Anyone who thinks that a capital spending upsurge in telecommunications or data is nigh may want to look at JDS Uniphase's
The optical networking technology company turned in quarterly revenues at $161 million -- $4 million below last year's revenues for the same quarter, which, given the state of the economy and capital spending at the time, should not have been a difficult comparable period. Now, the news isn't all bad for JDS Uniphase, but I just look at the results and prospects and wonder how anyone could get excited.
The company's GAAP loss for the quarter narrowed to $7.3 million, or a penny per share, comparing favorably with a year-earlier net loss of $136.8 million, or $0.10 per share. JDS said its loss from operations narrowed to $36.9 million in the latest quarter from a loss of $115.2 million a year earlier. That's great, because losing $0.69 for every dollar of revenue coming in the front door is a disaster. Most of the gains came from a cut by 50% in administrative costs, from $70 million to $35 million. There's also a troubling sign in reduction of research & development expenditures, from $36 million a year ago down to $25 million in the last quarter. Actually, it's even worse than that, as I'll explain.
In the company's conference call (courtesy of CCBN), CFO Ron Foster noted that JDS Uniphase "began classifying certain engineering costs previously classified as costs of goods sold into research and development." Which means that the amount of true cuts in R&D is even larger than what is reflected in a straight comparison, as certain costs not added to last year's R&D number are reflected in the current one. It also means that gains in gross margin are overstated due to the removal of certain costs.
Why is this a big deal? Certainly JDS Uniphase, as a company that has been bleeding cash, needed to cut down expenses. But it operates in an industry extraordinarily dependent upon new product development, lest competitors in any part of its market, say, Avanex
In recent months, I've wondered why people were getting excited about any of the big companies dependent upon telecommunications capital. The double whammy at Nortel
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He owns none of the companies mentioned in this article. Could you tell?