Few companies that survived the bursting bubble were hurt worse than JDSUniphase (NASDAQ:JDSU). JDS positioned itself at the center of the late '90s bubble by making a lot of the nuts and bolts that power communications networks. As a result, during the last four years, JDS has had a very rough ride: its shares have lost around 99% of their peak value.
The third-quarter results JDS reported last Wednesday reflect the problems that still plague many technology sectors. JDS reported sales of $166.3 million, down 7.9% sequentially, but up 3% from the same period a year ago. Gross margins dropped to 14.9% from 16.5% in the second quarter and 25% a year ago. Management blamed the decrease in gross margins on price declines (too much competition and too much capacity) and on selling a larger amount of low-margin equipment.
The sales level and the gross margins, when stirred together, produced a net loss of $38.6 million, or three cents per share. As a result, shares of JDS fell by about 10% last Thursday.
In response, JDS is planning to cut more jobs. Over the past four years, JDS has shrunk from 29,000 employees to around 6,000 now, so cutting jobs is an old habit. It also plans to exit some low-margin businesses and outsource some of its manufacturing to contractors.
On the positive side, its balance sheet has $1.38 billion in cash and short-term investments, with $467 million in debt. This gives JDS a net cash position (cash minus debt) of about $900 million, which should be enough to last the company five years or so unless business really collapses.
Even after the steep drop in the share price this year, this stock isn't cheap enough that I would buy it. I'd probably step up if the price falls to $1 per share. At that level, the balance sheet should support the stock and limit the downside while I wait for the business to turn around. If the price doesn't fall that far, I'm happy to watch from the sidelines for now, given the risks that this business faces.
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Fool contributor Dan Bloom doesn't own shares of any stock mentioned in this article.
