As you probably know, the stock market is a "discounting mechanism". Stocks do not trade on trailing earnings per share or trailing revenue. They trade on projections. If an investor waits to purchase the stock until future projections have become a reality, then the stock price at that time will fully reflect those improvements. In the last month or so there have been three upgrades of JDSU. You know, "discounting mechanism"...:-)
Next, as you also probably know almost all CEOs are very well compensated. The price they pay for failure, in most cases, is losing their job, not reduced compensation. But, if it is any consolation to you, some of Kennedy's restricted stock award is based on meeting specific milestones.
Kennedy came to JDSU after serving as OpenWave's COO for two years. (Prior to that he was in top management at Cisco for 16 years and before that, Bell Labs.) OpenWave brought him in to help in their "turnaround" which was very successful. From a low of $.43 about a year after he got there, the stock went up to over $4 during his tenure. Though the stock did sell off for the next two days after it was announced he was leaving OpenWave to head JDSU. Apparently investors saw it as a "loss"...:-)
Next, I think you may be misinterpreting the word "reinvention". Reinvention happens when something is completely changed. If a company sells off a lot of it's old product line and diversifies into a different market, then they have already "reinvented" themselves. That will occur with the closing of the Acterna acquisition, which is scheduled for next month. At that point, JDSU will be positioned as a small version of Agilent...with a very different business model from the one they have had in the past.
As far as the number of shares outstanding are concerned, as investors who follow JDSU already know, Kennedy has been quite upfront about their intention to reverse split the stock when they are at, or within one quarter of profitability. He has even made it clear they will likely ask for shareholder approval at a regular shareholder meeting in order to avoid the $2 million cost of a separate mailing. I would assume that means investors can expect to be asked for approval during this November's annual meeting and that the actual split will be done when they have ascertained profitability is certain. So your point about 1.5 billion shares is likely moot. Though I don't think it was relevant in any case as market cap is a market determinant, not number of shares.
As to profitability, apparently I was not clear enough when I stated the "numbers". In the last quarter JDSU had a non-GAAP negative EBITDA of about $20 million. Their already announced massive restructuring program, alone, is projected by Kennedy to "conservatively speaking, lower costs by at least $20 million per quarter when it is fully in place." ($4 million in Sept. qtr...$8 million in Dec. qtr....$16 million in Mar. 06 qtr....full $20 million in June, 06 qtr.)
Kennedy has also stated that they have more closures (duplicate clean rooms and North American assembly facilities) to announce which will further reduce costs.
So, already announced cost reduction alone is expected to lead to at least break even non-GAAP EBITDA. Kennedy has also told the Street to expect between $10-$14 million positive EBITDA contribution from Acterna and LightWave (recently closed acquisition.)
Last, but not least...:-) you wrote, "Why not wait until there are real signs that revenue can grow to $1 a share or, better yet, until it actually gets there, profitably?"
In October 2002, I purchased GLW at $1.97 per share. GLW was losing money hand over fist and many were speculating that with their heavy debt, they were likely to go bankrupt...a ridiculous expectation considering GLW's many diverse (and saleable) business units. But, unfortunately, very few investors actually research their investments. Because GLW had been so disappointing for so long for so many investors, apparently it was difficult for many to look past the past, do the research necessary and try to objectively assess the future. Those, such as myself, who were able to do that, profited handsomely....today GLW is over $16 per share. Had I waited to purchase it until it was profitable as you suggest, my gain would have been miniscule...:-) (Even today GLW is not cash-flow positive.)
It is too soon to know how successful JDSU's new incarnation will be. But, in my opinion, it is not too soon to know that the company is quite likely to be profitable within the next 3 quarters. When that is understood by the Street and by investors, JDSU will be considered a "turnaround story". With very limited downside potential and good potential for at least a double over the next year or so, I consider JDSU to be a very good investment.
You and I will just have to agree to disagree....:-)
Cathi |
