Earnings reports

Sizing Up JDSU's Massive Loss

JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU) reported a stunning $50.6 billion loss in its year-end financials last night (see JDSU Closes Fiscal Year).

The sheer size of the loss, emanating in part from investments the company made in last year's optical frenzy, had analysts pointing yet again to the size of the shrivelled balloon that once contained an industry's expectations.

One investment banker made this comparison in an email forwarded to his colleagues, and then anonymously to Light Reading:

    Our estimate of the market value of the entire offshore drilling segment is about $35 billion (after accounting for a decline of 30 to 50 percent from most of the companies during the last several months). JDSU just lost $50.6 billion. That is 1.5 times the entire offshore drilling industry and a little over 1/3 the entire market value of the oilfield drilling industry.

How did this happen? In JDSU's case, a key negative factor appears to be the company's acquisitive appetite, as demonstrated in the merger with SDL and the purchase of E-Tek and OCLI, all of which came to fruition this year, along with many others (see Inside JDSU's Secret Acquisitions).

Market downturns and resulting reductions in how these acquisitions were valued clearly contributed to JDSU's whopping loss. In its own words, the following ingredients went into the witch's brew: "reduction of goodwill and purchased intangibles, merger-related charges, realized and unrealized losses on equity investments, gain on the sale of a subsidiary, purchased intangibles amortization, payroll taxes on stock option exercises, stock compensation charges, and activity related to equity method investments." In it all went, and out came losses of $50.6 billion ($46.50 per share) for the fiscal year and $7.9 billion ($5.99 per share) for the quarter.

Other items in JDSU's report weren't so bad, comparatively speaking. For the year, the company reported sales of $3.2 billion, 83 percent above pro forma sales for 2000. But quarterly sales of $601 million dropped 35 percent sequentially, thanks to the waning fortunes of key customers, such as Nortel Networks Corp. (NYSE/Toronto: NT).

Executives said the company will continue an aggressive restructuring program, including the layoff of 7,000 more employees in the upcoming quarter -- which will bring JDSU's layoff total to more than 15,000 since January 1, 2001.

Analysts weren't surprised by the report. "JDSU's restructuring should work well, but it's going to take awhile. We won't see any significant improvement until the middle or second half of 2002," says analyst David A. Jackson of Morgan Stanley Dean Witter & Co.

Meantime, investors gave JDSU's results a raspberry: This afternoon, shares were trading at $8.38, down 1.09 (11.51%).

- Mary Jander, Senior Editor, Light Reading
myresearch 12/4/2012 | 8:01:41 PM
re: Sizing Up JDSU's Massive Loss Most of the companies in telecom lost Billions of
dollars in value? So what is the big deal here.
Look at cisco, lucent and nortel. Note that
all the accqusitions were done with stocks; its paper money anyway. This is really an accounting
adjustment with no material effects. What's
important is their burn rate, cash reserve and
breakeven point.

jmd 12/4/2012 | 8:01:40 PM
re: Sizing Up JDSU's Massive Loss After the barfing is over and the analysts have move on to the next party because of the GÇ£shriveled balloonGÇ¥ we will still have JDSU as one of the most instructive events ever in the history of business and I mean that in a most positive sense.

Who blew up the balloon anyway? (hint: Anal*sts)It must be great to have a job were you can go to the party and then make like you weren't there when the sh*t hits the fan...
pablo 12/4/2012 | 8:01:34 PM
re: Sizing Up JDSU's Massive Loss ".. its paper money anyway .."

If it was as easy, it would not wind up on a balance sheet. Companies don't just write off mere stock depreciation.

The company made a very real investment leveraging its [investors'] stock, and that investment has proven worthless. The entire board and management team ought to be held accountable for debacles like this.

"Paper money"... if we *ever* want the investment climate in our industry to get better, we ought to take investors' money far more seriously... this was and is very real money. This is an utter and total debacle, and a very questionable practise.

To me, what is really going on is that these management teams are now busy devaluating their own stock with outrageous public appearances (did you see the JDSU officials - their public demanour was disgraceful), will probably geneerously allocate themselves stock options at the lowered price, and then profit mightily when they predictably start talking their own company up again, and predict high growth and full visibility to a market anxious to hear such news. It's disgracefully dishonest, and might sink the credibility of the industry for a *very* long time.

Everybody that is busy working his ass off in a company -trying to benefit from the eventual market upturn and success sometime down the road through hard work- ought to be upset that these clowns are trying to so greedily shortchange investors, because it will affect our collective pockets.
[email protected] 12/4/2012 | 8:01:29 PM
re: Sizing Up JDSU's Massive Loss Amen bro'.

I see a parallel between some of these managements teams and college students who ran up a bunch of debt and never once considered the consequences of when the bill would come due.

However, whatever the problems of the past are, we still are going to need to focus on what's next and how do we get there. Sure, buy JDS. Corning and Corvis at bargain prices. You might see a bump there and in the case of the first two, a real appreciation in 5 years...just like the way that we used to do it.....long term thinking.

Note to Lightreading.....I notice with some amusement that you are throwing another gig in a few weeks. Lots of "hot" start ups. (You should really say companies that are in flames) Lots of CEOs and CTOs (Most of whom probably did well working the nightlub scene with the quality of their BS) and whatever marketing schlock that you can come up with to get people to fork out $$$ to hear the same tired stories about the telecom downturn and other sad excuses.

Can you tell us what serious Service Providers will be there to talk about the future or will this be another Vendor love in that tells the world nothing more than it doesn't already know? Great opportunity to make a difference and perhaps even get the industry on a better track.

Titanic Optics 12/4/2012 | 8:01:24 PM
re: Sizing Up JDSU's Massive Loss Easy--the bubble burst! This happened across technology companies--remember when Yahoo! was worth more than GM and Amazon was worth more than Boeing?

JDSU's saving grace is that in "normal" times, it is a profitable company, and, unlike dot-coms, it doesn't really have a cash burn issue. It does right now, but they should be able to restructure and take care of this. Historically, JDS, Uniphase, E-Tek, and SDL were all profitable. Especially JDS-Fitel.

Of course, if we have a meltdown in carrier capex and the RBOCs re-monopolize everything and then fail to roll out new technologies, well...
pablo 12/4/2012 | 8:01:23 PM
re: Sizing Up JDSU's Massive Loss ".. JDS, Uniphase, E-Tek, and SDL were all profitable .."

And so were Cisco and Nortel and Lucent. Just because they once stood proud doesn't mean they will *all* come back strongly.

And this all has little to do with the soundness of the company, or whether strategies were right or wrong. What is wrong here and now is the way these executives, once their companies have taken the hit, purposedly make *sure* that the stock bottoms. They want to ensure return to growth perception ASAP, which isn't bad per se, but is manipulative to the point of being very questionable, and something the SEC ought to take a look at.
LightWatchman 12/4/2012 | 8:01:17 PM
re: Sizing Up JDSU's Massive Loss Well then Iv been wiping my ass with $100 Dollar Bills, 800 so far, thats some expensive paper and alot of shit if you ask me!

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