You gotta love this:
"In this crowd, JDS Uniphase, with $588 million in annual sales,
looks like a relative steal. "
"And so long as demand for JDS' gear exceeds its supply, those acquisitions, should keep driving up this relentless stock. "
NEW YORK (Dow Jones)--JDS Uniphase (JDSU) stock just keeps going up and up with each merger the laser-equipment company announces. Thursday, CEO Kevin Kalkhoven told an audience of shareholders and reporters that its latest acquisition, Optical Coating Laboratory (OCLI), gave it the equipment it needed to start producing much higher
volumes of equipment for telecommunications networks. "This is how we go about ramping production," he said. And the stock, which has soared 400% so far this year, kept climbing as if in search of another peak.
The technology that makes JDS Uniphase so hot could make your eyes glaze over, but it lights up the imaginations of phone-equipment companies. Basically, the company is a hodgepodge of equipment outfits, all focused on ways to make laser beams carry information across networks. Investors love the company because this specialty makes it highly valuable to big telecom gear for their customers to help slake consumers' astonishing thirst for high-speed data and video over the Internet.
The company first made tracks in the market in May, when Canada's JDS Fitel, a design and manufacture specialist, agreed to merge with Silicon Valley's Uniphase, a laser maker. Since then, the stock has increased more than threefold, as the marketplace's hunger for optical gear became clearer. "Investors love an [equipment] shortage," notes
Kevin Slocum of Soundview Technology Group. As Slocum explains, JDS Uniphase enjoys the advantage of being a supplier in a business where demand is growing much faster than supply. And the most recent merger is all about increasing that supply.
Optical Coating makes filters, which jack up the capacity of equipment used in moving information across networks. Optical and JDS have engaged in a joint venture since 1997; now, Kalkhoven said in the conference call, they will fuse in a $2.8 billion merger in order to "grow rapidly in a tight product market." The combination will eliminate some costs and speed production, helping Kalkhoven keep his promise to double or triple the company's output in 2001. And what comes out should get snapped up as soon as it's out the door.
Analyst Jim Parmelee of Credit Suisse First Boston applauded the deal. In a note to clients this morning, he argued that JDS' "modules" appeal to huge companies that are outsourcing more of their optical materials as they try to serve their customers more quickly and streamline their own operations.
Since many of these companies are already JDS Uniphase customers, Parmelee wrote, they should make increasing use of its deep arsenal.
On that logic, analysts and investors didn't seem surprised to see JDS' stock climb yesterday following the merger announcement. Kevin Landis, manager of the Firsthand Technology Innovators (TIFQX) fund, saw the deal as another opportunity for investors to get in on the fiber-optics craze, which has given stock prices of over $200 to software maker Sycamore Networks (SCMR) and Juniper Networks (JNPR), which makes machines to send information at ultrahigh speeds - neither of which has more than $25 million in annual revenue. In this crowd, JDS Uniphase, with $588 million in annual sales, looks like a relative steal.
And, despite the CEO's remarks about being ready to intensify production, it also looks like a company hungry for more acquisitions. From here, says U.S.
Bancorp Piper Jaffray's Conrad Leifur, expect more acquisitions to make JDS' production system cheaper and faster. And so long as demand for JDS' gear exceeds its supply, those acquisitions, should keep driving up this relentless stock.
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