William i'm really glad to see this come true from earlier reports i've read the optical switching market will be huge.
Prudential's new report on JDSU:
EQUITY RESEARCH
JDS UNIPHASE
APRIL 5, 2000
JDSU: ACQUIRES CRONOS INTEGRATED MICROSYSTEMS FOR $750 MM IN
STOCK;
CRONOS? MEMS TECHNOLOGY FILLS IN A KEY PRODUCT GAP AT JDSU
Subject: JDS Uniphase (JDSU?$107)-OTC
TELECOMMUNICATIONS EQUIPMENT
COM EPS INI OPINION
Current: Strong Buy/SBI
Analysts: John H. Butler (212) 778-1488 Prior:
Nancy H. Wu, CFA (212) 778-8929 Risk: High
12-Month Target Price: $188
Ind. Div.: $0.00 Yield: NM Shares: 750.0 mil. 52-Wk.Range: $153-$12
EPS FY Year P/E 1Q 2Q 3Q 4Q
Actual 06/99 $ 0.17 629.4X $ 0.03 $ 0.04 $ 0.04 $ 0.06
Current 06/00 $ 0.37E 289.1X $ 0.08A $ 0.09A $ 0.10E $ 0.11E
Current 06/01 $ 0.55E 194.5X $ 0.12E $ 0.13E $ 0.15E $ 0.16E
Yesterday morning, JDSU announced that it entered into a definitive agreement
to acquire privately-held Cronos Integrated Microsystems for $750 MM in stock.
With an annual revenue run rate of approximately $10 MM, Cronos is a
relatively small acquisition for JDSU but a strategically important deal. The
acquisition of Cronos fills in a key hole in JDSU?s product portfolio with the
addition of MEMS-based optical switching products. In our view, the market
for optical switches is in the very early stages of emerging and so, this deal
is particularly timely for JDSU. Management hosted a conference call
yesterday morning to review the details of the acquisition.
This transaction fills in a key gap in JDSU?s product line. Cronos is a
leading manufacturer of MEMS (micro-electro-mechanical systems) devices,
which
are mechanically-controlled microstructures used to switch, cross-connect,
add
and drop wavelengths entirely in the optical realm. Importantly, MEMS
technology can be incorporated into a broad range of optical modules including
optical switches, attentuators, gain equalizers, dispersion compensators and
programmable add/drop modules. Despite this broad range of potential
applications, we believe that JDSU is most interested in using Cronos? MEMS
technology in the development of optical switching products. Currently,
JDSU?s switching products include polymer- and opto-mechanical-based
switches
and until this deal was announced, JDSU lacked a MEMS-based optical
switching
solution.
We believe that MEMS is beginning to gain broad acceptance as the technology
of choice for optical switch developers. Relative to other optical switching
technologies, MEMS scales well which is a key advantage of this new
technology. As a result, MEMS devices are now being used in the design of
large switch matrices, which are used in large systems designed to manage
traffic in the network core. Going forward, we believe that MEMS technology
will figure heavily in the design of optical switches and cross-connects.
According to market researchers, the market for MEMS devices at the
component
level could grow to a $1 billion market opportunity by 2003. For our part, we
believe that the market for optical switching systems will grow to a $5
billion market by 2003.
We are leaving our fiscal 2000 and 2001 estimates unchanged. While Cronos is
currently shipping product, the market for MEMS technology is still in the
early stages of emerging. As a result, we expect this transaction to be only
mildly dilutive to our fiscal 2000 EPS estimate by less than a penny. Having
said this, we are maintaining our FY00 estimate of $0.37 on $1.3 billion in
sales, as we believe that any dilution from this deal is likely to be off-set
by continued strength in JDSU?s core business. We are also maintaining our
fiscal 2001 estimate of $0.55 on $2.2 billion in sales.
On the conference call, JDSU?s management also provided an update on the
status of its pending merger with E-TEK Dyanmics. On April 2, JDSU announced
that the Department of Justice (DOJ) requested additional information from
JDSU for its pending acquisition of E-TEK. Despite this second request, JDSU
continues to maintain that this deal will close in June or July of this year. While
it is difficult to predict the DOJ?s ultimate decision regarding this
proposed merger, we believe that if the DOJ includes captive suppliers (i.e.,
Nortel, Lucent, Alcatel and others) in its definition of the optical
components market, than this deal stands a good chance of getting approved.
In summary, we view the acquisition of Cronos as a strong addition to JDSU?s
growing product portfolio. In the long run, we believe that MEMS technology
will emerge as a key enabling technology for true optical switches. As a
result, the addition of Cronos should significantly enhance JDSU?s efforts to
develop products for this new emerging product market. Additionally, this
merger is consistent with JDSU?s strategy to broaden its product portfolio,
enhance its modules production capability and add to its overall manufacturing
capacity. As a result, we continue to rate the shares of JDSU Strong Buy with
a 12-month target of $188. |
