Shares of JDS Uniphase Corp. are up $2.24 (18%) at $14.64 Thursday morning -- their highest level since March -- as the company reported a relatively good outlook for its businesses, including optical components.
Note the word "relatively." For its third quarter, which ends in March, JDSU thinks its Communications and Commercial Optical Products (CCOP) division will see revenues flat with the December quarter, give or take 3 percent. That's despite price declines of 5 percent that are expected to hit this quarter, due to the annual renegotiation of optical components prices.
"We think they are seeing improved visibility on  already," writes Alex Henderson of Needham, in a report issued Thursday morning. He'd expected CCOP revenues to be down 3 percent in the quarter.
Carriers are expected to increase their spending in 2013. Early signs of that include Deutsche Telekom AG pushing its capital expenditures plan to €30 billion (US$40.7 billion), and AT&T Inc. promising to put more money into wired and wireless access. (See DT's €30B Plan Wraps LTE With Vectoring and AT&T Puts Up $14B to Boost Broadband.)
Much of that spending won't start until the second quarter, so JDSU isn't seeing a benefit from it yet. "Given short lead times, management is not worried and expects orders to pick up fairly soon," analyst Michael Genovese of MKM Partners wrote in a Thursday morning report.
But let's get back to the word "relatively." Optical communications revenues for the second quarter, which ended Dec. 31, were $155.6 million, down 5 percent from the previous quarter. On top of that, the book-to-bill ratio for the segment was less than 1.0, a sign that orders are slowing down.
A lot of that has to do with customers moving to vendor-managed inventory (VMI), a cool business-school term for foisting inventory responsibilities onto one's suppliers. It means the customer won't stock big inventories of components, which in turn means sales will temporarily dip when the transition is made.
In JDSU's second quarter, for instance, sales of reconfigurable optical add/drop multiplexers (ROADMs) fell to $31 million, down 23 percent from the previous quarter, with about half of that decline attributable to VMI, executives said on Wednesday's earnings call.
Forty-six percent of JDSU's optical revenues are now managed under VMI, executives said.
For its second quarter, JDSU reported a profit of $4.1 million, or 2 cents per share, on revenues of $429.4 million. For the same quarter a year ago, JDSU reported a loss of $10.2 million, 4 cents per share, on revenues of $409.3 million.
Non-GAAP earnings per share of 18 cents beat the analysts' estimate of 14 cents tallied by Thomson Reuters.
— Craig Matsumoto, Managing Editor, Light Reading