BREAKFAST WITH THE FOOL
Friday, October 29, 1999
"We must either find a way or make one."
JDS Uniphase Rides Fiber Optic Wave
Richard McCaffery (TMF Gibson)
Investors whose eyes glaze over at the mention of fiber optic communications should check out JDS Uniphase's (Nasdaq: JDSU) latest annual report, which does a good job explaining this difficult but blazing-hot sector.
Last night, the fiber optic component maker reported fiscal first quarter net income (pro forma, excluding merger-related and amortization charges) of $51 million, or $0.29 per diluted share, up 121% from $23 million, or $0.14, a year ago. The mark beat the First Call/Thomson mean estimate by $0.04 per share.
Sales for the quarter reached $230 million, up 104% from pro forma sales of $113 million last year, and 20% higher than Q4 sales of $192 million. Growth in the San Jose, California company's component and module business whipped sales to higher levels, according to management, as its strategy of integrating components into modules pays off.
What the heck does that mean?
The components JDS makes -- gadgets like transmitters, couplers, semiconductor lasers, and multiplexors -- are the building blocks of fiber optic networks, and demand for these networks is exploding as the Internet grows.
It all comes down to speed, capacity, and management. Fiber optic strands, basically strands of glass, transmit pulses of digital information at the speed of light. A single strand not only transmits data much faster than a standard wire cable but carries more information.
As a result, telecommunications companies and cable television operators are rapidly switching from copper to fiber. Over 44 million kilometers of fiber were installed worldwide by the end of 1998, and Kessler Marketing Intelligence expects this number will grow to 67 million kilometers by 2001.
As competition increases, carriers like MCI WorldCom (Nasdaq: WCOM) and AT&T (NYSE: T) are demanding more complete and easier-to-install networks from their original equipment manufacturers, companies like Lucent (NYSE: LU) and Nortel (NYSE: NT).
These players, in turn, need to focus on overall system design rather than integrating all the separate components. So companies like JDS Uniphase are increasingly integrating the components into modules to deliver a more complete solution to their customers. Voila, big growth.
Thanks largely to the sale of 8.4 million shares of common stock in August, JDS has $959 million in cash, equivalents, and short-term investments on its balance sheet. The company is in a nice position to put the cash to good use since it has no long-term debt.
Adjusted for splits and dividends, JDS' stock has soared from $24 3/4 a year ago to close at $145 9/16 yesterday, a brisk 488% climb in 12 months.
News to Go
Name-your-price retailer Priceline.com (Nasdaq: PCLN) reported third-quarter revenue of $152 million, up more than 1,000% from last year and 36% from the second quarter. Net loss (excluding non-cash charges) was $11.9 million, or $0.08 per share, a little better than analyst estimates of $0.10 per share.
Natural foods market operator Wild Oats (Nasdaq: OATS) signed an agreement to acquire Sun Harvest Farms in a $21.5 million stock exchange. Sun Harvest operates nine natural foods markets in Texas.
Leading Internet portal operator America Online (NYSE: AOL) announced plans for a two-for-one stock split that will take place on November 22. The number of outstanding shares will jump to about 2.2. billion.
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