Business is booming -- quietly
JDS Fitel is flourishing, but don't expect
to hear it from the company. Bert Hill
reports.
ottawacitizen.com
Bert Hill
The Ottawa Citizen
Quietly, with a minimum
of fanfare, JDS Fitel Inc.
is building a world-class
telecommunications giant
in Nepean. Just don't tell
anyone.
At a recent annual
shareholders meeting, the
company finally unveiled
a scale model of its new
$100-million campus of
more than 900,000
square feet near the
Rideau River at the
southern end of Merivale
Road.
When completed in the
next decade, the campus
could house 5,000
employees --Êabout
triple JDS's current
workforce of 1,800.
The size of the project is
indicative of JDS Fitel's
belief it can keep growing
-- and growing fast --
well into the 21st century.
That fact the company
unveiled its model now, a
full year after construction
began, is also indicative
-- of a company that shuns the spotlight, that pursues its goals quietly,
secretly even.
Not that progress is invisible. Construction is virtually complete on the
first two phases of the campus, and hundreds of manufacturing and
marketing people will start moving in next month.
But while other companies hire public relations companies to draw
attention to construction plans and growth potential, JDS Fitel is content
to work in anonymity. While other companies churn out news releases
daily to impress investors and analysts, JDS says virtually nothing.
Thus, in typically coy fashion, it says plans for Phase 3, another
200,000-square-foot addition, are still under review -- even though the
addition has been approved by Nepean Council and construction could
begin almost immediately.
JDS Fitel's "stealth" public relations style is almost certainly a function of
the company's intensely private and idiosyncratic chief executive, Jozef
Straus.
At the company's annual meeting this fall, the Czech-born Mr. Straus
joked with happy shareholders, dispensed chocolates and wind-up
plastic toys, and fielded the kind of softball questions that only successful
CEOs get --Êall to the accompaniment of Viennese waltz music.
He also handed out versions of his trademark black wool beret.
Finding out what is going on under Mr. Straus's beret, however, is
another question.
Not that he is rude or off-putting, it's just that, like actor Greta Garbo,
he wants to be left alone.
Still, it's hard to argue with success, or to exaggerate the prospects of
the company. While other local companies stumbled (such as Corel
Corp.) or are marking time (Newbridge Networks Corp.), JDS moves
from strength to strength.
In the last 12 months, sales rose 98 per cent, profits jumped 112 per
cent, and the number of employees jumped 50 per cent to reach 1,800.
The company employs more than 300 engineers and scientists and has
manufacturing, research and sales operations scattered through enough
buildings to fill the World Exchange Plaza.
Early this year JDS stock plunged 10 per cent after the company said it
was encountering increased competition. But red-faced analysts then
spent most of the year bumping up earnings estimates by 100 per cent to
try to keep up with the JDS revenue train.
In two new reports, Merrill Lynch and CIBC Wood Gundy analysts
predicted that revenues and profits of the company will grow by 35 to
45 per cent this year.
That might seem extraordinary, except that the company has been
growing at a 65 per cent average rate since 1994.
CIBC noted that JDS revenues grew at rates more than five times those
of Nortel, Lucent Technologies Inc. and Siemens AG last year. Even
mighty Cisco Systems Inc., the networking giant that Nortel and Lucent
are chasing, saw its revenues grow at only about 35 per cent of the JDS
pace.
Mind you, JDS still has a way to go to make it into the big leagues. Even
with sales of $200 million last year, it had less than one per cent of
Nortel sales, and 16 per cent of Newbridge sales.
But investors love JDS and have bid up the market value of the stock to
four per cent of Nortel's and 31 per cent of Newbridge's.
While other companies run up debts to finance growth, JDS has no debt
and is building its new campus through profits and share sales.
The only sour note in all this growth was a bid to organize a union among
JDS Fitel employees earlier this year. Some production employees were
unhappy with pay and benefits at a company with a gross profit margin
of an eye-popping 52 per cent.
But the campaign appears to have fizzled out.
The key to JDS Fitel's growth is its critical market position in an
environment of exploding demand for telecommunications services
created by the Internet, falling telephone rates, faxes, videoconferencing
and a host of other services.
"The entire telecommunications industry is growing like a fast-spinning
vortex driven by the need for more bandwidth at lower costs and greater
flexibility," Mr. Straus said.
The bandwidth issue is critical for phone companies because moving all
this extra traffic is a bit like trying to shove a basketball through a garden
hose. Laying new telephone lines is extremely expensive.
JDS makes equipment that slices and dices the ball into tiny streams and
push it along faster. In particular, JDS leads the market in wavelength
division multiplexers, a 15-year-old technology that now puts 16 tiny
telecommunication streams -- and soon could put 80 streams -- on a
single fibre optic strand.
The North American demand for this product is expected to jump from
$1.6 billion U.S. in 1997 to $4.4 billion in 2001, according to a study by
Ryan Hankin and Kent.
Still, it is possible for companies in this industry to fail. Major telephone
equipment makers such as Alcatel and Nortel have suffered major
pratfalls when market demand slowed in some parts of the world.
And hot-shot fibre optic component makers like Ciena Inc. of Maryland
went from issuing the biggest IPO in corporate history to becoming
takeover bait in a matter of a couple of years.
JDS, so far, appears invulnerable to these trends.
"We make the bits and pieces that everybody needs, and because we
are at the lower end of the food chain of carriers and systems designers,
we are less vulnerable," Mr. Straus said.
"We sell to everybody, so we can always find a customer even if some
of our clients are having problems."
JDS Fitel also has limited exposure to the problems in Asia. Its sales to
the region, as a percentage of the company's total sales, fell from seven
per cent last year to five per cent in the first quarter of this year. For
Europe, sales dropped from 15 per cent to 14 per cent.
While sales to these regions continue to grow strongly, they pale
compared with sales in the U.S., which now account for 78 per cent of
the company's total revenues. |
