JDSU Writes Off Billions More

Optical components maker JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) announced three write-downs today - an accountant's way of saying that several aspects of JDSU's business and investments are much less valuable that the company once thought (see JDSU: More Goodwill Writedowns).

These write downs include:

• An additional $4.2 billion in goodwill for the quarter ended June 30, 2001 and $1.1 billion for the quarter ended March 31, 2001,
  
• About $76 million in excess inventory and related charges, and
  
• Reclassifying the $512 million related to some Nortel Networks Corp. (NYSE/Toronto: NT) stock that JDSU held from an "unrealized loss" to a "realized loss."
  
  

The goodwill write-down is a staggering figure, but not one that will impact JDSU's operating earnings since it stems from all-stock acquisitions. By writing off the goodwill, JDSU is acknowledging that by acquiring OCLI, SDL, and ETek, it paid billions more in stock than what each company's assets were actually worth (see JDSU's Acquisition Hangover).

It's important to remember that the portion of the company that JDSU gave up for each acquisition is still about the same -- even after significant drop in stock prices, says Max Schuetz, vice president of equity research at Credit Suisse First Boston.

JDSU's excess inventory charge is a bit more alarming since it signals that JDSU now thinks that the demand for some of its components is less than it was last quarter. Schuetz says this is probably a signal that the market for metropolitan optical networking gear is seeing an impact from the carrier spending slowdown. "We already knew from last quarter that the long-haul sector was horrible," he says.

The final JDSU item means that some $512 million worth of stock, acquired from the sale of Nortel's Zurich plant, is being recognized as a loss. The bad investment will count against JDSU's earnings, but it will be accounted for as a one-time charge.

JDSU's new goodwill write-downs will probably widen its $50.6 billion ($46.50 per share) loss for the last fiscal year, but as big as the numbers are, they are expected, given how extensive JDSU's restructuring has been thus far (see Sizing Up JDSU's Massive Loss).

The company has shed about 15,000 employees since the beginning of the year and Wall Street analysts expect the company to report a loss of 3 cents a share for its first fiscal quarter of 2002 during its October earnings call.

Shares of JDSU dropped $0.03 (0.56%) to $5.32 in early afternoon trading on Wednesday.

- Phil Harvey, Senior Editor, Light Reading
http://www.lightreading.com