JDSU...Are we sure it's not Big and Hairy?
From the JDSU thread...
"Off MF:
BARRIERS TO ENTRY (OR, WHY JDSU WILL WIN)
A. Patents
JDSU owns or exclusively licenses at least 470 patents relating to optoelectronics and photonics. (Uniphase was
reported to hold or license 421 patents, and an online search revealed at least 49 patents held by JDS Fitel.) I
have not gone through any of these patents, but some reports indicate that a number of these are ground-breaking,
particularly in the area of fiber Bragg gratings.
B. Top-notch Staff
There are a limited number of scientists who can perform the research, development and manufacturing necessary
to compete in this field. An enormous number of these scientists work at JDSU - the reports indicate that
Uniphase had 116 optical scientists before the JDS Fitel merger. JDSU's continued success relies on keeping
those employees happy, but given the company's cutting-edge work, its dominance in the industry, and its stock
performance, that probably is not a problem right now.
I don't know how many top-notch optics labs exist out there, but a potential competitor would have to get its
scientists from somewhere. This would be difficult now, but it will get even harder as JDSU implements its
announced plans to expand through further acquisitions. JDSU has not only shown a willingness to move fast, but
also, like many of the internet companies today, it has the power of a high-flying stock to use as currency for
acquisitions.
C. Technological Barriers
Virtually every technology or internet company claims the difficulty of duplicating its technology as a barrier to
entry. Much of the time, this is complete BS, but in the case of JDSU, it is truly an enormous barrier to entry.
Even ignoring JDSU's patents, the logistical and technological challenges of making these components is
overwhelming. Active components such as lasers are created in reactors by precisely flowing layer after
microscopic layer of gas over a semiconductor wafer, precisely chopping the wafer into thousands of individual
pieces, processing each piece to form a laser, and then packaging and testing each one individually. Although it
requires great scientific knowledge, it also requires an almost artistic "touch" which comes only from experience -
my former clients at Xerox PARC compared it to alchemy.
Even making these components would be a huge challenge for any new competitor. Manufacturing the
components with enough reliability and volume to challenge JDSU would be a far greater feat. Many of these
components are required to perform for 100 years without failure, which is an incredibly difficult engineering feat.
(Try and think of any electronic component you know of that could run continually for 100 years without failing.
It's hard.) Producing them in bulk is even harder.
As an example, one analyst report indicates that JDSU is the only qualified supplier of 980 nm pump lasers and
submarine qualified fiber Bragg gratings. (During the recent conference call, CEO did not remember for sure
whether JDSU was still the only one.)
D. Size
JDSU is more than twice the size of any of its competitors. This presents a number of strategic advantages. First, it
has the ability to make the enormous capital expenditures necessary to keep up with demand in the industry.
JDSU will be spending millions of dollars to expand its capacity across its entire product line. Competitors such as
SDL are selling all they can make, but do not have the financial capability to ramp operations to the extent that
JDSU does.
Second, JDSU's sizes gives it the ability to offer an incredibly broad product line that no one can match in the
industry. This allows its customers the convenience of one-stop shopping. It also allows it to accommodate its
customers by, for example, keeping large inventories of products at the customer's site on a consignment basis; a
smaller operation would have neither the manfacturing capacity nor the cash flow to allow this.
Furthermore, as JDSU's product line becomes more and more complete, it is able to vertically integrate upwards,
offering more and more complete modules to its customers. For example, JDSU is beginning to sell completed
EDFA modules, rather than just pump lasers, to its customers. JDSU is also designing other modules, such as
configurable multiplexers, switching modules, wavelength lockers; and dynamic add-drops, generally working with
the customer to custom-design a solution. No competitor appears big enough to do this on any kind of scale."
Gorilla? Maybe?
As always, Good Luck to all
snooz |
