Thanks for the SSB news.
From Dow Jones --- don't know why they say "finally," seems to me they've been striking gold all along.
interactive.wsj.com
January 10, 2000
Dow Jones Newswires
TALES OF THE TAPE: JDS Uniphase Finally Strikes Gold
By NICOLE RIDGWAY
NEW YORK -- After the value of JDS Uniphase Corp. (JDSU) stock multiplied more than eight times in 1999, there wouldn't seem to be much room to move higher. But some on Wall Street expect a lot more growth from the optical components maker.
Even after two 2-for-1 stock splits in six months, the stock recently traded at a lofty 193 - a far cry from a 52-week low of 14 13/16 set roughly a year ago. But instead of cutting their ratings because of the company's soaring share price, analysts are raising their price targets, or dropping them altogether, and telling investors to buy, buy, buy.
Used as building blocks for fiber-optic communications networks, JDS Uniphase's products are integral in expanding bandwidth, enabling the Internet to carry more traffic at higher speeds. This put the company in the spotlight over the last year as more and more Internet carriers recognized the need for increased capacity.
"It's a 20-year overnight success," joked Chairman and Chief Executive Kevin Kalkhoven. The 54-year-old executive will have plenty of reasons to keep smiling, according to analysts and fund managers. They said a combination of demand for enhanced Internet bandwidth, high barriers to entry in the optics field and JDS Uniphase's leading position in the passive and active optical-components market has positioned the company for sustained growth.
But does that justify the skyrocketing price of its shares?
"They're expensive," admitted CIBC World Markets analyst James Jungjohann. "They're always going to look expensive." But that won't keep him from extolling the company's virtues.
On Dec. 31, Jungjohann said, JDS Uniphase traded at 161 5/16 - 157 times his calendar 1999 earnings estimates of $1.03 a share and 103 times his 2000 view of $1.57.
Even at these valuations, he said, he would rather own that company than an unprofitable Internet concern.
Potential 'Intel Of The Optical World'
Jungjohann isn't alone. On Friday, Schroder & Co. upgraded its rating to outperform significantly from outperform. Earlier in the week, Soundview Technologies raised the shares to strong buy from buy, and Bunting Warburg recently increased its 12-month price target to $200 from $148.
The analysts say the rationale behind these endorsements is simple: JDS Uniphase is a growth story.
"About a year and a half, two years ago, we realized that this company had the potential to become literally the Intel of the optical world," said Huachen Chen, co-manager of the Dresdner RCM Global Technology fund - a diversified portfolio of about 70 companies that counts JDS Uniphase as its largest holding.
Indeed, JDS Uniphase has evolved into a leviathan of the optical components industry, with earnings expected to grow 50% to 100% next year.
Founded in 1979 as Uniphase Corp., the company initially made lasers used in supermarket scanners. As a result of acquisitions, as well as aggressive research and development and manufacturing strategies, its products are now used by large telecommunications carriers and cable equipment providers like Lucent Technologies Inc. (LU) and Nortel Networks Corp. (NT).
In July, Uniphase joined forces with passive optical components maker JDS Fitel of Nepean, Ontario. That union, Chen said, solidified the company's position at the top of the optical components market and helped send the stock heavenward.
The shares got another boost when - at JDS Uniphase's first annual meeting as a combined entity in December - Kalkhoven outlined plans to double manufacturing capacity by the end of 2000. This would allow the company to eventually meet its goal of doubling its annual revenue run rate to $2 billion, he said.
"Capacity expansion seems to be the name of the game," said Robertson Stephens analyst Arun Veerappan. "Anybody in the optical space that's able to make a product is able to sell it."
Wachovia Securities Inc. analyst George Hunt said optical components could grow to be a $21.3 billion market by 2003, up from about $5.5 billion in 1999.
Sparking that growth, he said, will be the emergence of "bandwidth-hungry" applications like cable modems, streaming video and digital subscriber lines that need the power provided by fiber optics to transport heavy data traffic. Add to that the continued popularity of the Internet, which has clogged most carrier networks, making it crucial for them to expand their bandwidth, he said.
Barriers To Entry Keep Competition At Bay
The extremely long and arduous process of developing, testing and launching optical components has kept a lot of potential competition from entering the market, Jungjohann said. Unlike the Internet, he said, this business has "true" entry barriers.
"There are very few people in the world that can make a laser that can sit a mile below the ocean floor and transmit thousands of Web pages," he said. Even if a company with the necessary financial backing wanted to enter the optics business, he said, it would still take about four years to bring a product onto the market.
Kalkhoven agreed that the optical components market isn't easy to enter. "This is not like an Internet company founded by 20-year-old guys that have suddenly made a fortune," he said. "There are many different ingredients in building tiny little devices that have to last forever."
JDS Uniphase's technology has been two decades in the making, and about four years ago - as optics technologies became more reliable and more cost efficient - everything "sort of came together," Kalkhoven said.
But it wasn't until technology, market demand and the company's stepped-up manufacturing capability converged that JDS Uniphase's stock took off. "Over the course of the last year we have generated a much broader base of investor interest and influence," Kalkhoven noted.
He characterized the company's plans for its third 2-for-1 stock split, set for March 10, as an effort to keep the share price in a range that new investors can afford.
While most individual investors would hardly find JDS Uniphase's stock affordable at current levels, Chen concluded that those with the money to buy should do so.
"There are many stocks in the market that by historical measures are very highly valued and JDSU is one of them, but as growth investors we also look at the probabilities of success in the long term," said Chen. "And it's virtually certain that if you go forward for a number of years, the revenues derived from optical components will be very large, and we like going with leaders."
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