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
http://www.lightreading.com