into Testy Market Thanks for the update.
farfields 12/5/2012 | 3:13:38 AM
re: JDSU Buys Into Testy Market Let's reword that final comment:

"We do not UNDERSTAND the challenge of integrating a company of this scale and breadth," Kennedy said, adding that JDSU will withhold details of the integration until the deal closes.

Maybe what happened is that JDSU attempted to pass off their test components division to Acterna, and John Peeler said OK, but you'll have to buy us first!

There is no overlap in design, manufacturing or sales with this. And if the top management is not being trimmed either, then who has won here apart from the Acterna banks?
listenfirst 12/5/2012 | 3:13:32 AM
re: JDSU Buys Into Testy Market Mr. Greenjeans - You said:

"There is no overlap in design, manufacturing or sales with this. And if the top management is not being trimmed either, then who has won here apart from the Acterna banks?"

I'm not quite sure how much you understand the test and measurement industry, so here goes:

Acterna revenue: approx. $450 million/year
Acterna product makeup: 50% optical test and measurement platforms
Equals: Millions spent in optical components

The synergies should be obvious: access to engineering talent, cutting edge components, and an increase to the customer base for JDSU. There are also overlapping customers, as Acterna sells effectively into the equipment manufacturers. Also, JDSU wants to expand mfg overseas, and Acterna has been there for a while.

lastmile 12/5/2012 | 3:13:25 AM
re: JDSU Buys Into Testy Market farfields
I have been an avid reader of LR for many years and I have responded to many a comment with insufficient knowledge because I do not belong to the IT industry.
Even though my comments have been out of place many times, I have been involved in discussions and I am glad that so many readers have helped me clear my doubts.
As far as Acterna is concerned, only JDSU knows what this company is about. No private company discusses their finances in the open. As a public company in the past, they filed for ch.11 and after they recovered they survived with profits with massive revenue.
There is something that I,you,LR and the analysts do not know.
We need another 2 more quarters to analyze this merger/acquisition.
farfields 12/5/2012 | 3:13:01 AM
re: JDSU Buys Into Testy Market Thanks for taking the time to comment, I appreciate the discussion. I realise my original comment was a little abrupt with not much explanation, so let me expand a little more. I'm not attempting to make a detailed financial analysis on this, but I do have an intimate knowledge of T&M development.

Although JDSU is a larger company that Acterna, the T&M business is highly specialised and requires a great deal of detailed knowledge of the end users requirements and the technology available to meet those needs. Acterna will now have access to this capability at JDSU, but the JDSU engineers are likely to view that as a drag on their own activities with little increase in volume sales (T&M is a niche business with low volume/high margin sales) So "millions spent on optical components"? Not as much as you might think; taking your figures- $450m at 50% optical, but these products will be high margin of 75%, of which the optical components may account for 20% of cost at best, i.e. now the value to JDSU sales is $11m, or probably much less - is it still significant? (how much JDSU is already used, and could all components be replaced like for like by JDSU?)

I have no doubt that optical design, manf. and sales is highly specialised, but the out-sourcing of PCB stuffing is very different from the clean room needs of optics. So what will JDSU learn from Acterna? The real experience of out-sourcing at Acterna was that product lead times became horrible, and the only deliveries made for a long time was of back-logged stock left over from 2000/1. Once the manf. plants were up to speed quality fell, until the new suppliers were familiar with the products. Not something to be repeated.

Acternas customers are mostly Network operators. JDSUs are mostly Vendors. No overlap, except where Acterna sells to the customer support divisions of vendors. Acternas products will have to work with any and all suppliers products, making JDSU specific products will narrow their customer base.

(As an aside - for those familiar with the recent closure of UK Rover cars will recall the 'synergies' touted as justification when British Aerospace bought the car company. BAE gained nothig except political points for bailing out a problem for the government, and it's been downhill since for the car company.)

I can only think that the top guys at JDSU see a good fincial deal somehow, but any company overlap in operations has to be fantasy. My best regards to those in JDSU and those in Acterna, but each should stick to what they know best and don't get distracted from serving your own customers to the best of your abilities.

(going back to the car analogy - You buy a Ford with Bridgestone tyres, will you use Bridgestone for replacements? Not necessarily. Why should the Ford customer care what deal Bridgestone made to get a sale? Same argument for why would the Acterna customer care about a deal to use JDSU components?)

regards.
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