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JDS Uniphase at a Loss

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By Jeff Hwang (TMF CamX)
July 26, 2002

As the telecom value chain continues to implode, JDS Uniphase (Nasdaq: JDSU) reported yet another unsurprising quarter of losses yesterday. In fact, the losses were so ugly, they didn't even make the front page of the company's press release.

Excluding one-time charges, the fiber optics components maker lost $0.10 per share -- badly missing estimates -- while revenue fell 15% sequentially and 63% year over year.

Over the past several quarters, JDS Uniphase has suffered from a severe drop in demand from its large but unhealthy customers -- namely Lucent Technologies (NYSE: LU) and Nortel Networks (NYSE: NT). Unfortunately, Lucent and Nortel are facing financial problems of their own because of the complete collapse of their telecommunications customers. That list of superstar capital destroyers includes Qwest Communications (NYSE: Q), Sprint (NYSE: FON), and the now-bankrupt WorldCom.

JDS Uniphase itself is in the midst of a massive global restructuring, which, in a little over a year, has seen its employee base reduced from 29,000 to 9,000. Over the next 18 months, the company will reduce pro forma cash flow breakeven from $250 million to $200 million in quarterly sales, and cut operating breakeven from $300 million to $260 million-$270 million.

The company appointed former Executive Chairman of ON Semiconductors Syrus Madavi as its new president and COO, replacing Gregory Dougherty, who left the company to spend time with a sick family member. In addition, CFO Tony Muller announced plans to retire by the end of the quarter.

Looking ahead, sales for the first quarter of 2003 are expected to fall -- again -- to $200 million-$210 million, with a pro forma operating loss of $0.06 to $0.08 per share. Suffice it to say, JDS Uniphase is not thriving. However, with a $3 billion market cap, it's reasonable to think that an investor with a long enough investing timeline and a stomach for extreme volatility may be looking at value in its shares.

By most accounts, JDS Uniphase has a superior product portfolio and strong balance sheet: The company has $1.45 billion in cash and short-term investments and zero debt. In the last quarter, it actually generated $14 million in cash from operations -- a relatively impressive feat given the circumstances, even if $45 million came from tax refunds. That said, aggressive cost cutting will allow the company to, at the very least, tread water until the telecom storm clears.

If and when the dust settles, JDS Uniphase will be there to collect.

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