Hi Cary,
I'm hopeful their trough sales will come in around 300 million at the bottom quarter(this qtr or maybe last).Their last quarter was around that and they thought it would be the trough - now they think this might be the trough.So they're taking it day by day and seeing how the week/month/quarter accumulates.I do that every day - in the car business we have neither pricing power(do to huge incentives) nor a backlog to venture a forward vision on.
That doesn't mean we don't come to work - we just serve the market as it evolves.
Management says they need to pull another 50 million out of cost - I'm not sure that pulls away from sales.
I've been in many sales downturns (cyclical auto market).It's not easy to sell down an inventory when markets get soft.Sales slow, margins evaporate, and production stops - so fixed expenses just roll on.
When inventories get right sized , margins come back and sales rates get a nice boost at the same level of shipments(by the plus of the margin).If demand can pick up - then margins really expand as the fixed expenses get spread over a bigger pie.
I'm thinking the fire sale is getting over - maybe sooner than later.If that happens,and 300 million is the bottom demand - then add back the quite incredible margins these fiber assembly and lasers assembly shops have and just a low 33% margin gets you to 400 million.Add 10-15 % growth (certainly metro area networks are still going in this real estate boon) and you could get 450-475 million quarters.
So there's 2 Billion plus out in 03.The next step is just out of my league.With a drastically reduced operation what kind of money can JDSU do at 2.0 billion in sales rate with little or no inventory carrying costs assured for the rest of 02 and I think 03 as well. I just don't know - I do however know that it is powerful - once the leverage kicks in!!
All Mr Market needs to know is "the trough is over"and" the fixed costs have been cut to the bone" while "maintenance levels of production are in the current backlog".Then margins will not only come back but with any moderate sales expansion - margins explode.
When that story is understood AND assured - many on the sidelines will spit out their below 3% fixed rate instruments (at personal tax rates) and invest (hopefully for the long term) in moderate growth future leaders in technology that expand the broadband revolution and it capabilities/features.
At that point, supply and demand will drive the stock up 2-3 times. I've seen it happen too many times in too many sectors to suddenly think it goes away this cycle.
You and I have different methodologies.You link past numbers to future projections.I value that as a great guide also.I have more "faith" in the laws of supply and demand.
I believe that investor greed to get in on a niche leader at the bottom, prevents the previous repeat of past trough valuations to reoccur in a future time period.It has driven me nuts to pay the same price for Cohu at a trough price from the previous cycle trough (knowing it's had a 2 for 1 split)in between(really paying twice the past price).
I think the saving grace is buy leaders with cash and little debt in segments that "when healthy" yield excellent margins.
It's not very scientific,but with time it has saved me REGULARLY. I like to balance the potential of gain with the potential of loss.At 6 I'm ok with the buy and hold plan.
One could have purchased JDSU at these prices in October(when every one said we're going to 3 or sub 5 for the margin washout) and almost had a double in just January.
In October - 5.12 was the bottom supported by HUGE volume and strong buying. Today we're within a buck with a gain potential that well exceeds potential loss.
I see this economy as well into getting over the massive inventory sell off - the excess capacity/production gave us in 2000.
When Mr. Market says its finally over in telecom,we'll not be buying JDSU in single digits.The speed at which bankruptcies(Global Crossing,Mcleod) are occurring and the consolidations that result from that(which are an excellent timing signs), will once again give pricing power to the remaining ologopolies.
They'll be the survivors and they'll have positive cash flow.They'll also continue the buildout the next advanced internet networks that are already planned and known how to do(not to mention maintain the still expanding current network).
Our digital revolution ensures this evolution to continue - albeit at a slower pace than 2000.(this is just my vision of the future)
At 6 and change, I like the low risk for a long term homerun.If I get lucky enough to buy at 5 and change I'm planning to double up.Somewhere in 2003-05 I'll let you know when I'm buying my new boat and you and I will smoke expensive cigars ( I don't smoke but I'd light one and throw it away)and call ourselves crazy for not mortgaging our house when we could get JDSU for just six bucks.
Hey I'm no guru and I may be crazy.
I can't tell you why Amat's selling at 47 on flat sales for 02- but you know what - it got there by supply and demand.
Sooner or later the mob's psychology on JDSU will roll over to "the worst is over" also.I'm thinking it may be as soon as April.If not I'll be paying attention in July.
I know that doesn't put it in the terms you do so well - but that's just my bet.
Good to have your post to think it thru again.
Thanks
Bob
P.S. I bet it gets there before 3 billion occurs. |
