After recently failing to supply Brillian
A week ago, Fool contributor Dave Marino-Nachison pointed out how the deal provides Brillian with some fiscal CPR as the business goes through some very lean times. This and other good news helped buoy the stock substantially.
But what does this deal mean for JDSU and its investors? On the one hand, licensing might not bring in as much revenues as sales, and may be contingent on the collection efficiency of Brillian. On the other, licensing entails lower sales and operating costs. Closer technical cooperation with Brillian should also help JDSU work out design and manufacturing bugs in its light engine technology. After enduring a visible execution disappointment with Brillian, this move could help JDSU streamline part of its bottom line, retain an important customer, and enhance its standing as a light engine supplier in the general market.
The deal does entail some limited downside risk for JDSU. While Brillian's liquid crystal on silicon (LCoS) display solution is presently the qualitative and cost-efficient gold standard, electronics giant Philips has its own, albeit lesser, LCoS solution and market presence. If Brillian's technical edge and business execution does not translate into market success, or if a larger competitor develops a superior solution, JDSU's investment in Brillian's light engine production might be written off, though JDSU's cash reserves should allow it to weather even a worst-case Brillian scenario. Still, inquiring minds would like to know what assets JDSU purchased and the extent of the material commitment JDSU has made to Brillian's light engine production.
Given the growing market for Brillian's products, and if Brillian's recent technical and business achievements portend a trend of profitable growth, the deal could reward JDSU handsomely. For JDSU, that would add an execution feather in its own market cap.
Fool contributor Michael Jaffe owns shares in JDSU.
